2012 Healthcare IT M&A: The Dog that Didn’t Bark
Last year at this time we noted that 2011 saw fewer transformational deals than we would have expected. Surprisingly, 2012 saw fewer still. In fact, the two most noteworthy deals could have been the ones that failed to occur. Both Allscripts (#9) and Merge (#37) shut down their publicly announced sale processes without a winning bid, no doubt disappointing investors who purchased shares in hope of a quick flip (never a wise idea) as well as both companies’ investment bankers. There were some noteworthy M&A transactions among the HCI 100, however, so let’s review some of the highlights.
PRIVATE EQUITY DRIVES THE SIZABLE TRADES
As in earlier years, the larger sales all had private equity involvement. Tipping the scales at $1.4 billion, Vista Equity Partners, which owns of Vitera (#38), sold laboratory solution vendor Sunquest (#42) to diversified technology company Roper Industries for 6.3 times last 12 month (LTM) revenues. Next largest, proving once again that the rumors of the death of transcription are greatly exaggerated, was the successful take-private transaction where M*Modal (nee´ MedQuist) was acquired by One Equity Partners for $1.1 billion (2.4 times LTM revenues).
Speaking of transcription, Nuance (#14) was one of the most active buyers this year. In addition to acquiring its transcription competitor, Transcend Services for $318 million (2.5 times LTM revenues) and Canadian transcription vendor Accentus, the company made a hard push toward the coding side of the HIM department, purchasing J.A. Thomas & Associates (clinical documentation improvement), and the coding services division of QuadraMed (#57). Yet another coding-related acquisition was 3M’s (#20) acquisition of CodeRyte. Not exactly coded messages here: all of these were likely bets on the increased complexity that ICD-10 will bring.
A few other private-equity related sales are worth comment. MedSeek (#83) was acquired by Silver Lake Partners, and proving that third time is the charm, SourceMedical (#81) was passed (at a nice profit) from private equity firm ABS Capital Partners to ABRY Partners. Meanwhile, ABRY’s “Release of Information” investment, Healthport (#35), acquired Discovery Health Records.
A VIEW FROM THE TOP: KEY VENDOR ACTIVITY VARIES
McKesson (#1) was the most acquisitive this year, purchasing Ahi Software for patient access, Emendo for patient demand forecasting, Proventys’ oncology decision support assets, physician-focused MED3000 (for $195 million), population health company, MedVentive, and PeerVue for radiology flow solutions. While not exactly informatics related, McKesson also acquired (athenahealth shareholder) PSS World Medical for $2.1 billion.
Moving down the HCI-100 list, Cerner (#3) acquired Anasazi Software to expand its behavioral health footprint. On the topic of behavioral health, the leader in that space, Netsmart (#49) expanded its social service presence with its acquisition of Defran Systems, having bought Behavioral Pathways Systems earlier in the year. Quality Systems (owner of NextGen) had an interesting year, with its semi-annual proxy fight taking place right on schedule; still, QS found time to purchase both EDIS vendor Poseidon and its value-added reseller Matrix Management. Meanwhile, athenahealth (#29) acquired small population health analytics vendor Healthcare Data Services (and announced its plan to acquire Epocrates, which we’ll discuss next year).
As the health system becomes both more automated and interconnected, knowledge (if not power) remains key. Thus we saw informatics-focused publishers Hearst, owner of Zynx Health (#68), acquire Milliman Care Guidelines (beating out a number of private equity firms) while Elsevier (#47) purchased ExitCare. Also on the content side, a new entrant to the list, Alere (#21), moved beyond near-patient diagnostics toward the ACO and content sectors with its acquisition of clinical decision support vendor, DiagnosisOne.
All of this Meaningful Use activity is great, but somebody still needs to implement it, and good help can be hard to find. Perhaps as a result, we saw a handful of noteworthy consultancy acquisitions this year. MaxIT Healthcare (#41 last year) was acquired by Science Applications International Corp. (SAIC) (#18) for almost $500 million. We expect more activity from the defense contractors in the coming year or two. In another departure from the list, we also bid a fond “adieu” to NaviNet (#81 on last year’s list), which was acquired by Lumeris in February.
TAX POLICY DROVE SOME VOLUME AT THE LOWER END
While we did not see transformational transactions, or even many large transactions this year, we did see quite a few smaller sales. This was likely driven at least in part by the change in the U.S. tax code that raised the effective capital gains rate in January. An investor had the opportunity to sell, and it made sense to do so, there was a tax incentive to do so before New Year’s Eve. We actually told that Dec. 30 saw more wire transfer activity than ever before, for this reason. Correspondingly, we saw less activity than usual in the first half of 2013—probably if you were able to sell, you did; if you weren’t, it made more sense to wait and grow your value. And so…
OTHER TUCK-IN ACTIVITY REMAINED ON PAR OR SLIGHTLY AHEAD
On the payor-side of the street, TriZetto (#16) continued to build out its portfolio at a fairly torrid pace. It’s Gateway EDI subsidiary tuck-ins were two provider RCM companies: Claimlogic and NHXS. Meanwhile, the parent organization purchased both training vendor, Kocsis Consulting and Managed Medicare/Medcaid vendor, Medical Data Express to augment its managed Medicare and managed Medicaid solutions.
We also saw Emdeon (#10) acquire payment integrity vendor TC3 Health, while emergency department vendor T-System (#61) was busy acquiring Practice Management Associates, Clinical Coding Solutions, and Marina Medical Billing.
Another departmental vendor Mediware (#75) was extremely active, not only making four small tuck-in acquisitions of its own, but was being itself acquired in a $195-million take-private transaction by private equity investor Thoma Bravo (which, incidentally, also acquired physician practice vendor SRS Software). The Advisory Board Company (#39) added to its portfolio by acquiring ActiveStrategy and 360Fresh, while divesting OptiLink to time and attendance vendor Kronos (#41). In the meantime, Kronos’ arch rival, API Healthcare (#67), acquired staffing and scheduling vendor Concerro.
Come the second half of this year, we expect to see some re-emergence of larger deals, but, as of this writing, athenahealth’s acquisition of Epocrates remains one of the larger bets. How it plays out and what else occurs will be a topic for next year’s M&A Roundup.
Ben Rooks ([email protected]) 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. Since last year’s article, ST Advisors provided M&A coaching to Defran Systems and has also worked with Emdeon on some interesting strategic issues.
