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Allscripts May Sell Out To Private Equity Buyer

Posted on October 5, 2012 I Written By

Anne Zieger is veteran healthcare consultant and analyst with 20 years of industry experience. Zieger formerly served as editor-in-chief of FierceHealthcare.com and her commentaries have appeared in dozens of international business publications, including Forbes, Business Week and Information Week. She has also contributed content to hundreds of healthcare and health IT organizations, including several Fortune 500 companies. Contact her at @ziegerhealth on Twitter or visit her site at Zieger Healthcare.

Update: You might be interested to read this post on Allscripts Plans to Discontinue MyWay.

Having just gone through the hell of a board gone wild, perhaps Allscripts’ leadership doubts it has the ability to govern.  Or maybe it’s just bracing for the fresh hells that EMR companies will face when the industry’s Big Consolidation begins (something we all know will happen, though not when). Either way, it seems that Allscripts is ready for a change in ownership.

Earlier this week, Bloomberg Businessweek reported that the company has retained Citigroup to explore selling out to a private equity buyer. According to published reports, Allscripts is considering a leveraged buyout, which would take it private but leave it holding a ton of debt. It sure must be eager to avoid scrutiny by curmudgeons on Wall Street!

At least one research type has already given such a move the thumbs up. According to Bloomberg Businessweek,  David Windley, an analyst with Jefferies & Co., the move makes sense despite the inherently high costs.  Allscripts “continues to climb a steep product integration hill that would be more comfortable out of the public eye,” the site quotes Windley as telling his clients.

Investors seem pleased with the  prospect of an Allscripts sale too. Shares of the company (MDRX) rose 14 percent when the news that Allscripts had tapped Citigroup hit the press last week.  Clearly, they don’t have complete confidence that the stock is headed for success as the company is constituted today.

There’s no doubt that Allscripts is on a challenging path in creating new, unified product offerings for a feverishly competitive market. The product integration effort Windley is referring to, and it’s a massive one, is the integration of Allscripts products with those of rival Eclipsys Corp., which it acquired in 2010.

Whether integration has been proceeding smoothly or not, it can’t have been a big confidence builder six months ago when Allscripts fired Chairman Phil Pead, who’d come on board when Eclipsys was purchased, and three board members resigned.

Plus, the rumors are swirling about Allscripts planning to sunset MyWay and move users to their Allscripts Professional product. More details on that change as it develops.

Allscripts (MDRX) Management Shakeup Spreading: Is Glen Tullman Next?

Posted on May 1, 2012 I Written By

Anne Zieger is veteran healthcare consultant and analyst with 20 years of industry experience. Zieger formerly served as editor-in-chief of FierceHealthcare.com and her commentaries have appeared in dozens of international business publications, including Forbes, Business Week and Information Week. She has also contributed content to hundreds of healthcare and health IT organizations, including several Fortune 500 companies. Contact her at @ziegerhealth on Twitter or visit her site at Zieger Healthcare.

And Caesar’s spirit, raging for revenge,
With Ate by his side come hot from hell,
Shall in these confines with a monarch’s voice
Cry “Havoc!” and let slip the dogs of war,
Julius Caesar, Act 3, Scene 1

If ever there was havoc in the boardroom of a health IT company, this is it. Over the last several days, chairman Phil Pead (bio still up for now), CFO William Davis and three board members unceremoniously and promptly departed the management team at Allscripts Healthcare (MDRX), a company which, it’s hard to argue, otherwise seems to have been on a reasonable course for the past year or so.

By the way, this seems to have been as much an Eclipsys purge as a board purge, as all of the departing members were with the company, which Allscripts acquired in September 2010 with “a vision for a Connected Community of Health.”

Within a few days, the Board announced that it had elected board member Dennis Chookaszian as Chairman. No word yet on which unlucky CFO will be hired to face the fires of investor displeasure over the stock’s performance (see below).

It’s bad enough when a chairman and three board members split — allegedly in support of now-ex chairman Phil Pead — but when your CFO leaves, a girl’s gotta wonder whether financial improprieties will turn up later. Now, let’s be clear, I’m not suggesting that there are ANY financial issues that I know of myself, directly, but it’s never a nice thing to see Mr. CFO shove off so quickly.

What we do know is that Allscripts was slapped with a suit in 2009 alleging the company broke federal securities laws when it went live with the latest version of its EMR. Current CEO Glen Tullman and now departed CFO William Davis were named as defendents. The  accusations in the 2009 suit seem to boil down to that Allscripts failed to let customers know that it couldn’t afford to install its Touchworks 11 software properly on customer sites.

It gets even better

And now, even more fun. Perhaps to contribute to the gladiatorial atmosphere, one of Allscripts’ largest shareholders demanded Monday April 30 that its chief executive Glen Tullman resign.  (If I were Tullman I’d say “the heck with that,” gather a group of investors and buy the darned thing out from under them. Mr. Tullman, go for it!)

Anyway, it seems that HealthCor Management LP, which owns about 5 percent of Allscripts outstanding shares, thinks execs have done a bad job building the value of the stock. The fund said the stock  is “being valued well below any reasonable acquisition price,” at its Friday close of $10.30.  Other investors seem to agree with HealthCor, as the stock went  up 7.73 percent to $11.10 at the close of trading on Monday April 30.

To make sure nobody panics, the company has hurriedly announced a $200 million stock repurchase  plan, adding to a plan announced a year ago which still contains $148 million for repurchase. That should do something to keep the stock from careening down a greased slide.

Why, oh why?

Now, to the real question. Why the big shakeup in the boardroom at a time when EMR/EHR companies are extremely vulnerable to market shifts and missteps? I can’t say I’ve found any concrete reason in my research, other than storied “differences of opinion over the direction of the company.”

The financials, while they could probably be much stronger, aren’t exactly pathetic. We’ve got a 5.1 percent profit margin, quarterly revenue growth year over year of 25.5 percent and a P/E (ttm, intraday) of 28.52.  The only obvious disappointment is the big drop in share price, which fell nearly 50 percent over the last 52 weeks of trading.

And in a somewhat ironic twist, it seems that Allscripts is touting some variant of the software Eclipsys had (Touchworks) when it first ran into SEC trouble.  Allscripts may not like the guys behind the technology, but it likes the technology for sure. (Actually, I’m eager to learn more what Allscripts is doing there — drop us a note on our contact us page if you have more information.)

P.S.
  In the view of your friend and mine Mr. HISTalk, “No matter what explanations are provided, the casual observer might conclude that Glen (Tullman) staged a coup that cost the company four board members and its CFO at the worst possible time.” What do you think?