Proposed SUN and IBM merger and the eHealth impact

After reading the latest on the proposed SUN and IBM hookup last week, and the most recent delay, it got me thinking about the impact this would have on the  healthcare parts of their business. Although both companies have some good traction in this space (both in Canada and the US) the average Joe doesn’t often hear about them and neither company seems to trumpet healthcare above other verticals. From an eHealth perspective both companies seem to focus primarily on selling infrastructure software, services and hardware at the acute care or Ministry of Health/Medicare level.

Mike – Do you see a good fit or simply a lot of overlap in the Canadian and/or US markets? Will this even work considering that James Gosling (the father of Java itself) says there would  “Definitely be a culture clash

Mark

16 responses to “Proposed SUN and IBM merger and the eHealth impact

  1. Given what I feel is the inevitable consolidation of the eHealth market, I think that an IBM / Sun merger could produce an eHealth powerhouse. While neither company is known for their presence in either the physician or consumer eHealth markets, their presence in the enterprise (e.g. hospital or regional authority) and provincial eHealth markets is considerable. Further, IBM recently announced a deal to work with Google Health on connecting home monitoring devices and their Websphere product is the basis for many eHealth portals (for example, The Ottawa Hospital clinical portal). Further, Sun’s authentication and integration technology is used by several provinces and regional health authorities and can be easily extended to support the physician and consumer communities.

    Nothwithstanding Gosling’s comment about possible “culture clash”, I think that an IBM / Sun combination can bring together a number of complementary technologies and offer many healthcare organizations a strong, stable technology partner.

    Mike

    • I just hope the powers that be realize that there is little overlap (at least on the eHealth side of things) and try to keep some of the talent on both sides intact. I think it would be a big mistake (at least in the Canadian market) to see a bunch of layoffs in the eHealth sector.

      I think a combined entity would be a formidable competitor.

      Mark

  2. I am hearing a lot rumbling about budget freezes or minimal growth in operating budgets for healthcare organizations. Not quite clear on the impact eHealth spending. If it slows down or there are significant delays while organizations wait to see what their funding is going to look like then I think we may say layoffs.

    • I have also heard rumblings at the RHA/hospital level of budget challenges; not surprising considering the current economy. I wonder how much impact this will have in terms of consolidation with other acute care vendors. As we both know the majority of acute care market share in the Canadian market is not held by Canadian companies, but by a small number of US-based multinationals. I think eHealth market developments (good or bad) from the US will have a much greater impact on consolidation in the Canadian market. Thus, I’m spending far more time watching the US market and trying to figure out how it will impact Canada.

      Will we always be doomed to be the branch plant economy?

      Mark

  3. As you know Ontario recently announced plans to run a deficit budget, not only this year but for several years. Since healthcare is a major portion of program spending in any province (close to 50% in some cases), I think it is reasonable to expect that healthcare spending will be under consider scrutiny and, along with, spending on healthcare IT.

    Will the current economic conditions hasten consolidation? I think that that answer is a a resounding “yes”. To start, consolidation in the healthcare IT market was already well underway before the down turn. Second, a harsh economic climate will generally force consolidation in any industry. Combine these two factors and I think that we will see considerable consolidation.

    So, care to speculate on which major healthcare IT vendor will be acquired or merge? With the current economic downtown companies who have not traditionally sold into the market are turning to what they view as one of the few industries that will spend significant dollars on IT. Healthcare CIOs are deluged with calls from vendors pitching their wares and are becoming increasingly more difficult to reach. Hence, companies with strong market share will attract considerable interest as they offer an effective channel to market.

    One vendor with considerable market share who I think is an acquisition target is Meditech. Privately held with some outside investors looking for a return, Meditech is a relatively small company that could be easily purchased by a larger company for their market share. Mark, what do you think? Any other candidates?

    • An interesting idea. I think one of the key factors in the Canadian eHealth market, especially on the acute side of things is to understand who are the players, what are categories are what are the market drivers for a particular segment.

