2013 Healthcare I.T. M&A: Do Many Notes Make a Song?

As we do each year when we sit down to write this article, we begin by first taking a look back at last year’s M&A Review. We concluded with a prediction and a promise. First, we anticipated some re-emergence of larger deals, then we promised to discuss athenahealth’s (#22) $293 million acquisition of mobile physician tools vendor, Epocrates. Candidly, I’d give our prediction a B at best. While the M&A market has been robust to say the least, it has mostly been midsized companies acquiring smaller ones (at high prices), with very little movement out of the Healthcare Informatics 100 due to acquisition.

When athenahealth acquired Epocrates for a 22-percent premium over its stock trading price, expectations were high and the fit seemed reasonable. With the benefit of hindsight, we have to wonder about the price paid, given that in the most recent quarter (ending March 31, 2014), athenahealth disclosed that Epocrates’ revenues were 40 percent short of their expectations (which, in our experience, had likely already been dialed back at the time of the merger’s announcement).

2013’s largest transaction by far was credit score vendor, Experian (#74 in 2013), acquiring Passport Health Communications (#65 in 2013) for $850 million, expanding its presence in payments and eligibility. PE-backed Vitera Health (#38 in 2013) made two substantive acquisitions—first SuccesEHS, gaining some ambulatory market share, but then it acquired Greenway Health (#53 in 2013) in a $664 million take-private transaction (a 20-percent premium over previous day’s close). While it’s not clear who acquired whom, Greenway’s CEO remains, while Vitera’s moved on in April. Whether it’s called Greenway or Vitera, though, either way, it’s now a much larger physician software company that tips the scales at #32.

Also leaving the HCI 100 for life as part of a significantly bigger entity were two vendors owned by the active HCIT PE firm, Francisco Partners. The first sold was QuadraMed (#57 in 2013), acquired by Canadian software company Constellation Software’s Harris Computer Corp. Then, early this year API Healthcare (#67 in 2013) was sold to GE’s Healthcare Services division. Another Francisco Partners portfolio company, Healthland (#77) was a buyer, not a seller, acquiring American HealthTech and moving it into the post-acute care facility space.

Ben Rooks

With one notable exception, most of the other transactions we saw this year were of the “tuck-in” rather than the more dramatic “platform” category. As a reminder, this type of acquisition will access the same or adjacent markets, as opposed to bigger (and more expensive) bets that move the buyer into a new one.

Looking first at the larger (and publicly traded) enterprise vendors, Allscripts (#10) acquired two existing partners. In a fairly large bet, it bought the remaining stake in its existing partner, connectivity vendor dbMotion for about $235 million, and also purchased personal health record vendor Jardogs. Cerner (#2) continued its well-executed strategy of small, almost experimental buys, purchasing PureWellness, to gain expertise on engagement and keeping people healthy (rather than treating them once they’ve become sick), and Labotix Automation, to address high volume testing in the lab space (the hospital department where Cerner actually began). Quality Systems (#28) saw an opportunity in enhancing connectivity, purchasing Mirth Corporation for an undisclosed amount.

Home is where the heart is, and according to some, where the opportunity is as well. In one of the biggest deals in terms of both value and surprise, Hearst paid an undisclosed amount (but reportedly over $500 million!) to purchase an 85-percent stake in Homecare Homebase. This is one of Hearst’s first forays into pure software (as opposed to reference and protocol solutions), and we hope their bet pays off. Then again, as we always observe: immateriality means never having to say you’re sorry. Also sticking close to home, PE-backed Mediware (#65) continued its acquisition activities from prior years, purchasing both Fastrack Healthcare Systems and Definitive Homecare Solutions, both serving home medical equipment/home infusion vendors. Similarly, Brightree (#76) continued rolling up the sector, purchasing MedAct, and adding 330 home medical equipment vendors for its software solutions.

Additional activity in the HCI 100 was fairly sparse and, except to the participants, not overly exciting. Connectivity vendor Emdeon (#11) purchased PBM software vendor Goold Health Systems to augment its pharmacy services; publisher Wolters Kluwer (#19) acquired terminology vendor Health Language; and communications vendor Vocera (#63) purchased alarm management vendor, mVisum, for $3.5 million while health information management-focused vendor IOD acquired information exchange vendor ApeniMED. Also, The Advisory Board (#27), paid $35 million (a, ahem, strategic price) for treatment planning/care coordination vendor Care Team Connect.

Finally, newly public group purchasing organization, Premier Inc. (#43) began dipping into the sizable war chest it raised from its IPO to acquire both SymmedRx, an implantable device supply analytics vendor (for $29 million) and then data integration vendor, Meddius.

As we look forward to the balance of 2014, we anticipate another year much like we’ve just seen—mostly smaller acquisitions (albeit with some big prices) with only one or two sizable purchases by outsiders or consolidations within the list. Truly, this past year was not as high-powered as many of the past when we have written this column: to meet our word count this year, we even dipped into January 2014 for extra M&A activity! While we’re aware of a few companies being actively shopped currently, we’ve seen only a few signs of success and, in fact, have observed a few decisions to just delay a sale for the time being.

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. He also serves on the editorial board of Healthcare Informatics. In the past 24 months, ST Advisors is proud to have provided advisory services to Emdeon, IOD, QuadraMed, Vocera and Wolters Kluwer.