The Offer from Elliott Management Corp. for Athenahealth Inc. is a good starting point for buyout calls.
The hedge fund released details of a $ 6.9 billion takeover bid for the healthcare IT company on Monday. The offer comes about a year after Elliott has announced a stake in Athenaehealth and sought, inter alia, discussions with the Board on a possible sale. The fact that Elliott himself would make a concrete offer means a significant increase in the ambitions for the private equity side of his business. The offer could be a means to press the negotiating table to Jonathan Bush, the controversial leader and co-founder of Athenaehealth. Whether Elliott becomes a buyer or not, Bush would be wise to seize the opportunity and leave the public market. Athenaehealth has said for the time being that it will review the proposal.
On the one hand, Elliott's offer looks opportunistic and comes just a few weeks into a post-fall decline of about 1
Athenaehealth had to critically review its operational and financial strategy in August, according to Elliott's review. The company undertook to reduce costs and hire an independent chairman. It opted for General Electric Co.'s former general director, Jeff Immelt, whose operational capabilities Elliott has challenged. GE is now working on the impact of poor capital allocation decisions and mismanagement of its electricity business during its tenure.
The demand for Athenaehealth's key software products for healthcare providers seems to be waning, and it is finding it hard to penetrate new markets that are used by larger established companies such as Cerner Corp. and Epic Systems are dominated. At the same time, investors are eager to pursue Athenaehealth's cost-cutting initiatives and were frustrated that management was unable to meet its margin targets. These are the types of topics that tend to be best removed from the merciless glare of public markets.
Elliott offers $ 160 a share, up from around 6% , 9 billion dollars, including net debt. That's about 19 times the Athenaehealth's estimated Ebitda this year, according to Bloomberg data, and is a discount on the median paid for acquisitions of medical information systems worth more than $ 100 million over the past five years. However, on average, analysts forecast a price of just $ 143 for Athenaehealth shares, a target that would include at least some takeover, but also expectations for a slowdown in revenue growth over the next few years.
Elliotts offer could only be the opening Gambit. The hedge fund expanded the private equity side of its business in and completed a $ 1.6 billion buy-out of network technology company Gigamon Inc. late last year. But the company has in the past made offers to companies that initially were an investor before ultimately supporting an alternative bidder buyout. Elliott Offer for Compuware Corp. in 2012 and for Riverbed Technology Inc. in 2014; both were eventually sold to the private equity firm Thoma Bravo.
In his statement announcing the offer for Athenahealth, Elliott noted that "other parties have expressed interest in a deal," but the company has also not engaged with them. At least, it would come as no surprise that, given the size of the deal, Elliott eventually works with a private equity firm. It said it has received funding advice and intends to finance the remainder through its own invested capital and "selected partners".