Healthcare Industry M&A Activity Within the IT Subsector Thrives

Summertime typically signals a slow down for mergers and acquisition activity, especially for technology-based businesses. The Nasdaq’s lackluster performance during summer indicates investors tend to ignore this sector in anticipation of the latest technology gadget or new game-changing systems that normally are unveiled as autumn approaches.   However, recent M&A activity impacting information technology (IT) companies servicing the healthcare industry has been far from stagnant.

The health care industry’s IT based business services subsector became particularly vibrant just as summer was winding down when nine deals were reported by Capital IQ. The robust August activity generated a combined announced, or closed, transaction value of nearly $4 billion. That multi-billion-dollar deal capped off a three–month streak of 25 reported transactions, either announced or closed.

Closer examination of the details surrounding  disclosed transaction multiples provides even more insight into the heightened interest in the health care industry’s technology-based business services market.

Highlights from M&A activity within the health care IT business services subsector this summer include the following:

  • The Blackstone Group’s proposed $3 billion buy-out and privatization of Emdeon, Inc. represents one of the largest announced business services sector transactions recorded in August for any industry, not just the health care market. This public company provides revenue and payment cycle management solutions that connect payers, providers and patients. The offer represents a price equal to 2.3X revenue, a full multiple over what the company has historically traded at as a public company.
  • Medical Present Value (MPV), another technology-based provider to the medical industry’s revenue cycle management, was sold to Experian PLC. The $185MM transaction represents a blockbuster 8.3X MPV’s reported 2010 revenue or, if calculated based on 2012 year ending company projections, the transaction equates to  18.5X EBIT & 4.1X revenue.
  • Vital, a leader in advanced visualization and analysis solutions for health care providers, closed on its merger with Toshiba in June. Capital IQ recorded the final offer at 2.5X revenue and a whopping 94X EBITDA.
  • M*Modal, the advanced speech understanding technology that transforms narrative to electronic documents, sold to the medical transcription service provider MedQuist for a reported $132MM, representing 5.5X current revenue run rate.
  • Transcend Services (Nasdaq GS:TRCR) acquired Salar, the clinical documentation and billing workflow solution provider, for $11MM as reported by Capital IQ. That represents 2.8X Salar’s revenue.
  • The health care management consulting firm Navvis & Company merged with the publicly held Healthways (Nasdaq: HWAY) in a reported $28.7MM transaction reported by industry insiders at 2.1X revenue.

Prices were not disclosed for a majority of the remaining announced deals but they likely were relatively small in value size. The mergers and acquisition activity in the healthcare market’s IT business services subsector during the past three months indicates increased vitality within the industry. Driven by the uncertainty created by new federal mandates in the way health care providers deliver their services and are reimbursed, we can expect to see further consolidation. This consolidation will not only affect the health care business services sector, but all areas of the health care industry. This summer’s heightened activity bodes well for the financial futures of these technology-based businesses as well as for the health care industry they serve.

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David Jasmund

Investment Banking
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