Athenahealth's sale to two private equity firms closed Monday, making way for what the company's new CEO says will speed up the industry's slow crawl toward the elusive goal of interoperability
"We think we win in an open environment, and we're driving towards interoperability," said new Athenahealth CEO Bob Segert. "It's a key part of our strategy as we go forward."
Athenahealth's new owners, Veritas Capital and Elliott Management Corp.'s Evergreen Coast Capital, are combining the company with the former GE Healthcare company Virence Health Technologies. The $5.7 billion transaction won regulatory clearance ahead of last week's shareholder approval, paving the way for its final close.
The new company's revenue totals more than $1.7 billion and it has more than 160,000 clients—120,000 of whom come from Athenahealth, which transitioned from a public to a private company under the deal. The company will retain the Athenahealth name, brand and Watertown, Mass., headquarters. Its executive team has not been announced, but will include leadership from both companies. Both Veritas and Evergreen will have seats on its board.
Now the challenge is bringing the companies together. For the time being, both Athenahealth's and Virence's customers will remain on their respective platforms, but within the next couple of years, Virence's customers will move onto Athenahealth's platform.
It won't be simple, but it's been done many times before, Segert said.
"People say, 'What's the best way to eat an elephant?' One bite at a time," he said. "I think it's the same thing with mergers like this. I've been through several of them in the past where we've had to merge platforms together and it just takes time."
Segert described Athenahealth and Virence as having complementary qualities—the former being well-positioned in the "front door of medicine," with many primary-care clients. Virence, meanwhile, has a portfolio of large, multispecialty clients, he said.
"We believe we can harmonize those workflows and that information technology into a very powerful, broader AthenaOne platform," he said. "That's one of the things we get really, really excited about because we think it's going to bring tremendous value to our customers."
In mergers like this one, companies usually take one of two routes: merge their separate platforms together or migrate onto a single platform. Erik Bermudez, vice president of emerging markets and healthcare technology research at KLAS Research, said he recommends—both generally and in this case—bringing the companies' customers onto a single platform rather than attempting to merge the platforms. In his experience, companies are less likely to have success with their customers if they try to run multiple platforms in tandem rather than focusing on one platform, although they might still achieve financial success.
"If there is a focus on a single platform, if there is a focus on understanding 'What do customers want to achieve with this platform, and how do we dedicate the right resources to that platform to help customers get from point A to point B?' " Bermudez said. "That is ultimately better in the long run."
Athenahealth has dominated the ambulatory landscape for the past decade, but two years ago, a KLAS report uncovered a sharp decline in satisfaction among its customers that it hasn't completely recovered from, Bermudez said. That in combination with vocal investors and the departure of key executives may have precipitated the desire to make a change, he said, adding that KLAS has not researched the deal directly.
A lot of times deals like this are simply about bringing together several assets to form a bigger, more valuable company, said Pam Arlotto, CEO of the healthcare transformation consulting firm Maestro Strategies.
Private equity has shown a strong interest in physician practices in recent years, and Arlotto said she thinks they'll innovate the way they're run to be more efficient and integrated.
"What these investors are doing is they're making a bet on that," she said. "They're saying, 'This is an area that's going to grow. It's going to need more professional management and expertise.' So they're bringing together companies with software, services and probably some very specific goals to impact practices and probably to grow."
Closing the deal hasn't been a completely smooth process since the definitive agreement was signed in November. In December and early January, three shareholders filed lawsuits that said Athena health's original proxy filing to shareholders was misleading and left out material information. Athenahealth added new information to the proxy in a Jan. 28 filing, which simultaneously announced that all three plaintiffs had voluntarily dropped their cases.
One of the lawsuits, Hamilton v. Athenahealth, took issue with the more than $26 million in stock awards Athenahealth's executives and board members will receive once the deal closes, arguing the deal will "create a windfall for Athenahealth's executive officers that is unavailable to the common stockholders." The complaint also cited the golden parachute proposal, which is worth a combined $20.3 million for its beneficiaries
That lawsuit also argued that the price of $135 per share does not adequately compensate the company's shareholders.
"In the end, Elliott got what it wanted," the complaint stated. "Athenahealth is going private, but Elliott is paying less than the company is worth. If history is any indication, Elliott will sell Athenahealth in a few years for a premium. Elliott will profit; the other Athenahealth shareholders will not."
Segert declined to comment on the allegations in the lawsuits, but said the company was responsive to the requests for additional information.
As part of the deal, Virence's workforce management business is becoming a separate Veritas portfolio company under the API Healthcare brand.