During the last several weeks, a transformation has begun in the Healthcare I/T market


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During the last several weeks, a transformation has begun in the Healthcare I/T market that is likely to have dramatic effects upon the strategic and investment environment in the sector.

 
A few weeks ago, I spoke about the proposed Allscripts-Misys transaction (link to the prior LifeLine).
 
Last week, it was announced that Apax Partners would acquire TriZetto Group in a “take private” transaction valued at $943.8 million (link to announcement). 
 
TriZetto shareholders will receive $22.00 per share in cash representing a 29% premium over the 30 calendar-day average closing price of the TriZetto’s stock. Further Apax Partners will acquire all the stock options and shares related to TriZetto's outstanding convertible notes. BlueCross BlueShield and The Regence Group, both customers of TriZetto, are providing a portion of the funding for the transaction and will be equity investors in TriZetto Group upon closing. 
 
TriZetto will continue to be led by the current Management team. TriZetto’s Board of Directors approved the transaction, which is subject to customary closing conditions, including shareholder and regulatory approvals. Closing is expected to take between four and six months.
 
Buddy Gumina, partner and head of US healthcare, Apax, said, 'We see the confluence of healthcare and information technology as a key area of focus for strategic investments. TriZetto represents a unique asset with a tremendous opportunity to drive positive changes in organized systems of healthcare, both in the US and abroad.'
The other major transaction for the week was Nuance Communications signing an agreement to acquire eScription, a provider of computer aided medical transcription technology. Nuance expects that by uniting the strengths and resources of Nuance and eScription, the combined organization can deliver “scalable, highly productive solutions, and also accelerate future innovation to transform the way healthcare provider organizations document patient care.”  Total consideration for the transaction is approximately $363 million. 
 
Nuance officials believe that with an estimated $7 billion spent on medical transcription in North America each year, the acquisition of eScription will accelerate Nuance’s ability to “effectively serve the industry with advanced transcription solutions.”    Paul Ricci, chairman and CEO at Nuance, said in a statement that eScription’s strengths in computer aided medical transcription workflow will accelerate his company’s delivery of solutions that improve the way patient data is captured, processed and used.    He also said that the combined company will focus on continued innovation to evolve healthcare documentation and lower transcription costs in excess of $1 billion in the next few years.
 
“Nuance has experienced robust demand for its on-demand, hosted healthcare solution, iChart, in recent years, with growth in the range of 30 to 40 percent,” commented Robert Wise, president of Healthcare division at Nuance. He believes that eScription’s exclusive focus on building a highly efficient, scalable on-demand platform will allow Nuance to more completely address the continuing demand in this recurring revenue model.  He pointed out that his company is anticipating that combined revenues for their on-demand medical transcription and clinical documentation solutions will be between $175 million and $200 million in fiscal 2009.
 
Viewed in the aggregate, these transactions represent several important themes that are taking shape throughout the Healthcare I/T industry: 
  • The Leaders are taking charge.  In the face of continuing technology development and persistent fragmentation, consolidation has become necessary.
  • Strategic transformation is being pursued, despite “depressed” valuations.  This takes vision, and it takes significant conviction, and it takes courage.
  • Investors retain significant appetite, particularly given the opportunity to establish leadership.
  • Customers are taking the initiative to force changes which they believe are critical.  The conviction of the customer base is being manifested NOT ONLY in continued commercial commitments, BUT ALSO in the use of their own capital.