Lexmark International (NYSE:LXK) recently announced the acquisition of PACSGEAR for a cash purchase price of approximately $54 million. PACSGEAR is a leading provider of connectivity solutions, which integrates medical images with existing picture archiving and communication systems (PACS) and electronic medical records (EMR) systems.  Post the completion of acquisition, PACSGEAR will report into Perceptive Software.
With this acquisition, Perceptive Software is now positioned to cater to the growing EMR market that witnessed 15% y-o-y growth in 2012, to clock in over $20 billion in revenues.  In this article, we will discuss the ERM market and also explore the importance of Perceptive software division and why this acquisition is strategically important for Lexmark.
The U.S. EMR Market
The U.S. EMR market is growing rapidly. According to reportlinker.com, the market is slated to grow at a CAGR of nearly 15% during 2013-2017.  This translates into revenues close to $40 billion by 2017, based on the 2012 figures that Kalorama Information reported.  The primary factor fueling this growth in EMR market is the mandatory implementation of EMR/EHR system. The Centers for Medicare and Medicaid Services (CMS) require that patient records for Medicare beneficiaries be retained for a period of 5 years. The cost associated with storing and transferring paper-based record is significantly higher compared to that of digital records. The Health Information Technology for Economic and Clinical Health (HITECH) Act, enacted as part of the American Recovery and Reinvestment Act of 2009, mandated the use of EMR by 2015 to reduce this cost. As a result, healthcare professionals and hospitals are scurrying to meet government deadline to avoid penalties.
PACSGEAR To Bolster Perceptive’s Healthcare ECM Offering
Perceptive Software currently offers process and content management solutions for the clinical and business operations of healthcare providers. Additionally, it has services for capturing and searching unstructured medical content. The acquisition of PACSGEAR fills an important gap in Perceptive’s product portfolio. The healthcare industry is struggling with the heterogeneous nature of healthcare records data that includes videos, scans, x-rays etc. PACSGEAR’s solution integrates documents, film and video, visible light and other images from any department with any PACS or EMR. This solution can be integrated with Perceptive Software’s existing healthcare content management and workflow solutions and vendor neutral archive (VNA) platform, enabling universal access to patient images, records and information, within and between different healthcare providers. 
This acquisition also supplements Perceptive healthcare business as PACSGEAR has a strong clientele in over 50 countries, and delivers solutions to approximately half of all U.S.-based hospitals. Additionally, PACSGEAR can now use Lexmark’s global reach to offer and support its solutions in regions where it previously was not represented.
Perceptive is Key To Revenue Growth
The Perceptive software division is the second biggest business unit and makes up nearly 9% of Lexmark’s estimated value. As Lexmark plans to become an end-to-end solution provider, Perceptive Software is becoming an increasingly important division for Lexmark, and is helping the company manage the downturn in the printer and peripherals market. Perceptive experienced annual growth of 62% in the enterprise content management (ECM) business in 2012 and reported $162 million in revenues for FY12. Lexmark has guided 15% growth in Perceptive’s revenue for FY13. Lexmark continues to build its product portfolio through inorganic growth.
Prior to the PACSGEAR acquisition, the company completed six acquisitions (Saperion, Brainware, ISYS, Nolij, Acuo and Twistage) that will be integrated into Perceptive Software and will help drive the company’s software business. Currently, we expect Preceptive’s revenues to grow from $156 million in 2012 to over $470 million by the end of our forecast period. However, the revenues from this division can be significantly higher in the future, due to organic and inorganic growth.
We currently have a $38 Trefis price estimate for Lexmark, which is 10% above its current market price.Notes: