Dealmaking surrounding health information technology businesses has been on the upswing in recent weeks, with private equity players driving much of the activity.
Private equity firms are buying, selling and making partial investment in health IT, an industry they view as primed for future growth.
"The financial markets are starting to take notice of the opportunities, and are putting their funds behind the healthcare technology sector," said Vern Davenport, executive vice president and general manager of Misys Healthcare Systems, a Raleigh, N.C.-based division of software company Misys, in an e-mail.
The fact that the deals featured the heavy involvement of investment companies paying reasonable prices indicates that they were looking for opportunities for future growth, and not a one-time acquisition at bargain-basement, fire-sale prices, said Stephen Lieber, president and chief executive officer of the Healthcare Information and Management System Society. "The involvement of the investment community is something we all should be watching and paying attention to," Lieber said. "Clearly, an equity firm is not doing it to serve any not-for-profit good. They're clearly motivated by 'Is this a good business opportunity?' "
The interest in health IT is producing some complicated arrangements. Francisco Partners, Menlo Park, Calif., sold its Bellevue, Wash.-based revenue-management systems provider, Lynx Medical Systems to Picis, just weeks after the investment firm had bought Dairyland Healthcare Solutions, Glenwood, Minn. To buy Lynx, Picis—a Wakefield, Mass.-based developer of information systems for intensive-care units and emergency departments—will use part of $155 million that Goldman, Sachs & Co. recently invested in Picis.
Meanwhile, software company Misys was in paring-down mode with the goal of reducing debt and increasing its focus in healthcare on its physician clients with two deals to sell. The company agreed to sell its diagnostics business to San Francisco-based private equity firm Vista Equity Partners for $381 million and its hospital electronic health-record product to QuadraMed Corp., Reston, Va., for $33 million.
One of the more complicated deals involved the purchase of Quovadx, formerly of Greenwood Village, Colo., by Battery Ventures of Waltham, Mass. The $139.1 million deal, in which Quovadx shareholders received $3.20 for each share of common stock they held, involved the purchase of the company's two subsidiaries—Rogue Wave Software and Integration Solutions Division—and setting them up as stand-alone companies under the Battery Ventures umbrella, a Rogue Wave spokeswoman said.
According to a Battery Ventures spokeswoman, Integrated Solutions—a healthcare software provider—will retain the Quovadx name and move its operations from Greenwood Village to Dallas.
Healthcare and financial software consultant company Arcadia Solutions, Burlington, Mass., was purchased for an undisclosed amount by the Pohlad Family of Cos., whose founder, Carl Pohlad, is the owner of the Minnesota Twins.
And the largest HIT deal announced recently involved Munich, Germany-based Siemens' plan to acquire Dade Behring, a Deerfield, Ill., clinical diagnostic company for $7 billion, which offers its EasyLink Informatics System middleware connection among its many product lines. Siemens will combine Dade with its Medical Solutions Group in Malvern, Pa.
Officials for clinical systems developer Picis said that its two deals were not about saving on costs but adding revenue. Picis has grown 1,200% in the past four years, while Lynx has grown 800% during the same time, so bringing the companies together is not about trying to merge operations to save money, said Todd Cozzens, president and CEO. "Both are growth companies, trying to keep growing," he said. "This isn't about synergies of cost savings, it's about synergistic increments of revenue."
At Hyland Software, Westlake, Ohio, executives said its deal—which calls for Thoma Cressey Bravo to buy a 58% stake in the company for $265 million (including $150 million in equity)—is more of a partnership in which the equity firm will provide capital and expertise to help Hyland grow by its own acquisitions. Bill Priemer, Hyland executive vice president and chief operating officer, said Thoma Cressey Bravo looks for healthcare and software companies to serve as a platform or foundation for further acquisition in industry segments that are "ripe for consolidation."
Priemer explained that Hyland's expertise in software and healthcare met one Thoma Cressey Bravo criterion, while its solid presence in the "fragmented" industry spaces of enterprise content management, or ECM, and imaging and document management met another.
And, while Hyland may be a significant regional force in the Midwest in general and the Cleveland area in particular, Priemer said TCB's involvement in the company will push them onto the "global stage."
