Omnicell Completes MTS Acquisition

In a bid to strengthen its foothold in the international market, Omnicell, Inc. (OMCL - Analyst Report), a leading developer and marketer of end-to-end automation solutions for the medication-use process, recently completed the acquisition of MTS Medication Technologies, Inc., a global medication adherence packaging systems provider.

Following the acquisition, MTS Medication will operate as a wholly-owned subsidiary of Omnicell but with the same brand name.

Earlier on May 2, 2012, Omnicell entered into this deal with an offer price of $156 million in cash, subject to certain adjustments. Omnicell exited the first quarter 2012 with cash, cash equivalents and short-term investments of $209.5 million compared with $199.8 million at the end of December 2011. The transaction is expected to be accretive in 2012 and boost the bottom line in fiscal 2013 by roughly 15 -17 cents per share.

The MTS Medication products are mostly used by the institutional clients to supply long-term care and non-acute care facilities with medication packages to follow the prescriptions. Currently, the company serves for 6,000 pharmacies across the world providing automated packaging systems for international epidemic.

This critical problem of medication non-adherence remains at an alarming note as the current data shows that it costs up to $290 billion annually and is the cause of death for approximately 125,000 people a year. According to the Centers for Medicare and Medicaid Services (CMS), 11% of all hospital admissions are related to this issue.

Omnicell remains optimistic regarding the acquisition of MTS as it will enable the company to access MTS’ automated medication adherence packaging equipment and consumables. This will allow the company to offer a complete automated medication management system across the acute and non-acute range of patient care.

Omnicell strongly believes that together with MTS, it will emerge as a market leader for medication management solutions across the broad range of health care beyond the acute care setting. The company also expects this to deliver superior results while lowering costs considerably.

Outside the U.S., the healthcare providers are becoming increasingly aware of the benefits of automation. Many governmental and private entities are aware of the progress made over the last several years in the U.S. and are starting to invest significantly in information technology and automation.

Given the fact that the international market is less than 1% penetrated with very few hospitals adopting medication control systems, Omnicell aims to derive a significant portion of its revenues from international operations in the longer term.

To achieve this, the company is aiming to expand its international footprint through various strategies. Following its entry in China last year and the launch of Mandarin-language versions of G4 platform, the company encouragingly reported initial sales in China in the last quarter. Additionally, Omnicell announced a partnership with China resources Beijing Pharmaceutical for distributing its automated medication dispensing systems in China.

Moreover, in January 2012, Omnicell launched its G4 platform in the Middle East. Considering the rising investment in information technology (IT) by healthcare providers and taking into account the huge untapped market for automated healthcare management systems in China, we expect Omnicell’s entry into the Chinese and Middle East markets to further enhance the company’s international endeavor going forward. Moreover, we think that the company’s acquisition of MTS Medication will be beneficial to this strategy.

However, several macroeconomic uncertainties as well as intense competition from major players such as CareFusion Corporation ((CFN - Snapshot Report) and McKesson Automation (MCK - Analyst Report) remain concerns. Currently, Omnicell retains a short-term Zacks #2 Rank (Buy). Over the long term we are Neutral on the stock.