With its agreement to purchase Epocrates Inc. (NASDAQ:EPOC), health IT company athenahealth Inc. (NASDAQ:ATHN) is hoping to go mobile, expand its network of customers and strengthen its brand awareness among doctors.
Epocrates, the maker of point-of-care reference apps, has accumulated a user base including about 330,000 doctors — the coveted target audience for athenahealth’s SaaS electronic record and billing systems. Currently, athenahealth has about 38,000 customers.
Under the conditions of the deal, athenahealth will pay $11.75 per share for Epocrates — a 22 percent premium over Friday’s closing price. athenahealth CEO Jonathan Bush said he plans to embed Epocrates’ apps, like one that allows a doctor to check whether a medication he’s about to prescribe interferes with one the patient is already taking, into athenahealth’s EHR platform.
“What we hope happens as a result of this acquisition is that, a) we become half as good as Epocrates is at mobile app development, and b) that 90 percent of doctors that know and love Epocrates start to know us,” Bush told Fox Business.
There are a few interesting points about this acquisition.
Epocrates’ failures actually made it a target for acquisition. Bush said the mobile app company’s struggles actually made the acquisition a possibility. Epocrates failed at a brief foray into the electronic health records business in 2011 and has posted losses two years in a row.
Nonetheless, it was a logical acquisition. Brian Dolan from mobihealthnews first suggested it back in May of last year.
It’s a sign of an emerging trend. The app market is crowded and ready for consolidation, and many in the industry have predicted that EMR companies will make a mass effort to snatch up add-ons that will help them become all-in-one IT solutions. This is a sign of a move in that direction.
It’s not a done deal just yet. Both boards of directors approved the deal, which is expected to close in the second quarter, but shareholder approval is still needed. At least five law firms have announced that they’re investigating claims around whether Epocrates’ board failed to adequately shop the company before agreeing to sell to athenahealth and whether the deal is fair to shareholders. “The $11.75 per share offer price is significantly below the $15 target price set by an analyst at Raymond James Financial,” Robbins Arroyo LLC said in a press release. “Additionally, the company’s stock has traded above the offer price on numerous occasions throughout the last year, with an average trading price of $12.13 since its February 2011 IPO.”
But investors have reacted favorably on both ends of the deal. athenahealth shares were up 2 percent Monday. Epocrates shares, meanwhile, closed up 21 percent.
“But whether this will boost ATHN’s top line enough to justify its current multiple is questionable,” wrote Dana Blankenhorn for Seeking Alpha. “The stock is just now getting over a warning on earnings for the most recent quarter. There’s no new stimulus cash coming with this deal, no obvious source of new revenue other than taking share from other companies, like Allscripts (MDRX), whose customers must now be looking for a way out of their contracts after a boardroom coup. I just don’t see that sustaining much growth. ATHN stock is primed to roll over in 2013.”
[Screen cap from Epocrates]