Allscripts Healthcare Solutions Inc. executives have signed an agreement to sell their suite of technology products catering to hospitals and large physician groups to a unit of Canadian conglomerate Constellation Software Inc. for up to $700 million.
The proposed cash transaction includes Chicago-headquartered Allscripts’ Sunrise, Paragon, Touchworks, Opal, dbMotion, STAR and Healthquest software and services brands and will let the company focus solely on its Veradigm data systems and services business that works with insurers and life sciences companies. Expected to be completed during the second quarter, the deal calls for Constellation, via its N. Harris Computer Corp. holding, to pay $670 million at closing and up to $30 million more in the ensuing two years based on the business’ performance.
The hospitals and large practices group last year produced for Allscripts an operating loss of $7.2 million on revenues of $928 million. The former was a big improvement from the previous two years, when the unit lost $187 million from operations, while the top line was down about 2 percent. For 2022, Allscripts CEO Paul Black and his team have been forecasting that the business will shrink another roughly 3 percent and that adjusted EBITDA, $145 million in 2021, would fall between 10 percent and 15 percent.
Word of the sale plan comes more than a year after Allscripts completed the sales of its former CarePort and EPSi business, from which it took home a combined $1.25 billion. On a conference call, Allscripts President and CFO Rick Poulton said Veradigm should grow organically between 6 percent and 7 percent and that the “widening gap” between the two Allscripts segments led Black's team to pursue a sale of the hospitals and large practices group. Veradigm in 2021 produced an operating profit of $81.5 million on sales of $552 million, increases from $38.3 million and $528 million the year before.
“It’s becoming harder and harder to manage this under one roof,” Poulton said. “Our only alternative, frankly, […] would be to replicate a lot of those shared services functions so that they could be very tuned into the business they served and their differing needs.”
For publicly traded Constellation and Harris, the Allscripts division will be a big boost to its work in healthcare, which already is home to more than 20 brands.
“Allscripts has a long and rich history of providing solutions to healthcare organizations,” Jerry Canada, Harris’ president for healthcare, said in a statement. “Harris is excited to welcome the staff and customers that helped make Allscripts a success in the hospitals and large physician practices segment. We believe that the employees and customers of both organizations will benefit from the possibilities created by this forever relationship.”
Poulton told analysts the Allscripts team expects to net $600 million from this deal, some of which will go toward funding the company’s share repurchase program. Putting a portion of that money to work on acquisitions to grow Veradigm also is on the table.
“We’re not going to race into that but we’ll certainly be looking at opportunities to continue to enhance the value of that business,” Poulton added.
Shares of Allscripts (Ticker: MDRX) were up 4 percent to nearly $21 in midday trading March 3. They are now up about 40 percent over the past six months, growing Allscripts’ market value to about $2.4 billion. Constellation’s stock (Ticker: CSU) was up 3 percent, pushing that company’s market capitalization to nearly $47 billion.