While most of us were getting ready for Thanksgiving, the big announcement this week was that athenahealth has changed hands from Veritas Capital and Evergreen Coast Capital to new owners Hellman & Friedman and Bain Capital for $17 billion. That’s a pretty solid return considering athenahealth was acquired for $5.7 billion 3 years ago.
As was noted in the announcement, athenahealth had acquired Virence (Formerly GE Centricity) to add value to the company and increase its network of ambulatory practices. The acquisition press release notes that athenehealth has more than 140,000 ambulatory care providers across more than 120 specialties on their platform. That’s a powerful footprint in the oft forgotten ambulatory space.
I’ll admit that this type of valuation is a challenge for me to understand. Talking to many athenahealth customers, many of them think the soul of the company is gone ever since Jonathan Bush was ousted as CEO. While Jonathan Bush is a bit of a lightning rod and often did and said many cringeworthy things, he also had a brilliant mind that set the vision for athenahealth in ways that seem to be lacking since his departure.
The best example of this was his decision to take on the revenue cycle of practices as a way to pay for the EHR software. athenahealth is still using that approach today as a way to win over practices who don’t want to manage their revenue cycle. In fact, some of gone so far as to argue that a revenue cycle company (ie. athenahealth) can’t be worth this valuation. They’re not wrong, but that’s not to say that this approach isn’t compelling for many practices. athenahealth’s success has proven that it is an approach that many practices love.
The other thing most people don’t realize is that athenahealth doesn’t sell EHR anymore. Ok. They do sell EHR, but that’s not what I mean. At this point, athenahealth is more of a distribution channel for health IT companies to access ambulatory practices. Sure, athenahealth provides an EHR, but my guess is that these private equity companies that acquired them realize the potential here is not in selling more EHR. The potential here is the distribution channel those customers represent whether that’s developed by athenahealth or through partners.
David Humphrey, a managing director at Bain Capital Private Equity hinted as much in the announcement where he said, “We are excited to leverage our extensive vertical software and healthcare experience to help Bob and the management team accelerate growth, develop new products, gain market share, and continue to innovate in a highly scalable and vitally important end market” [emphasis added] When you look at all the EHR vendors out there, the athenahealth marketplace that was formerly called More Disruption Please is one of the best in the industry. It’s positioned to leverage the distribution channel athenahealth represents.
Plus, athenahealth also has a huge opportunity when it comes to data. Maybe I missed it, but I haven’t seen a big data deal from athenahealth announced like we’ve heard from other EHR vendors. It’s possible that this was purposeful since data deals are great for the company’s bottom line, but aren’t necessarily popular with end users. Keeping it quiet is a benefit of being privately held. I have little doubt that Bain Capital and Hellman & Friedman calculated the value of 140,000 ambulatory care providers’ data into their valuation.
What does this all mean for athenahealth customers? Likely not very much. I expect the acquisition will continue to invest in the software enough to meet the compliance requirements that every EHR vendor must meet. Plus, they’ll include some new features here and there to keep the customer base happy enough that they don’t leave. However, I’d expect that most of the new innovations they offer will come with a price tag as the news owners work to extract value out of the business. In many ways, this was already happening under the previous private equity owners.
