Oops, I Did It Again
Misys (No. 11) seems to be back as a consolidator, albeit on a smaller scale and with more price discipline than evidenced in the old days (i.e., Medic and Sunquest). Since February, the company added both Payerpath and Amicore to its portfolio. The $49 million acquisition of Payerpath expanded the functionality of its physician office and EDI tools (Medic) and added revenue cycle management offerings to the hospital suite offerings.
Under cover of darkness (no announcements were made), Misys also acquired Amicore, the physician practice management and medical record company "backed and founded by" Pfizer, IBM and Microsoft in 2001. Reminiscent of Glaxo's Healthpoint debacle, Amicore sold for under $10 million.
Smooth Operator
Immediately before HIMSS, Surgical Information Systems (No. 64) was recapitalized by Vista Equity Partners in a management buyout transaction for an undisclosed value. SIS, a vendor of surgery management systems, will likely continue business as usual, except its president assumed the CEO role for the company. With new growth-oriented investors, I'd expect the company to become more aggressive moving forward.
You've Gotta Have Heart (encore)
Continuing the consolidation of cardio-PACS vendors, in March Philips Medical (No. 2 in 2005, but not reporting this year) announced its intent to acquire privately held Witt Biomedical for $165 million, expanding its offerings in the cardiac cath lab. Witt's stated 2005 revenues were $49 million with operating income of approximately $15 million, yielding multiples of 3.4x and 11.2x revenues and EBIT respectively — not an overly high price for an 18 percent annual grower and one of the increasingly scarce cardio-PACS assets. The continued interest in the cardiology suite likely explains why Philips was willing to do a transaction that won't be accretive until 2008. Had Witt submitted the data, it would have been around number 43 on the Healthcare Informatics 100.
Carolina On My Mind
As predicted in the February article, Allscripts (No. 33) did, indeed, find a better use for its cash and purchased A4 Health Systems (No. 48 last year) for $272 million (3.6 x revenues, 17.6 x EBITDA). In addition to adding another EMR to the company's product mix (HealthMatics — formerly known as Healthpoint, when handsomely funded by Glaxo), A4 brought Allscripts a full practice management system, which likely will aid in Allscripts' plans to move to the smaller group market. Allscripts followed this up with a $150 million stock offering to finance the deal.
We (un) Built This City
Also discussed in February, with the growth of IT penetration comes the need for implementation and integration services, many of which can benefit from scale. Accordingly, Park City Solutions (No. 62 last year) divested its iServices Group to healthcare integration and portal solutions vendor Medicity, Salt Lake City (No. 80).
The Long and (un) Winding Road?
While not a consummated acquisition (or even necessarily more than a glint in a buyer's, banker's or board member's eye) just as HIMSS was ending, Emdeon (No. 5) announced that it had been approached by "several" third parties interested in buying its Emdeon Business Services (Envoy) and Emdeon Practice Services (Medical Manager) segments. What would be left, should anything occur, would be ViPS, Porex and, of course, 85 percent of the portal division, WebMD. Some form of process is apparently under way and rumors suggest that the board wants to sell both as a package and is avoiding financial buyers. This clearly raises the question of just which companies would consider buying both assets, especially given their respective growth rates. Should it occur, this will likely be the biggest deal of 2006 and the market is waiting with baited breath.
Doctor Doctor (Buy Me Some News)
Also, as I predicted in February, WebMD Health, flush with cash from its very successful IPO did, in fact, become acquisitive once again, picking up two content assets. Earlier this year it acquired eMedicine.com, a physician—focused content portal that was not generating profits for $25.5 million in cash (4.3 x revenues). In April, it acquired Summex Corporation, a provider of health and wellness programs (that was also just breaking even) for $30 million with a $10 million potential earn-out (5 to 6.7 x revenues). WebMD is still likely to remain an active buyer of similar content-related companies as well as seeking to further broaden its offering to the pharmaceutical manufacturing industry with additional physician marketing and CME offerings.
Double Talk
Just before HIMSS, No. 51 Nuance Communications, a speech and imaging solutions company whose portfolio includes Dragon Systems, acquired privately held transcription technology leader, Dictaphone (No 22) for $357 million in cash or roughly 2.4 x trailing revenues. In addition to a brand name that probably rivals Kleenex or Lifesavers, Dictaphone is likely the technology company that has more physicians touching it daily than any other with 400,000 claimed users. I'm sure most readers will agree that voice recognition as an eliminator of transcription and typing has been 2-3 years away for at least 15 years (handily beating out EMR adoption for over-promised technology and adoption rates). The challenge here will be for Nuance to monetize this brand equity and install base (which was a bit of a wasting asset) in its quest to transform dictation and move aggressively into the healthcare vertical.
The Song Remains the Same
So, another year sees nine companies on the Healthcare Informatics 100 list acquired and, of course, new entrants and some larger vendors that don't submit their data being acquired. Looking to the coming year, I expect a similar pace of consolidation, but no deals as sizable as IDX/GE, with the possible exception of Emdeon, assuming a buyer ultimately emerges.
Who Are You?
William Blair was involved in the SIS sale and the Allscripts' stock offering mentioned above.
Author Information:Benjamin Rooks ([email protected]) is an investment banker in the Healthcare Group at William Blair & Company, L.L.C. and a member of the Healthcare Informatics Editorial Board.
