Athenahealth (ATHN 132.09, +11.74, +9.75%) reported Q3 results after the close on
Friday, but bigger news arrived for the company today with the announcement
that the company has agreed to be acquired by Veritas Capital and Evergreen
Coast Capital. ATHN shareholders will receive $135 per share in cash in a deal
worth approximately $5.7 bln. This represents a 12% premium to Friday's closing
price. The deal is expected to close in 1Q19.
Athenahealth is a healthcare IT company. Specifically, it provides cloud-based software and mobile apps for doctors' offices and other healthcare facilities in order to streamline workflow, data, and billing. Its software helps with medical billing (athenaCollector), electronic health records (athenaClinicals), patient engagement (athenaCommunicator), care coordination (athenaCoordinator), population heath management (Population Health), and clinical decision support (Epocrates). ATHN's goal has been to modernize and digitize the healthcare industry, which is still largely served by outdated, legacy software systems.
The signing into law of the Affordable Care Act in 2010 made this stock hot; it was seen as a clear beneficiary of one of the ACA's main goals: to modernize healthcare IT. Back then, many doctor’s offices and hospitals were still using paper or antiquated IT systems. The ACA provided lots of financial incentives to spur the medical profession to modernize their internal systems, and it was largely successful, as many care providers did upgrade their IT systems and move to electronic health records.
ATHN did benefit from those changes and consequently experienced much growth. However, its growth has been slowing. Just on Friday, ATHN reported that Q3 bookings fell 29% year/year to $46.6 mln. Crowding in the company’s space has contributed to athenahealth’s struggles in recent years; major players like Allscripts Healthcare Solutions, Cerner, Epic Systems, McKesson, and MedScape compete with ATHN, as do smaller names like CareCloud, eClinicalWorks, and UpToDate.
In the interest of becoming more competitive, not only is ATHN going private, but Veritas and Evergreen expect to combine athenahealth with Virence Health, the GE Healthcare Value-based Care assets that Veritas acquired earlier this year. The combined business is expected to be a privately-held healthcare IT company with greater scale and an extensive national provider network of customers. The combined company is expected to operate under the athenahealth brand.
Of note, this was not the first time that ATHN has been approached about a sale. In May 2018, Elliott Management offered $160/share in cash. In June 2018, ATHN announced that it would explore strategic alternatives while announcing that CEO Jonathan Bush had stepped down. Quite a bit of M&A chatter has involved the stock in the subsequent months, but it seems that with this deal, ATHN sees the right fit. The drop in the stock’s price from $155 in late August to its $120 close on Friday may also have spurred management to make a deal.
In sum, we suspect there will be more consolidation in the healthcare IT space in the coming months and years. When there is a sizable opportunity but a fragmented market, a ripe opportunity is created for larger players to grow via acquisition and become much stronger competitors with more scale. Also, we would not be surprised to see ATHN back trading on the public markets in a few years, once it has gotten stronger and larger through the Virence combination.
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