Matthew Holt

Allscripts buys Eclipsys: Does it make sense?

Queen of shoes Inga at HISTalk got ahead of the news (she tweeted about 2 hours before the announcement—not sure if that led to the news being moved up—but the Eclipsys stock showed no sign of word getting out in advance and the website they’ve put up looks very thrown together!).  Inga also has the best summary.

The deal is that Allscripts is going to buy out Misys (which owned a majority stake following Allscripts buying the former Medic practice management system but was always trying to get out of the US HIT business) at about it’s rough current market price, and pay it a spiff on top of over $117m. I’m up with insomnia, so the US market isn’t open and we can’t know how it’ll like it. But the UK is open and Misys is trading 20% higher. So my guess is that Allscripts will take a hit for that. Meanwhile it’s paying about a 20% premium for Eclipsys. In the end Eclipsys shareholders will have 37% of the combined entity, Misys will keep a chunk of about 10% that Allscripts can buy out post closing. Allscripts CEO Glen Tullman will stay CEO, and Eclipsys’ CEO Phil Pead will be Chairman with a list of tasks that suggests that he’ll have more time on the golf course than Glen.

Does it make sense? Other than the financial deal, this is a moderate size bet from Allscripts, which is about double the market cap of Eclipsys. The bet is that there are enough hospitals who (like it’s star client North Shore-Long Island Jewish) will buy both an inpatient system and an integrated outpatient system for their affiliated physicians. They claim that it’s about 35% of the market.

But that remains to be seen. Most of the hospitals who are big enough to be “hubs” have already made a bet on an inpatient vendor, and in general that hasn’t been Eclipsys. (Calling them a “leader” in hospital IT is somewhat redefining the term) Whether enough of them are reconsidering their whole approach I doubt. But on the other hand Allscripts has shown that it can integrate diverse product lines with several of its acquisitions and make good business decisions about it (although not always thrilling customers who thought they were buying an ongoing product). And Eclipsys is profitable, so the downside risk doesn’t seem too high.

I guess the only real question is raised in a separate NY Times article yesterday which suggested that meaningful use criteria were so impossible that no one could possibly get the government’s money. Of course the expectation that EMR use will dramatically grow is the main justification behind Allscripts’ merger driven growth the last few years.

BTW checkout slide 21 on the slide deck of the announcement. Glen still can’t resist taking a crack at a certain CEO in Madison, Wisconsin.

Categories: Matthew Holt

8 replies »

  1. tcoyote, their technology is not obsolete. It may be that the end products are mediocre, but both companies use what is usually referred to as “latest technologies” (.NET, iPhones, etc.)
    As to walled gardens, Eclipsys has recently announced its open platform which enables anybody that wishes to do so, to develop modules big and small which integrate with their basic product.
    I am starting to think that we are all hung on some meaningless buzz words here, like “legacy” and “proprietary” and now “walled gardens”.
    Neither Epic nor Cerner, or Meditech for that matter, are probably shaking in their boots and I’m not really sure what market this combined entity is really and truly targeting, but somehow I think they are gearing up for the “smaller” market of private practices and regional hospitals which is still wide open.
    Anyway, Eclipsys hit the jackpot here.

  2. What do you get when you put two mediocre companies with obsolete technology together? Synergy? Lucky Eclipsys! If you want to build a bigger walled garden, you have to plant more than carnations. Maybe they can find a clever new name. Epic and Cerner are shaking in their boots.

  3. Mergers are inevitable and this seems to make as much sense as any. That said, it’s going to be years before any hospital or group practice that uses a product from Allscripts-Eclipsys will see a benefit from this. The software is the software, and integration is going to be pretty much the same headache whether one company or two own the ambulatory and facility pieces, until the legacy products are eventually replaced by a next generation system that is truly continuous and integrated.
    I would think this doesn’t increase their sales in the short term, compared to what the two legacy companies would have done separately. However, it does make the new company very likely to be among the 2-5 companies with significant market share in the long run.
    Hospitals are more and more becoming health systems with ambulatory components, or at a minimum they are trying to capture the doctors by supplying and supporting office EHR systems. Either way, hospitals want integrated solutions, and as small, independent private practice becomes less attractive so do the physician offices. Upshot: the distinct ambulatory and hospital EHR markets are increasingly going to blend into one market with one set of vendor players. The new Allscripts-Eclipsys, probably with more mergers ahead, is going to be one of them.

  4. Issuing debt for a stock buy back and diluting the stock? I would not be happy this morning if I were an Allscripts stock holder. Stock predictably getting hit this morning as a result.
    Interesting to see if that ‘$1.25B’ opportunity is anywhere close to what Allscripts is selling especially the ability to sell into what is already a very crowded Enterprise segment in the ambulatory side. Contrary to what you hear, this space is already well-saturated and consolidated.

  5. This is not a surprise to anyone familiar with either company. Eclipsys has failed in its numerous attempts to be successful in the ambulatory arena. The investments in development, and new product offerings has not improved their KLAS (customer satisfaction) scores and they continue to lose the large majority of deals to Epic. I guess Eclipsys stockholders have to be happy with the small 19% premium and hope that Allscripts can execute and continue to grow.
    Lastly, you have to give Phil Peed some credit for doing something that Harvey, Paul, and Andy failed to do – sell the company.

  6. Both companies sell devices that are inferior and insufficient for cost effective medical care. The safety problems of the devices will be amplified, actually, while its shear size and marketing will actually provide cover for incompetencies.

  7. We can expect more consolidation in healthcare IT — especially to broadly cover the healthcare continuum. There is more business risk in NOT being part of such changes.
    To win in the current market, the focus of a clinical IT vendor should be patients’ clinical records and the associated workflows, not the healthcare provider market segments. Hospitals and physicians are less important than consumers and the way they get healthcare.
    Those who best align the interests of those who pay for IT systems, the users, and consumers will rise to the top of the heap.