Rumours that ICL Plc is offering its autonomous health systems division, ICL Medical Portfolio, for sale for ú20m, has had others in the business questioning its sanity and ICL gritting its corporate teeth. A spokesman for ICL, which claims 13% of the UK market and is one the top suppliers to the health service market in the UK, told Computergram: The story is completely false. It is a rumour and it is untrue. There are plenty of reasons why information concerning the worth of a company should be sought, not necessarily connected with a takeover. We are not happy with the source of this story. The veracity of the tale rests upon these foundations: that Regent Associates, an acquisitions consultancy based in Staines, Middlesex, has been appointed to circulate details of the division to potential customers; that ICL was getting out because of the collapse of the UK National Health Service market under the weight of onerous procurement rules, in particular, those set by Her Majesty’s Treasury under the Private Finance Initiative. ICL’s only reply in print was that it was constantly reviewing the benefits of partnering, where dealing with a particular partner will benefit ICL’s customers. However, Regent Associates is not just an acquisitions consultancy. It also handles strategic business alliances and fund-raising within the information technology sector. The smart money seems to be on the former.
Extricating
Just as Digital Equipment UK Ltd has decided to market through software partners, ICL could be thinking of an alliance or joint venture of some sort. Oracle UK Ltd was said to have been one of the firms that had turned down an offer to buy ICL Medical Portfolio. Oracle spokesman Michael Spring said it was very unlikely that Oracle would have been approached or would even consider such a proposal. Everyone knows that we are in the process of extricating ourselves from vertical niche markets. It’s not something I have heard in the company, there’s nothing in it. He also denied that the health systems market was any worse than any other public sector market but said that Oracle had to meet the challenge of growth and was returning on a global scale to what it perceived as its core business. We want to work with partners to build applications on top of our products. We don’t want endless involvement in peripheral markets, especially if other people are doing it better, he said. There is no evidence that ICL or DEC see the Health Service market as peripheral. However, general opinion among industry players is that it would not be an illogical step for ICL to abandon its software presence since proprietary software was cumbersome to maintain and develop whereas open systems led the way to cheaper, more efficient, systems. DEC emphasised that by choosing to market through software partners it was not pulling out of the business. Guy Tarring, its sector marketing director, said: I can assure you we haven’t. We would be mad to do so. It doesn’t make business sense. The Health Service market is a very important market for Digital with total expenditure of ú330m growing to ú400m by 1999, which is an average growth rate for an IT market. It’s growing but not fantastically. As far as the Treasury procedures involved were concerned Tarring said it was something the players in the market were taking on board. McDonnell Information Systems Plc is the other top supplier in the Health Service market with its public sector (health, local government and the police) turnover for 1994 topping ú86m from total revenues of ú149m.
By Denise Danks
The health sector is the largest contributor to public sector revenues. It registered more than mild surprise that ICL might be as perverse as to get out of the market. However, it admitted that lengthy complex procedures were expensive for health authorities and its suppliers in that even after a bidder knew it had a decision from a customer it might take months to get contracts signed. This, said, McDonnell, adds to the costs of both sides. How
ever, it pointed out that these onerous procedures affected other public sector markets, such as local government, too, adding that the Health Service market with the new autonomous Trusts was a potentially immense sector and if a company could exploit the UK market, there was the opportunity then to reap the benefit of overseas sales. The Private Finance Initiative was launched by ex-Conservative minister Norman Lamont, the then Chancellor, in 1992 with the idea of encouraging private sector involvement in public sector areas. As a result, within the Health Service, financial decision-making and project approval was delegated to new National Health Trust Hospitals to give them flexibility in dealing with capital spending and encouraging them to set up joint ventures with the private sector in order to fund projects. The basic benefit, apart from saving central government money, was that it reduced the need for central involvement in small local projects. If information technology investment exceeds ú1m, the Trust must refer it to the Health Service Executive and then to the Treasury. The turnaround is estimated to be in the region of 10 weeks. An example of how the system works is ICL’s own deal with Sandwell Healthcare NHS Trust in the West Midlands, which because it was over ú1m had to be referred in order to show it had satisfied the objectives of the Private Finance Initiative. The original deal was for ú1m over seven years but it was rejected by the Treasury because under the original contract, Sandwell was purchasing the lot and there was no private sector involvement. The contract was redrawn so that the customer invested 90% and ICL 10%. The deal went ahead. The Private Finance Initiative now includes a stipulation that a Trust should also consider facilities management options. With regard to the latter, ICL said that however HM Treasury decides to define the Private Finance Initiative, ICL is flexible enough to work with it, it has to date. There is no doubt that the Health Service market is a highly fragmented, immature and closed one in which a lot of suppliers are chasing not very much business. It is not a truly free market in which market forces sort the wheat from the chaff, but one in which the government intervenes with advice, guidance and rules. Any business looking for opportunities has its enthusiasm sapped by start-stop projects. There is a problem with planning product development too. For example, one year there may be a surplus of money for resource management projects that companies follow like seagulls after a trawler. However, that funding may disappear the following year and the bottom falls out of the market. However, if the Private Finance Initiative continues to deter suppliers from investing in computers with the Trusts, the latters’ options will be cut and with no private sector assistance with capital investment, the Trusts will have to turn more and more to facilities management as an economic solution. ICL Medical Portfolio has a 25-year history in this sector in which it currently positions itself as a systems integrator and is on the record as stating it is looking forward to another 25 years in the business. It has invested ú7m developing products for the market.
Trusted
Other parts of ICL’s business sell into the market too, including CFM, its facilities management division. ICL Medical Portfolio’s stated strategic intent includes the following: an increased focus on core business areas, in particular, enterprise-wide hospital management systems; the migration of its product portfolio into an open system with client-server architecture; a strengthening of its position as a neutral hardware vendor by developing alliances and partnerships with other suppliers operating in the Health Service market. If ICL is to be believed and the market intelligence to be trusted, then the company is probably looking for a strong partner or joint venture in this business, not to bale out. However, the pressure from the company and from other major suppliers – pace facilities
management companies – is on HM Treasury to make the Private Finance Initiative work more efficiently for both the Trusts and for their private sector partners.
