Oracle will buy electronic health records company Cerner for $28.3 billion. The companies announced the all-cash deal on Monday, priced at $95 per share.
It comes just days after the Wall Street Journal reported that a deal could be finalized soon. Cerner’s stock jumped 14% on the news, but Oracle’s decreased by about 5%.
The acquisition would be Oracle’s largest ever, and would position it as a competitor to other tech companies that are making inroads into healthcare.
“With this acquisition, Oracle’s corporate mission expands to assume the responsibility to provide our overworked medical professionals with a new generation of easier-to-use digital tools that enable access to information via a hands-free voice interface to secure cloud applications,” Oracle Chairman and CTO Larry Ellison said in a news release.
Austin-based Oracle plans to expand Kansas City-based Cerner’s health record systems globally, and make a voice assistant the primary user interface so that clinicians can enter records without typing on a computer. If this sounds familiar, it’s because Microsoft bought Nuance earlier this year for $19.7 billion, with plans to add more speech recognition tools for clinical documentation.
Cerner will operate as its own dedicated business unit under Oracle. The deal is expected to become accretive starting in the first fiscal year. Oracle CEO Safra Catz compared the deal to Oracle’s acquisition of cloud computing company NetSuite back in 2016, saying Cerner would be a “a huge additional revenue growth engine for years to come.”
Cerner is one of the top EHR vendors, just behind competitor Epic Systems in market share. The company has large contracts with the U.S. Department of Defense and the Department of Veterans Affairs, but has also been undergoing several changes, including the appointment of new CEO David Feinberg and efforts to ramp up its data analytics efforts.
How will they come together?
Analysts said the deal made sense, given Oracle’s interest in growing its healthcare business, and that both companies have similar end users. For instance, some of Oracle’s healthcare clients include Kaiser Permanente, Cleveland Clinic and Mayo Clinic.
The big question, overall, is how the two companies will come together. Although Oracle is no stranger to acquisitions, analysts expressed some concerns about the sheer size of the deal, and whether the company will need to expand its net debt. The company currently has $56 billion in net debt, largely due to its aggressive stock buybacks, William Blair analyst Jason Adler wrote in a research note. He also noted potential integration issues, “both technical and cultural.”
One of Cerner’s clinical systems currently runs on the Oracle Database, making it a natural strategic fit, wrote Charles Rhyee, a managing director at Cowen and Company, in a research note.
On the other hand, Cerner had struck a multi-year partnership with another cloud provider, AWS, in 2019. The company had put its HealtheIntent and CareAware apps on the AWS cloud, and had been moving its Millennium EHR onto AWS, wrote Morgan Stanley Managing Director Ricky Goldwasser in a research note.
“We believe that these features could be replicated in Oracle’s cloud environment, but this may require heavy lifting,” he wrote.
There’s also the question of what Oracle would do with Cerner’s business after the deal closes.
“Oracle has a strong track record of optimizing margins of acquired companies, though a key risk is if they cut too deep and thus hamstring future growth opportunities,” he added. “We think that the strategic premise of a potential acquisition for Oracle centers on Cerner’s health system relationships and the value that brings to a large cloud provider. However, we still have questions on the extent to which a potential acquirer can monetize the data, that’s owned by the hospital systems – not by Cerner.”
Analysts noted an interesting opportunity for Oracle to leverage its existing relationships with health systems and cross-sell its cloud services to some of Cerner’s customers. Recently, Cerner has made moves to offer more data analytics, including launching a new business unit called Enviza, focused on clinical trial research, and acquiring Kantar Health.
Rhyee noted Oracle could merge its life science business with Enviza.
“This is a fast growing and fragmented market,” he wrote. “We can also see (Oracle) making a push in providing cloud services for health care companies, given (Cerner’s) stature within health care.”
The deal is expected to close next year, but will first have to gain approval from regulators and Cerner’s shareholders.
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