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Orion Health IPO? McCrae confirms talks with brokers

Orion Health CEO Ian McCrae has confirmed to NBR that his company is in talks with First NZ Capital and Deutsche Craigs over a possible IPO.

The CEO, cofounder and director has publicly mulled the possibility of listing for more than a year.

It's a decision for the board, he's previously told NBR — but given he holds 59% of the shares, Mr McCrae is obviously going to have a big say in the weeks and months ahead (the second largest holder is Pioneer Capital on 9.64%).

Orion, which makes software for healthcare providers, was in the news Friday after signing a deal with the Waitemata District Health Board. That was a good thing, but the real action for Orion is in the huge US market, where it has landed several US states as Obama Whitehouse initiatives see more spending and, more importantly, a drive for private healthcare providers to share records with each other at the state level (see NBR's backgrounder on Orion's North American push here).

Mr McCrae says the Obama healthcare reforms are now so bedded in there will be no going back.

But even if you take that as read, my it would be bad psychology for Orion to IPO as the Obama era winds down. The next US presidential election will be in November 2016, but the frenzy of speculation on who will succeed him will be in full force my mid-way through next year. I see pressure to get Orion listed ahead of that.

If Orion does list, investors will be licking their lips.

Already, a market cap of $500 million is being bandied about. 

There's little hard financial data about Orion, but last year the Callaghan Innovation/NZTE-backed TIN100 estimated its FY2013 revenue had jumped 22% to $122 million.

Director Andrew Ferrier told NBR last year that the company was profitable most quarters.

When you consider that Orion is blazing a trail in terms of cloud-based healthcare management, where so far only a tiny number of healthcare providers have moved to fully integrated electronic records; and that it has more revenue than Xero but is profitable, it's easy to see a market cap north of half a billion.

It'll be easily the biggest event in a big year for tech IPOs.

But will it happen. Auckland-based Orion has already been able to grow to 700+ staff (or a Xero size) organically, through cash flow.

My feeling is that Mr McCrae would like to grow faster, but he also loves his baby, and holding it close. I get the sense he likes to be in control and, to a degree, being able to dictate the pace of growth.

But talking to Mr Ferrier last year, I noticed he suddenly stood a quarter inch taller when the words "NZX" and "IPO" were mentioned. My unscientific observation is that he and other directors are keen to list. And of course when he was CEO of Fonterra, one of his main missions was to push farmers toward a float (Mr Ferrier earned more than $40 million during his eight years as head of Fonterra, including an $8.2 million golden handshake. As well as sitting on the board of Orion, his investment company Canz Capital holds a small stake).

It's worth noting that Mr McCrae said he's constantly fielding buy-out offers. My strong sense is that he wants Orion to remain and NZ-based and NZ-controlled company. But there's also the possibility that the company's next capital raising step could be a major US private equity player taking a minority stake.

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Comments and questions

Doesn't this tell us something about the (crazy) value of other software/cloud companies? Here we have a company with robust clients, infrastructure, revenue of (lets say) 120M, and god forbid, profitable.

Yet for this business everyone is only talking a market cap of 500M? (which in my book is still great), but that's less than 5 times revenue...? vs Pushpay and GeoOp at say 50-70 times?

If no-one likes the end mkt cap of saying Orion is therefore worth 5-7 Billion, how about everyone takes a look at the fundamentals and multipliers being used in this market....

Not revenue.

Orion has the unfortunate case of being profitable. meaning it can actually be judged on the profitability its business model is able to generate - rather than blue sky estimates.

Not that the tech press in NZ would ever pick up on this.

Let's hope this goes better for Pioneer than some of its other exits in the last 12 months. Their funding-raising efforts have been centred around their Orion investment for many years...


Easier to raise funds on unrealised returns than it is to on realised returns.

The start-up / tech boom is over, and so is that business model.


Doubt they mind. Went to their annual meeting recently. Pretty exclusive crowd representing around $50B I reckon. Seemed pretty pumped about performance (realised and unrealised) ... materially better than equities.

Entrenched fund managers too sensible to pay large multiples for boring old companies.

Much easier to employ 20-30 something fund managers, get them to pay cray multiples for tech companies (which are oh so hard to value), keep the admin fees on nz assets under management (rather than god forbid invest it offshore in reasonably priced companies but pay for overseas managers) then have scapegoats (20-30 something fund managers) when the whole thing crashes to earth. Mind you, the 20-30 something fund managers will have made a tidy sum and will go off and become retail brokers then.

Same thing happenned in 87, same thing will happen again.

Should be a popular IPO - just need to watch the pricing to ensure it is fair and isn't just filling up fund managers buckets.

McCrae is a notorious control freak - and has resisted an IPO for many years to avoid losing his control of the company. Once can only assume that to get him over this point he will be taking a significant sum of money off the table?

But if that happens, will investors be happy that he will probably never need to work again?

Price on earnings, earnings, earnings. NOT a multiple of revenue.

If you are growing fast, list on a high multiple of earnings, inline with listed peers (the same size and profile) growing equally as fast.

Do not try to list on a multiple of revenue. Remember, your earnings arent worth more just because you are tech than anyone else's.

From: a large institutional investor.

What if you are growing 10x faster than your peers (and they are all valued on revenue multiples by the best investors in the world) and 100x faster than old economy dying industries (oh with predictable earnings)?

All levels of growth rates can be taken into consideration using traditional valuation methodologies without having to resort to revenue multiples - which is the domain of simpleton wannabe investors. For companies like Orion with measurable profitability and measurable growth - much like many many many of its peers and direct competitors - it's possible to look at the relative price to earnings when taking into account growth - ie how much P/E per unit of growth.

At the end of the day Orion and most if not all NZ tech companies are not special / ground breaking - they do what all fast growing tech companies around the world are doing. But there is a certain back slapping culture among local tech start-ups and self indulgent tech reporters that foster the belief otherwise and it is all crumbling down around them as they speak.

Problem is that investors and analysts in much larger and more sophisticated markets use revenue multiples, particularly in fast growing sectors where pace of customer acquisition (aka the land grab) is valuable. Agree, most NZ tech companies are not special and wouldn't get their backs slapped outside NZ, though Orion probably gets its back slapped all the time in major markets. Maybe Nasdaq would be better?

No they dont - you really don't know what you are talking about.

People have gotten carried away everywhere. Particularly on the NASDAQ but what happened share prices for tech came back about 35-40% over the last 6 months. The days you dream about are no longer.