Giving a patient medications in the ER, having them pop positive on a test, and then withholding further medications because…
Morning Headlines 11/23/21
Private equity firms Bain Capital and Hellman & Friedman will acquire Athenahealth from Veritas Capital and Evergreen Coast Capital for $17 billion.
Edifecs Enters Into Definitive Agreement to Acquire Health Fidelity
Health technology and services company Edifecs will acquire Health Fidelity, which offers natural language processing-enabled risk-adjustment technologies and consulting services.
Sword Health Raises $163M and Reaches $2B Valuation as the Fastest Growing Digital MSK Company
Digital musculoskeletal care company Sword Health raises $163 million in a Series D funding round, bringing its total raised to over $300 million.
I’m in no way condoning their business ethics but Elliot tripled their 5 billion dollar investment in three years by kicking one spoiled rich kid out of his seat.
Is there an obvious path to the money for Bain et al.? I’d argue there is. Right now you have 5 or 6 meaningful vendors in the ambulatory/RCM space. They could do some consolidation to drive up prices and layoff/outsource the few people still in the us. Not very good for the american public but good for Bain capital as usual. Allscripts ambulatory, greenway, and nextgen could probably be snagged for 4 billion. That leaves ECW and Epic as the non speciality players, and I don’t either could be bought, so I doubt Bain can extract monopoly rents without being undercut by the higher quality or lower priced product. Bain could foist Athena onto the public market (again.) Bain has certainly had success with that approach before. It will be a more interesting 5 years for the ambulatory market.
Does the 5B initial investment include the amount paid for the GE parts? Remember, current Athena is original Athena + Virence (former GE)…
It doesn’t. GE sold centricity for 1 billion. I don’t think it was part of Elliot’s strategy or result, but rather a nice bonus for their Veritas partner.
He may have been a spoiled rich kid, but Jonathan Bush treated people with kindness and respect, including the little people (and I was a very little person). His mistake was that he didn’t give enough deference to the investors, which left the company vulnerable to vultures like Paul Singer. To Bush, the vision was given priority over the money, which was the exact same way he ran the company in the early days as a start-up. That’s not the best way to run a multi-billion dollar public company, however.
In the end, Elliot made billions off this deal because they didn’t care how many people they laid off, how much work they could outsource, and how many promises to customers they had to break.
But customers will move on, us laid-off folks get other jobs, and Athena will stagnate before beginning its long, slow decline into irrelevance, à la Allscripts.
Truly Believing your own BS is privilege only available to those with the wealth or power to ignore their responsibility for others’ livelihoods. My second hand impression from the outside is that there was a lot of irresponsibility at the upper end and the middle made very good money off the bottom’s work while the top wasn’t paying attention. Nobody stepped forward to be the adult in the room so it went on until the wheels came off and people got truly hurt. From a Midwesterner I find this very typical of Boston corporate culture. Inherited wealth at the top and professional sycophants in the middle absorbing investor dollars until the money runs out and the bottom gets shafted. My point about Elliot is that everyone hates them for applying discipline but they only get involved when investors have lost trust in the people handling their investments. The little people should remember that their strength comes from huddling together around the fire and leave the nouveau rich to play with the wolves.
You are absolutely correct that there was irresponsibility at the top compounded by layer after layer of sycophants in the middle (called “Vice Presidents”), which led to inefficiencies, waste, and ultimately activist pressure; however, most of that inefficiency was in the form of burning mountains of cash chasing lofty goals of “disruption” and entrance into adjacent markets too quickly. Many of these markets were (and are) in desperate need of innovation; rather than vision, it was a failure of execution.
Having acknowledged those failures, the wheels didn’t come off until Elliott got rid of Bush (through questionable means) and forced an acquisition. It’s extremely charitable to call Elliot’s involvement merely “applying discipline.” Hundreds of employees were laid off (which Bush and his management team initially refused to do). Benefits were scaled back. Products were cancelled. Market segments were eliminated. Investment in R&D was significantly reduced. Efficiencies and discipline that leads to greater shareholder value could have been achieved without going to those extremes. I’m of the opinion that shareholder interests are important, but they should be balanced by customer and employee interests; Elliot only realized those gains by prioritizing shareholder interests (and primarily their own, at that) over customers’ and employees’ (who don’t have a voice in the boardroom, of course).
So who won in the end? Certainly not customers. Promised products and enhancements were cancelled (and entire markets abandoned, like inpatient, leaving dozens of orphaned customers). Certainly not employees. To a lesser degree, it was just large institutional investors (who owned the most common stock and profited the most from the sale), and to a greater degree Elliot themselves, as evidenced by the fact that they re-sold the company just 2 1/2 years after acquiring it, for a 13x return.
I still laugh when I think about the all hands meeting I attended after the sale completed where the “Managing Partners” introduced themselves as “being in it for the long haul” and not just flipping the company for quick profit, unlike other PE firms.
I agree that shareholders interests became overriding after Elliot took over (they only got to take over because the other shareholders had lost faith in jb). I think where we differ is that I don’t think there is anything moral or right about a particular balance of shareholder, worker, customer, and business interest. Like honoring enhancements and roadmaps are broadly about the level of customer service that the business provides. The business chooses the level of customer service based on what they think the market wants. Bic does not spend extravagantly on customer service for their pens because the market doesn’t care if it can get pro support for bic pens. Bics customers want working pens and they prefer cheaper with less phone support. That’s probably the right choice for bic and their pens. There’s nothing unethical or immoral about choosing that level of customer support. Working hard will not grant salvation no matter what the Protestants say.
When these events come up, it’s worth emphasizing that workers should think clearly about their relationship to the business. elliot knows the exact relationship between shareholders and business management. Elliot uses that knowledge to intervene and subsequently make their money on the results of that intervention. As a worker, never lose sight of your true relationship to these other parties. Like workers should not work themselves to death providing great customer service if the business is not in the market of providing great customer service. Let’s not kid ourselves about the situation within our workplaces or capitalistic societies. The kool aid is a different flavor at epic and athena but neither lol aid is healthy.
Elliott did quite a bit better than 3x on its investment. The original deal was funded with about $4.8B of debt and $1B of equity from the hedge fund sponsors. Add in the acquisition cost of Centricity (call it $500M of equity, $500M of debt) and the equity investors are all-in with $1.5B of equity and $5.3B of debt. They sold off some assets for a total of ~$600M in cash, so net equity in play is $900M. They turned that equity into $11.7B (assuming no interim debt pay down), which is a 13x return.
13x feels ridiculous….but….if you’d invested that same levered-up $6.8B in the Nasdaq (QQQ) on the same timeline (Elliott began buying ATHN in spring 2017)…you could sell today for $18.1B. Absurd as this whole deal sounds, it has actually underperformed the market. This story is more about tech multiple expansion/bubble broadly than it is about improving management or running the business.