The Lawrie Dowry: Misys Acquires Allscripts in Shotgun Wedding

18 Mar The Lawrie Dowry: Misys Acquires Allscripts in Shotgun Wedding

Dowry (dou’rē) n.

  1. Money or property brought by a bride to her husband at marriage.
  2. A sum of money required of a postulant at a convent.
  3. A natural endowment or gift; a talent.

Misys PLC has offered to acquire struggling Allscriptsthe leading provider of clinical software, connectivity, and information solutions that physicians use to improve health care“. The rumor mill regarding the fate of Allscripts has been rampant since HIMSS. Despite achieving record revenues and several recent customer wins, the stock has been absolutely trashed by market perceptions of stagnation (prior to November 2007, the stock had a 52 week moving average of $22.21 to $31.38). The beleaguered software company was forced to jump in bed with the Brits in what feels like a rushed deal to create a new company called Allscripts-Misys Health Care Solutions (what kind of name is that? Perhaps Amalga Too would have been a better name).

Watching the press release with Mike Lawrie and Glen Tullman was painful (and who on earth was that interviewer?). Sidelong glances, forced smiles, and sitting uncomfortably close to one another was just disconcerting to watch. I couldn’t even listen to what they were saying as the Bz:Rw (Buzz Word to Real Words) ratio was off the charts. In the end, in looking at the numbers, Misys is paying $330M for 54.5% of the company. This translates into a $600M valuation, or 2.13X the record 2007 revenues. This figure is stunning, particularly for a company that as recently as November 2007 was trading north of $25/share and worth $1.5B. A BILLION dollar loss in valuation in a 4 month window while the company is reporting RECORD revenues. As Mr. HIStalk said, “Momma’s, don’t let your companies grow up to go public!” (At least it was better than the fate of Bear Stearns).

What to make of this deal?

Look, I realize it is easy to sit back here in anonymous blogger land and take pot shots at the big boys while they are trying to create shareholder value and deliver for their customers. So in one sense, I applaud Glenn Tullman for sucking it up and doing what needed to be done with a company that was paradoxically getting crushed in the market when by most every other measure the company was delivering. However, from another perspective, I think Allscripts stock price is so depressed because their current business model has run its course. They cannot compete with the like of eClinicalworks and the athenahealth who are cleaning their clock on most deals. But more than the deal by deal analysis, the stock price reflects the perceived future value of the company, and in these numbers, a simple comparison is instructive:

Metric

Allscripts (MDRX)

Athenahealth (ATHN)

Market Perception

Old School

New School

Business Model

Software Licensing

Percentage of revenues

Software Paradigm

Hosted solutions

Network solutions

Software Model

Feature upgrades

Software Enabled Service

Market Cap

$554.9M

$831.7M

2007 Revenues

$281.9M

$100.4M

Physician Users

~30,000

~20,000

Bottom line is that Athena has a better business model than Allscripts. Period. Now with the merger to Misys, the new Allscripts-Mysis-I-am-NOT-giving-up-my-name Health Care Systems company, is going to have an even harder time in the market due to the inherent market confusion and channel conflict created with the new combined product offering. The products have been in a competitive death match for years, and they won’t make nice overnight. Think of the dedicated sales teams, the marketing collateral, the ingrained compensation plans, and the corporate inertia that is going to have to be overcome while these guys try to sort this thing out. While the ambulatory care space is ripe for continued adoption, I don’t think it is looking for more confusion.

The concern is that while they are focused on the transition, the product integration, and the solution story, they are going to continue to get killed in the market. Glen Tullman is going to have to be constantly on the road trying to soothe over skiddish customers worried about the lack of focus, the ongoing commitment to current products, the inevitable distractions of the merger, and the longevity of the new entity (Misys track record in this regard is less than impressive). This won’t leave much time back at the ranch to ensure things are getting settled. Plus, a 10 person board? Man, Glen, all I can say is good luck dude.

The one bright spot, in my opinion, is the potential for Misys to really do something interesting with their newly created open source health care unit. Think about it: Misys is going to have to dump some of their product lines as Allscripts has a very solid ambulatory EMR. Therefore, some of the Misys products will need to be sunsetted or eliminated (although Misys Myway seems to be getting some traction) to avoid channel conflict and market confusion. Instead of just chucking these products, they could be placed out in the open source community for reuse, recycle, and remixing. Having made the big open source commitment and actually delivery on the promise (to a large degree), Misys could break open the flood gates of innovation by releasing something truly meaningful, and then working with community partners to grow it into something even more meaningful. This could potentially lead to some new lines of revenues, new developments, or related opportunities for software that would otherwise would be in the junk folder.

I have been impressed both personally and professionally by Tim Elwell, the units general manager, and his trusty sidekick Ryan Bloom, of Apache fame. Both were specifically brought in to help create an open source plan at Misys and coalesce a community around real source code and real projects. I was actually proud to see them at HIMSS waving the the open source banner and Tim even participated at the recent Health 2.0 Conference. I get the sense that these guys are really trying, and their efforts could be a HUGE boon to the open source community and to greater software development transparency within the health IT industry. They are off to a fast start, and their efforts could prove useful to the valuation and forward movement of the new company.

I hope the honeymoon continues.

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