This morning, along with announcing very good 4th qtr growth at WebMD, a concurrent announcement was made that Healtheon and WebMD have agreed to merge, putting the value of the combined entity at about $2.3B. Due to the structure of the deal, WebMD will also end up with a hefty war chest estimated at $700M.
While I am no financial analyst, what I do know is that the past ownership structure of WebMD (84% owned by Healtheon) made WebMD a difficult acquisition target. Now that the two have combined WebMD may become much more attractive to a potential suitor.
WebMD is an attractive property for a number of reasons including:
Brand Recognition – They are the 800 pound gorilla in the personal health and wellness market, no one comes even close in numbers of page views and unique visitors.
Customers – WebMD has a long list of enterprise customers, both employers and health plans that is the envy of the industry.
Hot Market – Seems like everyone is clamoring for a piece of the action in the personal health and wellness space including the big boys Microsoft and Google.
Cash – A $700M war chest is nothing to sneeze at.
So who will come courting? Some likely suspects include:
RevolutionHealth could benefit with some added breadth and depth from WebMD and would love those WebMD customers. Also, WebMD had a relationship with AOL (discontinued last year) and RevolutionHealth is run by former AOL head, Steven Case. There will, however, be a lot of overlap that will need to be rationalized. Probability: High
Google may like the content and some of the tools WebMD would bring, but they are also pretty far along in their own plans/development and Brand, well Google has plenty of that. Probability: Low
Microsoft is much like Google, but has a greater propensity to make an acquisition to keep Google at bay. Microsoft might acquire WebMD as a defensive move. Also, Microsoft might like to have all those enterprise customers, not that they don’t have them already, but it could sure extend their presence in enterprise accounts. Probability: Medium
Intuit has taken a decidedly low profile approach to the PHR market. If they wanted to dramatically boost their visibility and further strengthen their product portfolio, this would be a good move for them. Unfortunately, it takes Intuit outside of its sweet spot/core competencies, thus they are unlikely to make a move. Probability: Low
Yahoo? Why not, though they seem to be ignoring the health & wellness market and have enough issues to deal with right now, primary among them the beast from Redmond. Probability: Low
Large insurers like WellPoint or Cigna could make a move similar to Aetna’s acquisition of ActiveHealth or UntiedHealth’s acquisition of HeathAtoZ and acquire WebMD. Thing is, the scale of a WebMD acquisition is massive in comparison and it could get quite messy as a lot of health plans (over 100) have some form of a relationship with WebMD and may bolt if WebMD goes to a competitor. Probability: Medium-low
Other HIT vendors such as McKesson, GE, Siemens, etc., are focused on business to business sales and in particular sales to hospitals. While WebMD gives them future paths for growth and could be leveraged in innovative ways (connecting clinicals to PHR and decision support tools), falls outside their current sales and distribution channels and is simply not in their DNA. Probability: Low
I’m sure their are other suitors out there, but this is just a quick hit list off the top of my head. And while I can give no definitive answer as to who the suitor will be, WebMD will have new ownership in 12-18 months. Probability: Very High
How can Revolution Health pay for an acquisition of WebMD? They can barely stay in business and dont nearly have the kind of deep pockets it would take to buy WebMD. WebMD’s market cap alone is $1.5B and that is with the stock trrading at a 52 week low and near its IPO price of $17.
I think the smartest thing you wrote was that you are indeed NOT a financial analyst.
Agree with you that RevolutionHealth is a company that is still struggling to define what it wants to be when it grows up. As for whether or not it is making any serious $$$, still to early to tell. The Rediclinic acquisition and partnership with Wal-Mart could do some interesting things for them. RevolutionHealth is also getting into the HSA side which opens some other, potentially good growth. But what thy really lack are a significant number o enterprise clients, something that WebMD brings to the table.
Maybe RevolutionHealth does not to a straight out acquisition – there may be other ways that these two come together. But Steve Case does have connections and that can go along way.
Bottom-line, makes sense for these two companies to try and do something together – a lot of potential synergies. Why do you think WebMD’s price is so low? They have some serious challenges ahead and will find it increasingly difficult to compete. Their stock may well indeed drop further, below that IPO price point.
And Jake, why not actually add to the conversation, hey even try a risky move like making your own prediction(s) rather than just putting down someone else’s. For this adds to the discussion, which I welcome, rather than detracts, which serves no one.