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No Let-Up for Health I.T. Mergers
January 1, 2008
Health care information technology acquisition activity that picked up speed in 2006 kept up the pace in 2007. There were no blockbuster billion-dollar buys, with the exception of the $2.35 billion Eastman Kodak Health Group acquisition by Toronto-based Onex Corp. that included far more medical imaging modality technologies than software.
But there were at least eight deals valued at more than $100 million by the count of Healthcare Growth Partners, a Chicago-based mergers and acquisitions advisory firm. And the pace of software vendors trading hands was brisk-at least 14 sales in April alone-with plenty of household names in the mix.
And some vendors made bold moves in 2007, particularly Misys Healthcare Systems of Raleigh, N.C. The company returned to its ambulatory care roots by selling its Sunquest hospital ancillary software unit to San Francisco-based Vista Equity Partners for $381.5 million, and by divesting its Misys CPR inpatient electronic health records software to Reston, Va.-based QuadraMed Corp. for $33 million.
Health Data Management tracked a total of 70 deals in 2007 through November (see charts, pages 44, 46).
One key reason for the activity was the entrance of equity investment firms into the market. "This was the year of private equity making a play in health I.T.," says Jonathan Phillips, a managing director with Healthcare Growth Partners.
But it also was a year where expected heavy activity in the ambulatory electronic health records sector didn't happen. The EHR sales were few, with the most significant being San Francisco-based McKesson Corp.'s pickup of Practice Partner of Seattle.
Still, combined with 2006 acquisitions, the past two years have seen substantial consolidation of the ambulatory EHR vendor market, notes Laura Jantos, a principal at ECG Management Consultants, Seattle.
Digging Into Deep Pockets
At least seven private equity firms bought health I.T. vendors in 2007, some more than once.
The list includes: Battery Ventures buying the integration unit of Quovadx Inc. and the portal business of Healthvision; Thurston Group and ABRY Partners picking up physician vendor Companion Technologies (now HealthPort) and document imager SDS (formerly Smart Document Solutions); Vista Equity Partners acquiring the Sunquest ancillary hospital software of Misys Healthcare Systems; Insight Venture Partners and Bessemer Venture Partners purchasing human resources/behavioral health vendor Netsmart Technologies; Francisco Partners buying hospital information systems vendor Dairyland Healthcare Solutions; Primus Capital Funds picking up hospital information systems vendor Healthcare Management Systems; and Onex Corp. acquiring Kodak's Health Group (now CareStream).
Equity firms have been interested in health care I.T. for some time, Phillips says. A favorable credit environment for the first half of the year made it possible for more aggressive valuations to be paid, but that's easing now with the credit crunch, he adds.
But for a while, the perfect storm for the financial markets was brewing. In recent years, an enormous amount of capital has been raised, and the push by private equity was driven by a lot of money sitting around, Philips explains. "All the funds had money to put to work, and all the lenders had money waiting to be put to work."
The initial moves by equity firms in 2007 could spur additional acquisitions in coming years, adds Jason Baker, also a managing director at Healthcare Growth Partners. "They generally don't just buy one company," he contends. After a "platform investment," these firms often then make complementary buys.
That already happened twice in 2007 with Battery Ventures buying Healthvision after Quovadx and Thurston Group picking up SDS after Companion Technologies.
Filling Out Portfolios
The same pattern frequently applies to software companies buying other vendors. For example, Burlington, Mass.-based Nuance Communications in 2006 spent $357 million for Dictaphone Corp. and spent much of the year digesting its dictation and transcription software, and its 4,000 clients-75% of them hospitals.
Then in 2007, Nuance followed up by making three focused acquisitions to bring new value to Dictaphone's products. In the spring, it paid $58 million for Focus Informatics Inc. of Woburn, Mass., marking its entrance into providing in-house medical transcription services.
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