The past year saw a substantive uptick in M&A across all markets, and healthcare IT was no exception. Bouncing off a lackluster year, we've seen both transaction sizes and volumes increase. The HCI Top 100 saw a few names drop out as companies were acquired, making room, of course, for new up-and-comers to join the list.
Gone, but not yet forgotten, a few names we're missing
Going to the (Out)Source: While neither company was an HCIT pure-play, the two biggest deals of the year were Perot Systems' (formerly #6) $4 billion sale to Dell and Affiliated Computer Systems (not on list, but owner of Superior Consultant) $8 billion sale to Xerox Corp. Both companies were leaders in hospital and payer outsourcing.
Looking to capitalize on the burgeoning interest in HIEs, IBM purchased Initiate Systems (formerly #65) to combine Initiate's identity management expertise with its own political heft, as states and other sponsors will likely want a bigger entity to place such large bets on, and IBM's government work makes it an easy choice for politicos.
United they (now) stand: With three new notches in its belt, Ingenix (#16), the IT subsidiary of managed care giant United Healthcare, was one of the most active buyers of the year. Given the tremendous cash flow generated by the parent (and its ability to not disclose value paid as a result of materiality rules), Ingenix is, in many ways, a dream buyer. Given the usually adversarial relationship between hospital business offices and managed care, its high ticket purchase of revenue cycle management leader CareMedic System (#58 last year) came as a surprise. Much less shocking was both its purchase of data analytics firm AIM Healthcare Services and its subsequent purchase of outcomes assessment leader, QualityMetric. We believe all three sales were quite competitive, but given the size of its parent's pocketbook, success is often a given once Ingenix wants something!
Still Talking? Dictation continues to consolidate: Medquist/Cbay, one of the larger combinations from last year, continued to bulk up, this time buying one-time highflyer Spheris (#28 last year) out of bankruptcy. The economics and long term appeal of the transcription business have always eluded us, and this does nothing to change that viewpoint. Dictation seems here to stay, but the slope of the pricing curve appears uglier each year.
Big players getting bigger
Already prevalent in the business office with its ERP solutions, Lawson Software (estimated at #22) purchased Healthvision Solutions for $160 million, focusing perhaps on the near ubiquitous nature of its Cloverleaf integration engine. Microsoft also made a big buy, paying a rumored $160 million for identity management vendor Sentillion, further increasing its breadth of product for hospitals.
Bouncing off a lackluster year, we've seen both transaction sizes and volumes increase.
Having returned to the public markets, Emdeon (#8) continued to acquire, purchasing imaging/workflow vendor FutureVision for $20-60 million (depending on its performance); Healthcare Technology Management Services (HTMS), a payer-focused consulting company for $11 million; and fraud and abuse detection company The Sentinel Group for an undisclosed amount.
Bulking up and/or shifting the business
M&A can expand an existing business or bring the buyer to a new one. One of the most active acquirers this year, Merge Healthcare (#57), seemed to be looking for both. Recognizing that PACS can only take it so far, Merge moved in multiple directions this past year. In acquiring eTrials for $23 million, it moved to the clinical trial space. Confirma (also acquired for $23 million) brought it computer aided detection technology to allow better prostate and breast cancer diagnosis with MRIs. Meanwhile, straight in its core business, its aggressive outbidding for AMICAS away from PE firm Thoma Bravo looks like its clearest bet from here in the gallery. As for the others, time will tell whether it's thoughtful diversification or straying from core competencies.
Mediware (#72) was also active, with three small tuck-ins that also expanded its markets. Healthcare Automation and Advantage Reimbursement (with common owners and focused on home healthcare providers) were purchased for $5.5 million (with another potential $1.5 earn-out). This is a new (and not obviously adjacent) market for Mediware, while its acquisition of hospital analytics vendor SciHealth appears closer to its core customers (hospitals), albeit with a new offering (analytics).
NextGen (#29) in contrast moved far from its typical domain within the physician office, expanding its offerings to the small and rural hospital market, by purchasing both Sphere Health Systems and Opus Healthcare Solutions. This seemed a fairly bold move, especially if physician demand remains strong. That said, the key to success is looking for the new opportunities, not continuing to mine the existing ones.
Moving even farther afield, however, Cerner (#5) moved from its software focus to acquire IMC Health Care, a provider of employer sponsored on-site health centers. Cerner has used techniques like this as a laboratory for growth ideas, so it could prove interesting to watch. The law of large numbers makes its growth more challenging each year as well.
Sticking closer to home
Adding to a number of physician office software acquisitions from MedicaLogic to IDX, GE (#4) tucked MedPlexus, a SaaS-based solution practice management and ambulatory EMR into its offering suite.
athenahealth (#34) purchased Anodyne Health (#91 last year) for $30 million with the goal of further bolstering its already strong analytic chops for the physician office.
Hyland Software (#70) stayed closer to its core, acquiring document management and coding tool vendors Valco Data Systems and eWebHealth.
Likely motivated by the obvious cross-sell potential, SaaS-based physician practice management vendor AdvancedMD (#82) purchased EMR vendor PracticeONE.
Hospital time and attendance vendor API Healthcare (#62) expanded to a near adjacency with its acquisition of workforce management and vendor management solution provider Clearview Staffing Software.
Similarly, Healthland (#59) made a small tuck-in acquisition, continuing its focus on critical access hospitals by purchasing American Healthnet.
Finally, QuadraMed (#40) left the public stage in a take-private transaction, acquired by the very active private equity investor Francisco Partners (which also owns the three active companies mentioned above).
With its seemingly bottomless pockets, pharma companies seem to remain everyone's favorite customer. Accordingly, there's been some software consolidation activity there as well.
Just what the doctor ordered? Pharma-related software activity increases as well.
With its seemingly bottomless pockets, pharma companies seem to remain everyone's favorite customer. Accordingly, there's been some software consolidation activity there as well. Oracle (#23) announced its intention to purchase clinical trial software vendor PhaseForward and market data leader IMS Health was finally taken private (after at least two or three attempts to sell) in a $5.8 billion sale to two private equity funds.
Looking forward
The HCIT M&A markets have definitely come roaring back, and there are already a fair number of sale processes underway (likely over a half dozen of the Top 100 even now). Given the robustness of the end market we're seeing from ARRA dollars flowing, I'd expect M&A volumes to reflect the optimism that drives it. Further, I'd look for some non-U.S. players to open their checkbooks so they can play here as well (hopefully, for their sake, with more success and discipline than we've seen in years gone by - see Misys/Sunquest or Siemens/SMS). As ever in this dynamic and complex sector, fortune favors the thoughtful, but not always the bold.
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, LLC, an HCIT advisory and consulting firm and serves on the editorial board of Healthcare Informatics. Healthcare Informatics 2010 June;27(6):42-44