Contact: Mark Fontecchio
Healthcare IT M&A has passed its recent quarterly checkup with flying colors. Massive high-multiple acquisitions by strategic buyers resulted in a record quarter of M&A value in the sector. The consolidation comes as healthcare enterprises are pulling back spending.
Purchases of healthcare IT targets totaled $6.1bn in the first quarter, significantly above any previous quarter in 451 Research’s M&A KnowledgeBase. The deals also occurred at higher multiples. Inovalon’s $1.2bn pickup of ABILITY Network – one of four $1bn+ transactions last quarter – valued the target at 8.6x trailing revenue. That’s the highest multiple on any healthcare IT acquisition in the M&A KnowledgeBase, and several turns higher than the 3.9x median for the previous five years.
At the same time, 28% of healthcare enterprises expect IT spending to decrease this year. That’s more than any other vertical, according to 451 Research’s Voice of the Enterprise: Digital Pulse, Budgets and Outlook survey. Strategic acquirers accounted for more than 60% of healthcare IT M&A spending in Q1, upping activity through the first quarter as they seek to expand their portfolios in search of cross-selling opportunities and battle for every available dollar.
Case in point: Inovalon’s purchase of ABILITY Network brings the buyer healthcare data analytics, as well as 44,000 provider customers. Also, the $100m acquisition of Practice Fusion and its 30,000 customers should help Allscripts extend its electronic health records software into smaller medical practices.
The indications are already there that M&A spending on healthcare IT will continue this year. Two days into the second quarter, Veritas Capital agreed to pay $1.1bn for healthcare IT assets from GE Healthcare. The private equity firm has a history of buying healthcare IT firms and then selling them off after a couple of bolt-on acquisitions.