"This really does pave the way and further enables us to become a major player in the ECM space," he said.
Ed McQuiston, Hyland director of healthcare and insurance solutions, agreed, and said the company is poised to become a dominant force on the imaging and document-management side as well.
"We're looking to extend TCB's strategy of being an acquirer of smaller niche companies with nice-sized customer bases," he said, adding that Thoma Cressey Bravo not only brings in the financing that is needed to do this, but also the expertise to execute complex transactions.
While there is a general fear that consolidation leads to less innovation, the companies Hyland is looking to buy would not be considered innovators. "For Hyland, it's about acquiring the customer base," McQuiston said. "We're not feeling a compelling need to acquire new technology."
The companies being targeted may have been innovators at one time, but now their growth—and, consequently, their research and development budgets—stalled for one reason or another, Priemer explained. But, because of the complexities involved in switching to new systems, these companies have customers who have stayed with them rather than face the hassles of implementing another vendor's technology. What Hyland can now offer is a graceful exit strategy for a company's existing ownership while offering their customers an easier path to product upgrades.
Priemer added that Thoma Cressey Bravo's entrance also provides a graceful exit and a healthy payday for long-time stockholders—many of whom were friends and relatives of the Hyland family—who will now be rewarded for their early support.
But for Misys, its two deals will allow its healthcare unit to focus its research and development in one area. "Our greatest opportunity for growth lies in the ambulatory space and in building connected communities, and we are re-balancing our portfolio in order to execute that strategy and drive value," Davenport wrote. "Developing solutions for use within hospitals as well as the ambulatory market meant that we were spread too thinly, lacked scale and could not invest to compete as effectively as we would like."
Steven Waldren, director of the American Academy of Family Physicians' Center for Health Information Technology, said Misys' approach makes sense.
"With only 20% to 30% at most of physicians utilizing electronic health records in their offices, there's a lot more units to be sold on the ambulatory side," Waldren said. "The biggest companies have only an extremely small fraction of the current market, and the penetration of that market is so low, there is still an opportunity for small vendors to get a foothold.”
Waldren said government regulation has more potential to stifle innovation than industry consolidation, but—for now at least—the government spotlight has been beneficial to IT adoption and financing.
"The overall focus that health IT is important has helped drive investment in this marketplace," Waldren said. He also predicted that money will start flowing even faster when more nonclinical IT companies start getting more actively involved in the healthcare market.
A snapshot of recent health IT deals:
- Siemens Medical Solutions to buy Dade Behring in $7 billion deal.
- Picis to buy Lynx Medical Systems using funds from $155 million Goldman, Sachs & Co. invested in Picis.
- Private equity firm Thoma Cressy Bravo buys 58% stake in Hyland Software for $265 million.
- Misys Healthcare System to sell diagnostics business to private equity firm Vista Equity Partners for $381 million.
- Misys Healthcare System to sell its CPR hospital electronic medical-record product to QuadraMed Corp. for $33 million.
- NightHawk Radiology Holdings buys Midwest Physicians Services and Emergency Radiology Services for $62.5 million.
- Practice Fusion buys EMR Medical ChartWizard Systems for an undisclosed amount.
- McKesson Corp. to buy patient-tracking system developer Awarix for an undisclosed amount.
- RemedyMD to buy EMR developer EZ Healthcare for an undisclosed amount.
- WellPoint to buy radiology benefits management company American Imaging Management for about $300 million.
- Emergis pays at least $15.3 million for Canadian EMR company Unikoan.
- Private equity firm Francisco Partners buys Dairyland Healthcare Solutions for an undisclosed amount.
- Private investment fund Hicks Holdings buys stake in decision-support software provider SafeMed for an undisclosed amount.
- Quovadx sells its Integration Solutions Division and Rogue Wave Software to technology venture capital and private equity firm Battery Ventures for a reported $139.1 million.
- Healthcare and financial software company Arcadia Solutions, Burlington, Mass., was purchased for an undisclosed amount by Pohlad Family of Cos. of Minneapolis.
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