      The majority of acute care (re:hospital) IT segments such as Lab, Pharmacy, Emergency Dept IT, Health Records Departments are saturated, with the majority of categories (with one notable exception) dominated by US based Multinational companies. That being said I think any kind of market consolidation, outside of niche plays will largely be a result of actions in the US market. I would love to flatter the Canadian market and say Meditech is a likely target because of their great success in this market, but it pales to their success in the 5000+ acute care hospital market in the US. Outside of one exception, most Canadian Health IT plays in the acute market do not own a majority of their market, and to a large extent are either niche plays who would be bought for technology, or as add-on acquisitions to fill out a large company overall Canadian healthcare strategy. What will be interesting in the Canadian market is to see whether these dominant multinationals will acquire outside of acute care into the relative greenfields of EMR vendors, community care IT, etc vendors. I think the jury is still out because although their is all kinds of interesting opportunities outside of acute, these large vendors are fairly allergic to selling outside the enterprise market.

      Do I think Meditech is an attractive target in the Canadian market…you bet I do. They own a big chunk of the market across segments, and have figured out the SME acute care hospital market. The two caveats about such a Meditech buy in the Canadian market is that:

      1) Meditech is privately held and has a long history of successfully doing things their own way. Would they even sell to begin with?

      2) I think any play on Meditech would likely consider the Canadian market as a bonus and not the driver in any kind of acquisition.

      Mark

  4. To be clear, I wasn’t talking about the Canadian market in particular. Rather, I was musing about acqusitions / merger in the eHealth space in general and the acute care market (worldwide) in particular.

    Mike

  5. Ahhhh my mistake.

    I think then the vendors of interest in the acute world would be either

    1) Market leaders in a specific segment ie Agfa in PACS/RIS at least in the Canadian market.

    2) HIT vendors selling integrated stacks of systems including Departmentals, Admissions and Financials and Advanced Clinicals in a similar market leadership. In the Canadian market this would be Meditech, but would also include Cerner and McKesson. Although I think McKesson would be an unlikely target due to the massive size of the mother corporation. McKesson would only be a target if the mother corp decided to get out of the Health IT business. In the US you see more market share from other players including Siemens, GE, EPIC, Eclipsys, etc.

    If I had unlimited $$$ I would either buy Meditech for their domination of the SME acute care market or I would buy EPIC for their great technology and market leadership on the higher end of the market. Cerner and McKesson are no slouches on the upper end either.

    What do you think?

    Mark

  6. What about vendors such as Oracle or SAP? SAP already offers administrative applications including ADT and is well placed as the provider of financial applications in many institutions.

    Mike

    • I agree that Oracle and SAP are serious contenders, but who would buy them? They are far too large.

      It is going to be one or two of the HIT vendors, and a whole lot of mid-sized players who own their niche that will be bought. I know that MSFT is doing Healthvault as their main healthcare play, but they would be a gamechanger in this market if they ever went after a guy like Meditech or one of the top EMR players. MSFT wins at the SME level whether it be acute or primary care.

      Do you think MSFT would have an appetite for this kind of move?

      Mark

  7. Actually, I was thinking about Oracle or SAP as the acquirer, not the acquiree. Could you envisage a scenario where either of one of them would make a play for an HIT vendor? Both are battling it out as “enterpirse software” vendors and I would argue that to be an such a vendor in a healthcare setting means having the clincial as well as the administrative applications. Oracle already has a clinical repository and is involved in several EHR projects in Canada.

    Mike

    • I could see Oracle jumping into the game, just because its the kind of thing they do. As far as SAP, I’m not sure…are they as acquisitive as Oracle?

      The one thing I do know is the 18B+ number for EHR in the US will almost certainly cause many big companies (Oracle or otherwise) to kick the tires of the top ambulatory EHR vendors prior to the goldrush of early 2010. This huge amount of money is going to distort the market in a large number of unseen ways. It should be interesting to watch.

      Mark

  8. Mark, Mark, Mark …..

    You have been through enough merger / acquisition discussions to know that many people have an overinflated sense of what their company is worth. Ego does get in the way of many of these deals, doesn’t it. Hope Sun doesn’t take a page from yahoo and look back a year later only to kick themselves for passing on a good deal 🙂

    Mike

  9. I have been through/seen enough M&A to know better, but it was surprising nonetheless. The rumor mill suggests that SUN killed it via co-founder Scott McNealy.

    One would think that McNealy is now off the Xmas card list for current SUN CEO Jonathan Schwartz.

    Mark

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