More than a week ago, the co-founder and CEO of athenahealth, Jonathan Bush, announced his was stepping down and the health IT company he started back in 1997 announced plans to explore a potential sale.
These latest developments at the Watertown, Mass.-based company occurred as athenahealth has been fighting a takeover offer for $160 a share from Elliott Management, an activist investor, and on the heels of damaging allegations of sexual harassment against Bush, an outspoken industry leader known for his colorful personality and viewed as the definitive face of athenahealth.
The company got its start in the health IT space as a developer of practice management systems for physician practices and has steadily expanded its suite of network-enabled services for revenue cycle management and medical billing, electronic health record (EHR) systems, patient engagement, care coordination, and population health services. The company ranked at No. 13 on the Healthcare Informatics 100 list for 2018, with $1.2 billion in revenue.
These events effectively close one chapter in the 20-year-old company’s journey, and begin another one. The athenahealth board of directors has initiated a search process to identify qualified CEO candidates. In a statement, Jeff Immelt, executive chairman, said the company is approaching this process “with an open mind and a commitment to continuing to strengthen the company – including its rich data asset, platform strategy, and culture of innovation.” And he stated, “The Board and Jonathan agree that this change in leadership is appropriate as athenahealth turns to its next chapter.”
“It will be really interesting to see how all this plays out," Erik Bermudez, senior research director at Orem, Utah-based KLAS Research, says. "athenahealth is a disruptor in a market that is ripe and ready for change, and with a possible sale, with new leadership and new management coming in, there’s a lot of changes that are happening, both on the provider side and for athenahealth on the vendor side."
When athenahealth announced June 6 that Bush had stepped down, it also announced that it would explore a potential sale or merger or it may continue as an independent company. Before the announcement, the stock was at $151 a share, about 6 percent below the offer price. Ahead of the announcement, athenahealth shares were halted, and they initially rose nearly 6 percent once trading resumed.
That same day, senior research analyst Sean Wieland with Piper Jaffray, a U.S. investment bank and asset management firm, raised his target price for athenahealth from $155 to $179. “I think the bid on the table from Elliott for $160 represents the ‘downside’ here,” Wieland says, adding, “With these publicly traded vertical SaaS (Software-as-a-Service) companies, the median about is about 5x times revenue, so I think [athenahealth] is worth $179.” On June 19, athenahealth’s stock was at $160 a share.
In a research note, Sandy Draper, a Wall Street analyst with investment bank SunTrust Robinson Humphrey, wrote that Bush’s departure increases the likelihood of a sale, nothing that Bush has been the company’s only CEO, so far. With Bush stepping down, it will easier for potential buyers to make substantial changes “without having to go around him,” Draper wrote.
Also, Draper anticipates that recent developments will cause some near-term uncertainty and distraction, which could potentially benefit Cerner, Allscripts, CPSI and Quality Systems over the next few quarters.
Wieland contends that athenahealth “is among the best asset in health IT,” citing the company’s technology platform and noting that “the company's presence at the point of care and ability to crowd-source best practices in clinical and financial workflow are unsurpassed.” He also notes that the company’s decelerating growth of late is more a reflection of industry dynamics.
“If you look across the EHR space, the demand for EHRs has slowed. The stimulus from 10 years ago brought forward a decades’ worth of demand into a period of three or four years, so everybody ran out and bought something, and now we’re in this dry spell of demand,” he says, adding, “So, athenahealth’s revenue growth decelerates to ‘only’ 10 percent, which I would note is still higher than just about every EHR company out there.”
He continues, “I think the company has been under pressure for financial performance because of the slowing growth, which I think is endemic of the market. There still remains a huge opportunity to take the friction cost out of healthcare by connecting all these users using various EHRs, and the challenges around interoperability. I think athenahealth has an interesting way to solve those, and I think it will solve those, no matter whose hands it’s in.” He adds, “We believe athenahealth is going into this process from a vantage point of strength.”
So, who are likely suitors in a potential sale? The list of strategic buyers are many, Wieland says, including mega software companies such as Microsoft, Oracle or Salesforce. And financial buyers are also keen on the company's recurring revenue and strong ability to drive incremental margins, he notes.