In 2011 the industry actually saw fewer transformational deals than we would have expected, given the attention paid to the sector of late. In fact, the three largest deals we saw weren’t one company buying another, but rather private equity firms buying their way into HCIT, suggesting, perhaps, that the market is more attractive to those outside it seeking to enter than to those who are already within and seeking to grow larger. Clearly, this wasn’t the rule, but it was definitely a trend.
The sector’s largest deal was Emdeon (#14), Nashville, Tenn., leaving the public markets only a few years after its initial public offering in a take-private transaction, in which it was acquired by noted private equity (PE) investor Blackstone Group, for more than $3 billion [12 times trailing earnings before interest, taxes, depreciation and amortization (EBITDA)]. Even under new ownership (though not new management), Emdeon continued to be acquisitive, purchasing EquiClaim for about $40 million and TC3 last spring. Next largest was St. Paul, Minn.-based Lawson Software’s (#29) acquisition by PE firm Golden Gate Capital for $1.7 billion (14.6 times trailing EBITDA).
Bolt-On Acquisitions
A number of vendors in the top quarter of the HCI 100 made some interesting tuck-in acquisitions, notably Alpharetta, Ga.-based McKesson’s (#1) purchase of reimbursement-focused Portico Systems and UK hospital software vendor System C. While not software-focused, CareFusion (#3), San Diego, Calif., acquired pharmacy automation vendor Rowa for $150 million. Continuing to acquire tuck-ins for product rather than sizable companies to drive inorganic growth, Cerner (#5), Kansas City, Mo., bought both ClairVia, provider of acuity-based staffing analytics, and long-term care software vendor, Resource Systems, neither of which cost more than $40 million. Siemens (#7), Malvern, Pa., acquired health information exchange (HIE) vendor MobileMD. CSC (#10), Falls Church, Va., continued to add to its healthcare portfolio (its acquisition of iSoft was discussed in last year’s review), but it moved a bit further afield towards life sciences by acquiring Image Solutions.
Ben Rooks
Optum (#13), Eden Prairie, Minn., the IT subsidiary of United Healthcare (and purchaser of Picis, CareMedic, A-Life Medical and other notable names we’ve seen on the list in days gone by) took a slight breather from its torrid acquisition pace and made only one acquisition—consumer engagement vendor Connextions (no doubt disappointing a great many sellers and their bankers who’d hoped to line them up a whale buyer). Claims system vendor TriZetto Group (#17), Denver, Colo., purchased Gateway EDI to narrow the gap between physicians and the payers. T-System (#75), Dallas, looking to diversify away from its well-known T- Sheets (a paper data capture solution for the ED) and its electronic version, EV, made some moves towards revenue cycle management, albeit still in the ED, acquiring charge capture and coding software provider Clinical Coding Solutions, as well as ED billing vendor, Practice Management Associates.
Despite the oft repeated belief that transcription would die, Nuance (#20), Burlington, Mass., bought Atlanta, Ga.-based Webmedx (#82 in 2011) and Medquist (#22), Franklin, Tenn., purchased M*Modal for $130 million, actually taking its name as well as its business.
Moving down the HCI 100 List, we see a fair amount of activity with Mediware (#79), Lenexa, Kans., purchasing homecare vendor CareCentric; Merge (#35), Chicago, Ill., purchasing Ophthalmic Imaging Systems for around $30 million and Craneware (#89), Atlanta, acquiring ClaimTrust for $15-20 million, depending on if its targets are met. On the physician side, athenahealth (#31), Watertown, Mass., purchased referral management company Proxsys for about $36 million; Greenway Medical (#61), Carrollton, Ga., moved into the community health center market with its purchase of CySolutions; and Horsham, Pa.-based NextGen (#28), continued its movement away from just physicians towards the hospital with its purchase of surgery software vendor, CQI Solutions.
The HCI 100 list lost a few entrants this year as Vital Images (#74 in 2011), Minnetonka, Minn., was acquired by its major distributor, Toshiba, for $273 million and Medical Present Value (#98 in 2011), Austin, Texas, was bought by credit bureau Experian for $185 million (more than 20 times trailing EBITDA). Also leaving the list was Vitalize Consulting (#68 last year), Kennett Square, Pa., to SAIC.
A Familiar Ring
Two final transactions remind us that those who forget history are doomed to repeat it. First, we saw Sage divest its physician office software business to Vista Equity Partners for $320 million and rename it Vitera (#36), Tampa Bay, Fla. This is in contrast to the $565 million that Sage paid when it acquired Medical Manager in 2006. Interestingly, Vista also owns Sunquest (#40), Tucson, Ariz., sold to it at a loss by Misys, as well as an interest in Surgical Information Systems (#88), Alpharetta, Ga., which it recapped at a profit in late 2010. Next, adding to the income of corporate name consultants, if not value to providers of care, Redmond, Wash.-based Microsoft (#24 in 2011) and GE Healthcare (#23), Chalfont, St. Giles, UK, announced their 50-50 joint venture, Caradigm. Which high purchase price assets from earlier HCI 100 lists will be placed there remains to be seen, but as a long time HCIT watcher, I’m afraid I cannot be too optimistic on the likely outcome.
As mentioned, I would have expected more high profile transactions this past year than we actually saw, given the high expectations and valuations, but perhaps that is exactly why they did not occur. Many high value companies sought exits in 2011, only to close down their sales processes when bidders weren’t willing to accommodate their hopes and dreams. Instead, execution, delivering high-quality products to customers and patients remain the rule of the day. Ben Rooks (ben@st-advisors.com) spent 15 years on Wall Street as both an equity research analyst and investment banker focusing on HCIT. He is the founder of ST Advisors, an HCIT-focused advisory firm serving both companies and their investors and serves on the editorial board of Healthcare Informatics. ST Advisors is proud of its past work with both Clairvia and Mediware; however, as of this writing, is not actively engaged with any company listed above. ST Advisors and Healthcare Informatics appreciate the supplemental M&A data provided by Leerink Swann.