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Morningstar | No-Moat Athenahealth Going Private for $135 per Share in $5.7 Billion Deal

In November, Athena announced it was being acquired by private equity firms, Veritas Capital and Evergreen Coast Capital (an affiliate of Elliott Management) for $135 per share. The buyout was sparked by Elliott Management’s buyout bid of $160 per share in May. While this offer is well below Elliot’s initial $160 bid, it nonetheless represents a significant premium above our $110 standalone fair value estimate. We believe this is a great outcome for shareholders, and we applaud the board's efforts to sell the firm. Given the rapidly shifting healthcare IT market, and what we believe to be Athena’s challenged position, this was the best course of action that leadership could have taken, from our perspective.Elliott Management had previously acquired a 9.2% stake in Athenahealth in May 2017. Since the original bid, founder and former CEO Jonathan Bush stepped down from leadership. The buyout will likely result in a merger of Athenahealth and Virence Health, the former value-based HCIT segment of GE Healthcare. The deal is expected to close in early 2019.On a standalone basis, Athenahealth's cloud-based services offer compelling pricing and quality for small and midsize healthcare providers. However, we believe the firm faces headwinds that hinder its ability to achieve revenue growth on par with its historical average or win market share over larger healthcare IT, or HCIT, vendors such as wide-moat Cerner and privately owned Epic Systems.Athenahealth charges healthcare practices a percent of total collections and this pricing structure is far less capital-intensive than traditional IT systems and offers an attractive value proposition, especially for smaller providers and hospitals. The cloud-based platform can be easily updated or upgraded, and for several years KLAS Research recognized the products as Best in KLAS for smaller providers. However, we believe the firm is operating in a difficult environment where providers are financially pressured and reluctant to invest more into their IT systems beyond the mission-critical components of EHR, practice management, and revenue cycle management, providing limited room for growth.