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M&A's Small Steps

May 29, 2009
by Ben Rooks
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Fewer sellers and capital freezing meant a sizeable decline in acquisitions

Ben rooks

Ben Rooks

As with so much of the economy over the past year, healthcare IT corporate consolidation has seen a meaningful slowdown. Just as the buyers of software systems are taking a breather, waiting for the economy to improve and, if a buy is necessary, looking for a bargain, so too are buyers of companies. While the number of reportable deals is roughly comparable to last year (and down sharply from the year before that), the size of the checks being written is considerably smaller. Why? Fewer sellers want to go to market in the worst economy in recent memory, and fewer buyers want to take chances or stretch for value.

While the number of meaningful-sized closed transactions decreased, a high level of activity remained, as we were aware of a number of companies that explored selling, only to reconsider when bids weren't reflective of their boards' view of long-term value (sounds a bit like the housing market). Where last year we saw announced sales that topped $1 billion - and a few in the $200-500 million range - this year the largest disclosed transaction was less than $300 million, and the vast majority were significantly smaller tuck-ins.

Good things come to those who wait - When last we spoke, the Allscripts-Misys merger was announced and appeared on track to close, albeit with some shareholder concerns along the way. While there was a bit of last minute excitement due to a financing hiccup from Lehman Brothers' demise (anyone remember Lehman?) which caused a brief delay, the $641 million merger closed and the companies became one; numbers 25 and 10 on last year's list are now number 9.

Keep ‘em talking - The next largest deal that closed in the past year was CBay Systems’ (Number 84 in 2008, did not submit this year) $260 million (0.8x revenues) purchase of one-time industry leader and Wall Street darling, and still larger company, MedQuist (Number 20). While EMRs have clearly not put an end to transcription as some expected them to, valuations have decreased along with growth. But clearly, companies like CBay and Nuance (Number 16) continue to see meaningful value (and, in fact, Nuance purchased yet another speech recognition vendor - a Viennese division of Philips - for $95 million).

As discussed, tuck-in acquisitions are the theme of the year, with McKesson (Number 1) making two small ones, each more of a product purchase. These were EN-Chart Scanning Program (an emergency department coding and charge capture company) and Vivalog (a radiology case sharing application systems vendor). Ingenix (Number 6 in 2008, not included this year), eager to remain the decision-support leader, purchased Bull Services, a sizable business intelligence firm focused on public sector work. Decision support appealed to General Dynamics as well, which acquired the ViPS division from HLTH (Number 15 in 2008, did not submit this year). HLTH, meanwhile, terminated its plans to merge (or was it re-merge?) with subsidiary WebMD citing market conditions.

Go with the flow - General Electric apparently wants to, buying patient flow software vendor Agility Healthcare Solutions for an undisclosed amount. Eclipsys (Number 12), also seeing value in that area, acquired Premise, another patient flow vendor for $38 million. Eclipsys also moved closer to the physician side, acquiring MediNotes (Number 98 in 2008, did not submit this year) for $45 million. Speaking of the physician space, Quality Systems (Number 27) acquired two physician revenue cycle management companies, Healthcare Strategic Systems and Practice Management Partners, while athenahealth (Number 31) dipped its toe in the acquisition pool buying the very small Medical to gain some patient connectivity and outreach technology and skills.

Charting a course - Healthport (Number 25), the largest release of information vendor (formerly known as Smart Document Solutions) acquired its largest competitor, ChartOne, for an undisclosed amount and is now really the largest ROI vendor.

PAC(S) it up - PACS and RIS vendor Amicas (Number 55 in 2008, did not submit this year) acquired competitor Emageon (Number 43 in 2008, did not submit this year) for $39 million (around what Emageon itself paid for Camtronics just a few years ago). This was interesting, as Amicas presumably had the chance to buy earlier in the year during the initial Emageon auction that was won by HSS (which was unable to conclude it in part due to shareholder and financing issues). Patience proved the way to buy right in that instance, though two small radiology software vendors combined still make for a small radiology software vendor in a market dominated by the big magnet manufacturers.

Singing the Blues? - MEDecision (Number 57) certainly wasn't, after its largest customer, Health Care Service Corporation (a consortium of four Blue Cross and Blue Shield plans) paid $115 million to acquire it. While 2.5 times revenues was a fraction of its IPO price, it was an astounding 300 percent premium to where MEDecision stock was currently trading. On April 1, 2009, MEDecision acquired HxTechnologies, a small real-time information provider. HCSC remains on the hunt, purchasing Medicare Advantage-focused business process outsourcer TMG Health in October of 2008.