Interestingly, while 2010 saw a fairly active level of M&A, fewer companies from last year's list were sold compared to previous years. This suggests that consolidation activity, while still quite robust, is focusing more on smaller companies, in part because the larger companies have already been consolidated. Where the 2010 list saw nine exits, this year saw only five (plus two instances of private equity firms purchasing from another investor). More on overall consolidation trends in a moment, but first let's review the top deals from the HCI 100.
A ROSE BY ANY OTHER NAME
Unless readers have been living in a cave, they likely know that the Eden Prairie, Minn.-based Ingenix subsidiary of UnitedHealth Group was by far the most acquisitive company this sector has seen in recent memory. One might have missed the April name change, however, to OptumInsight (#17). Whatever it's called, the company has continued its acquisition binge, this year adding a level of clinical depth to its portfolio. Purchases in 2010 included health information exchange (HIE) vendor Axolotl; high acuity vendor, Picis (#43 on last year's list); medical necessity and compliance vendor, Executive Health Resources; and natural language coding vendor A-Life Medical (#95 last year). One wonders if UnitedHealth Group has a grand strategy or is simply aggregating interesting assets and hoping for the best.
One wonders if United Health Group has a grand strategy or is simply aggregating interesting assets and hoping for the best. Based on their discussion in a companion article in this issue (page 52), there does seem to be the framework of a plan, but the assets still appear more disparate than most (I see few commonalities between A-Life or CareMedic with Picis or Axolotl). That said, immateriality can mean rarely having to say you're sorry (at least to your shareholders). With its parent, United generating cash from operations last quarter in excess of $1.2 billion, it has more than a little wriggle room should a misstep occur. By way of comparison, that amount of cash flow is greater than the revenues of all but the top eight vendors on this year's list! OptumInsight's run rate (last quarter times 4) earnings alone was greater than the revenues of all but the top third in our corner of the pond! We would expect the company to take a slight breather from its torrid purchase pace, but still continue to look to fill in its growing portfolio.
Connectivity vendor, Emdeon (#11), Nashville, Tenn., continued to be high on the activity list with four acquisitions (up from three last year). Most dramatic was its purchase of Medicaid eligibility vendor, Chamberlain Edmonds in November for $260 million, moving it to a more services-heavy offering. Tuck-ins included data conversion services company, FutureVision Technologies (for $20-60 million, depending on performance); payer consulting company, HTMS (for $11-25 million) and Chapin RCM, a hospital-focused tech-enabled outsourcer (for $19-27 million). The other major connectivity vendors were also active with Availity (#57), Jacksonville, Fla., acquiring RealMed (expanding both footprint and functionality) and Boston-based NaviNet (#77) acquiring e-prescribing vendor Prematics (giving it additional product to push through its physician channel).
DOES SIZE MATTER-OR BREADTH?
The sector's largest deal in 2010 was clearly Chicago-based Allscripts' (#13) $1.3 billion purchase of Eclipsys (#13 last year) and then its separation from Misys. Both companies believe that a unified offering (physician and hospital) was necessary to compete and had discussed joint selling arrangements; from there, conversations appeared to move towards a combination, with (interestingly) no move by Eclipsys to launch a formal sales process to seek alternate buyers (as discussed in the companies' SEC filings).