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Vendor Consolidation: Still Riding the Wave
January 2007
Consolidation in the health care information technology market took a sizable jump in 2005, and many industry insiders predicted 2006 would see even more activity.
They were right. It was a busy year, with Health Data Management tracking 76 acquisitions by Dec. 1, one-third more than the 55 deals in 2005.
While the majority of acquisitions were small, acquirers spent serious money in many instances. More than 20 companies that are household names in the industry changed hands during 2006 (see chart, pages 58-59). At least nine buys were worth more than $100 million and two, McKesson Corp. buying Per Se Technologies Inc. and General Atlantic LLC acquiring Emdeon Business Services, topped $1 billion.
The prevalence of smaller deals, however, will continue, observers believe. In part, this is because the acquisition market is favorable enough that many smaller vendors can get better value by selling than if they tried to grow the business on their own, says Victor Kats, director of business development at Misys Healthcare Systems, Raleigh, N.C.
Customer service concerns also are driving some small vendors to look for a buyer. "As niche vendors continue to grow, they will be challenged with keeping service up to par," Kats explains. "A $10 million company a few years ago that's now a $50 million company may not have the necessary service infrastructure."
Some smaller companies, however, simply don't want to be bought. Acquisition inquiries for mobile computing software vendor PatientKeeper Inc. increased this year but the discussions never got far, says Stephen Hau, co-founder and vice president of marketing and business development at the Newton, Mass.-based firm. "We prefer to remain independent and control our own destiny."
Going public is a possibility for PatientKeeper, Hau says. But public or private, the company is committed to being independent. "We spend about zero percent of our time thinking about being acquired."
A defining characteristic of acquisition activity in 2006 was that 11 claims clearinghouses-including two of the nation's largest, operated by Elmwood Park, N.J.-based Emdeon Corp. and Alpharetta, Ga.-based Per-Se Technologies Inc.-changed hands. Just as significantly, two of the clearinghouse buyers were banks, evidence of the push by financial institutions to stake out territory in the health care market.
With the industry starting to accept standard transactions beyond claims, electronic data interchange is a growth area in health care, says John Osberg, president at Informed Partners LLC, a Marietta, Ga.-based consulting firm. The acquisition activity during 2006 in the EDI market "is the beginning, not the end," he adds.
Banks have dabbled in health care EDI before, but soon lost interest. Now that the industry is starting to adopt standard transactions, their interest has been renewed. "We've got standards and banks follow standards," Osberg explains. "Medical banking is here to stay this time. Banks' core competency is processing consumer debt, and we've got standards now to do that."
In April, PNC Financial Services Group Inc. of Pittsburgh acquired Healthcare Administration Technologies Inc., a Tulsa, Okla.-based clearinghouse. Five months later, Charlotte, N.C.-based Bank of America bought HealthLogic Systems of Norcross, Ga. "There are a lot more banks beyond these looking at the health care marketplace," notes Kevin Cameron, CEO at Emdeon Corp.
Banks not going anywhere
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