2013 Healthcare I.T. M&A: Do Many Notes Make a Song?

May 20, 2014
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2013 Healthcare I.T. M&A: Do Many Notes Make a Song?

As we do each year when we sit down to write this article, we begin by first taking a look back at last year’s M&A Review. We concluded with a prediction and a promise. First, we anticipated some re-emergence of larger deals, then we promised to discuss athenahealth’s (#22) $293 million acquisition of mobile physician tools vendor, Epocrates. Candidly, I’d give our prediction a B at best. While the M&A market has been robust to say the least, it has mostly been midsized companies acquiring smaller ones (at high prices), with very little movement out of the Healthcare Informatics 100 due to acquisition.

When athenahealth acquired Epocrates for a 22-percent premium over its stock trading price, expectations were high and the fit seemed reasonable. With the benefit of hindsight, we have to wonder about the price paid, given that in the most recent quarter (ending March 31, 2014), athenahealth disclosed that Epocrates’ revenues were 40 percent short of their expectations (which, in our experience, had likely already been dialed back at the time of the merger’s announcement).

2013’s largest transaction by far was credit score vendor, Experian (#74 in 2013), acquiring Passport Health Communications (#65 in 2013) for $850 million, expanding its presence in payments and eligibility. PE-backed Vitera Health (#38 in 2013) made two substantive acquisitions—first SuccesEHS, gaining some ambulatory market share, but then it acquired Greenway Health (#53 in 2013) in a $664 million take-private transaction (a 20-percent premium over previous day’s close). While it’s not clear who acquired whom, Greenway’s CEO remains, while Vitera’s moved on in April. Whether it’s called Greenway or Vitera, though, either way, it’s now a much larger physician software company that tips the scales at #32.

Also leaving the HCI 100 for life as part of a significantly bigger entity were two vendors owned by the active HCIT PE firm, Francisco Partners. The first sold was QuadraMed (#57 in 2013), acquired by Canadian software company Constellation Software’s Harris Computer Corp. Then, early this year API Healthcare (#67 in 2013) was sold to GE’s Healthcare Services division. Another Francisco Partners portfolio company, Healthland (#77) was a buyer, not a seller, acquiring American HealthTech and moving it into the post-acute care facility space.

Ben Rooks

With one notable exception, most of the other transactions we saw this year were of the “tuck-in” rather than the more dramatic “platform” category. As a reminder, this type of acquisition will access the same or adjacent markets, as opposed to bigger (and more expensive) bets that move the buyer into a new one.

Looking first at the larger (and publicly traded) enterprise vendors, Allscripts (#10) acquired two existing partners. In a fairly large bet, it bought the remaining stake in its existing partner, connectivity vendor dbMotion for about $235 million, and also purchased personal health record vendor Jardogs. Cerner (#2) continued its well-executed strategy of small, almost experimental buys, purchasing PureWellness, to gain expertise on engagement and keeping people healthy (rather than treating them once they’ve become sick), and Labotix Automation, to address high volume testing in the lab space (the hospital department where Cerner actually began). Quality Systems (#28) saw an opportunity in enhancing connectivity, purchasing Mirth Corporation for an undisclosed amount.

Home is where the heart is, and according to some, where the opportunity is as well. In one of the biggest deals in terms of both value and surprise, Hearst paid an undisclosed amount (but reportedly over $500 million!) to purchase an 85-percent stake in Homecare Homebase. This is one of Hearst’s first forays into pure software (as opposed to reference and protocol solutions), and we hope their bet pays off. Then again, as we always observe: immateriality means never having to say you’re sorry. Also sticking close to home, PE-backed Mediware (#65) continued its acquisition activities from prior years, purchasing both Fastrack Healthcare Systems and Definitive Homecare Solutions, both serving home medical equipment/home infusion vendors. Similarly, Brightree (#76) continued rolling up the sector, purchasing MedAct, and adding 330 home medical equipment vendors for its software solutions.

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