Orion Health Group said UK-based private equity firm Hg will acquire its Rhapsody business for $205 million and take a quarter stake in its Population Health unit for $20m, leaving the New Zealand company in 100 per cent control of just its hospitals division.

The transactions were outlined in a statement to the NZX and follow a strategic review by Auckland-based Orion that started in April last year.

Of the $205m, Orion will immediately use some $28m to acquire about 25 per cent of Rhapsody and $12m to reinvest in a controlling stake in its Population Health unit while providing a net $30m of cash to fund ongoing operations.

After the transactions, Hg will own about 75 per cent of Rhapsody and Orion will own 25 per cent, while Orion will hold 75 per cent of Population Health and Hg 25 per cent.

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The balance of the proceeds will be used by healthcare software developer Orion to fund a share buyback and provide funding for the remaining Hospitals division, it said. McCrae Ltd, Orion's biggest shareholder at 49.75 per cent and the investment vehicle of chief executive Ian McCrae, will participate in the buyback in respect of 20 per cent of its shares.

McCrae will vote its shares in favour of the transaction. As well as shareholder approval, the deal needs clearance from the Overseas Investment Office. A shareholder vote of the Hg deal and the buyback is expected to be held by late September, it said. They will be furnished with an independent report from KordaMentha.

"This investment provides Orion Health with a tremendous opportunity to deliver on our vision for customers, our people and for the healthcare sector," CEO McCrae said.

"We received strong interest in Orion Health's business throughout the strategic review process and the board and I believe that Hg is the right partner to accelerate the expansion of Rhapsody and support our vision for Population Health."

Hg would make the investment via its Mercury 2 Fund, Orion said.

Hg's proposal values Orion at an enterprise value of $255m, it said, made up $205m for Rhapsody and $50m for Population Health. That implies a per-share price of $1.24 to $1.29. The buyback would be at $1.28 after fees. Orion shares soared 27 per cent to $1.08 today.

Orion Health went public in late 2014, attracting a $915m valuation in the initial public offering which sold at $5.70 apiece. The software company had been profitable but chose to forgo earnings in the short-term to build a globally significant business.

In April this year, Orion said revenue missed its guidance as delayed contracts for pushing those sales into the next financial year. At the same time as the profit warning, it announced plans to save as much as $30m a year from an operational restructure, having already trimmed $10m of annual costs when it shrank its workforce to 1,050 from 1,200.