This is a little different to the sort of investment ideas Shares typically presents to readers. It is something of an arbitrage play.

We see NHS technology platform supplier EMIS (EMIS:AIM) as an attractive risk/reward option, where completion of the company’s takeover by $444 billion US peer UnitedHealth (UNH:NYSE) implies roughly 40% upside for the share price to the £19.25 offer level.

Yet beyond that, analysts calculate that even if the deal falls through, EMIS shares are still trading at a wide discount to peers, one that should narrow should it remain a London-listed independent business given its defensive UK healthcare exposure, high levels of recurring revenues and opportunity for accelerating growth.

Based on Canaccord Genuity’s peer group price to earnings calculations, a standalone EMIS should command a PE of circa 25-times, implying 30% upside to current share price levels.

EMIS provides vital technology to the UK’s thousands of GP practices and millions of NHS users. For example, it provides online appointments and prescriptions via its Patient Access application, and data management systems, including the electronic patient record system used by the majority of GPs in the UK.

The £1.2 billion UnitedHealth acquisition of EMIS was agreed more than a year ago, but it has fallen under the scrutiny of the Competition and Markets Authority. Its investigation identified potential threats to competition, primarily around the potential to restrict integrations around prescriptions and data analytics beyond Optum, UnitedHealth’s UK subsidiary.

EMIS is estimated to hold a UK market share of more than 50% in electronic patient records through its EMIS Web platform. The company currently integrates with several third-party systems but doing so in the future could be seeding business to rivals of Optum, leaving UnitedHealth in a tricky position.

‘We suspect UnitedHealth will offer assurances and guarantees that it will continue to support integrations with other solutions, as is the case currently,’ says Canaccord.

The CMA has recommended a second phase review of the acquisition. This inquiry doesn’t necessarily rule out UnitedHealth’s EMIS takeover, but it may enforce stipulations that UnitedHealth simply won’t stomach – that’s the key risk.

On the other hand, it may give UnitedHealth the time it needs to come up with measures that will satisfy the CMA. It has until late August to present its final arguments and data, with a CMA decision due by late September. The whole process has a 5 October deadline.

This may be too high-risk for many readers, but if you are willing to accept the above explanations, EMIS could prove to be a profitable stock to trade, whether for the short-term, or over a longer timeframe, takeover permitting.

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