Rumors that have been floating around for months that Siemens planned to exit the health IT (HIT) market have come true. Earlier today, Cerner announced that it will acquire Siemens HIT business for a whopping $1.3B with expected close in Q1 2015. While we will be doing a more thorough breakdown of what this acquisition means to the two companies, the market and most importantly their customers in a research piece for clients, following is my back of the envelop analysis.

• With this acquisition, Cerner now surpasses Epic in # of hospital clients, something I’m sure that makes Cerner’s CEO smile – Neal is a tough competitor.
• Cerner will certainly support Siemens clients on Siemens clinicals, but there will be a time horizon on that support with Cerner’s ultimate goal of having Siemens clients ultimately switch to Cerner clinicals.
• A weak spot for Cerner has been their financials. Siemens brings them a reasonably good financials solution that some existing Cerner Millennium clients are already using. The trick here will be to truly integrate the two systems (clinicals of Cerner with financials of Siemens) to be truly competitive in the market.
• Acquisition gives Cerner a much stronger international presence, especially in Europe – a target growth area for most acute EHR vendors now that US acute care market is basically tapped out.

The price of $1.3B is quite high for what Cerner is getting, but Cerner is not a company known for wasting money. It is also VERY uncharacteristic of Cerner to make such a large acquisition. However, Cerner sees value here to leverage long-term, and they do look long-term.

Much of that future value is likely found in Cerner’s rapidly growing PHM activities (HealtheIntent). One of our analysts just came back from Cerner’s PHM Summit last week and was truly impressed with how aggressive Cerner is moving on this front. There is a huge untapped PHM market among existing Cerner clients and now Siemens clients – potentially huge up-sell opportunities if Cerner does it right.

This acquisition is also just the tip of the iceberg – we’ll see many more in the next 12-24 months as market is way overdue for consolidation.

Note: Our forthcoming 2014 Analytics for PHM Market Trends Report (to be released this month) provides a detailed look at this market including a detailed profile of Cerner and 18 other leading vendors.