Some Musings from the Chair
With summer winding down and Labor Day in the rear view mirror, it felt like a good time to write a quick Investor’s Chair post and share one or two of the more interesting things I’ve noted in the market of late.
The biggest news of the summer was clearly Cerner’s announced acquisition of Siemens’ healthcare information technology unit (or, as we old timers would say, Shared Medical Systems.) When I got a call from a reporter related to the transaction, my first reaction was a sense (as perhaps the Siemens folks would say) of schadenfreude, as this is yet another example of yet another European technology company foundering on the shores of the US healthcare IT market (think Misys).
Recall that Siemens bought SMS 15 years ago for $2.1 billion, only to sell it now for $1.3 billion. Why the decrease in value? Perhaps because in the greatest boom times our sector has ever seen (thanks in no small part to ARRA), revenues over these 15 years were astoundingly FLAT!
With this purchase, Cerner is now the clear sector leader and will enjoy mammoth cross-selling opportunities given the product fit. Cerner is a clinical leader, where Siemens (née SMS) always lagged there and was more focused on financial systems. (In fact, I recall the former CEO of SMS explaining to me that Cerner’s clinical focus was off base!)
From an investor perspective, this was a good use of both the cash hoard Cerner had built up on its balance sheet and its high-multiple stock, allowing the deal to be almost instantly accretive – especially with the $175 million in pre-tax synergies the company guided to in its press release. While the stock traded fairly flat around the release (likely because rumors had circulated for several weeks prior to the deal, causing the deal to already be priced into the stock), Cerner’s shares are up almost 10 percent as I’m writing this post, more than twice the S&P — Ms. Market seems to be more excited.
The vast majority of analyst commentary has been positive and we here at the Chair are fans of the purchase as well. The only thing that gives me pause as a long time Cerner watcher (and fan) is that the company has zero history of large-scale M&A and the sector has not been kind to such large-scale bets in the past. What’s especially noteworthy here though is that the cultures of the two companies are literally more than an ocean apart, and in the words of famed management guru, Peter Drucker, “Culture eats strategy over breakfast”.
That said, the price Cerner paid clearly de-risks the acquisition, and Cerner is known for its strong culture (and full parking lots).
Another aspect of autumn I’m eagerly anticipating is attending the Health 2.0 Fall Conference in a few weeks. My impressions of the 2010 event can be found here. I missed it last year, so I’m really looking forward to the opportunity to see some of the new thinking and more cutting edge tech that this event usually attracts. With “digital health” so beloved of the venture world these days, I’m expecting both a fair number of cheap but cheerful innovators with apps and dreams, but also know there will be more than a few companies straight out of HBO’s show “Silicon Valley” strutting their stuff and spending their VCs’ money on booths and travel like there’s no tomorrow (and if they’re not careful, there won’t be).
Part of what I like most about this event is the great dichotomy in participants, sponsors, and attendees. I’m also particularly excited to be mentoring the HealthTraction component, Health 2.0’s Startup Championship – CEO mentoring for companies of all sizes is one of my favorite aspects of ST Advisors’ work.
As for the actual sessions, in the past they’ve varied from truly fascinating to really annoying, but that’s the beauty of industry conferences. My big complaint is that the conference moved from San Francisco to “the Valley,” but I’m keeping an open mind and will be writing a debrief post afterwards. Drop me a note if you’d like to drink some sponsor’s wine or coffee during the event.
Ben Rooks spent a decade as an equity analyst and six years as an investment banker. Five years ago he formed ST Advisors to work with companies on issues of strategy, growth, and exit planning (among other fun topics). He lives in San Francisco with his wife and the cutest dog ever!