What makes a deal a good deal?
For Athenahealth Inc., it’s all about perspective.
The health-care technology company is being acquired for $135 per outstanding share, or a total value of about $5.7 billion, Athenahealth ATHN, +9.66% confirmed on Monday.
That’s a major reduction from the $160-per-share bid that one of the acquiring parties, hedge-fund Elliott Management, offered in an unsolicited bid back in May.
Yet Monday’s news makes for a “relief for shareholders,” Leerink Partners analyst David Larsen said, “given the steady deterioration in ATHN’s business. Following another quarter of weak bookings and disappointing earnings, we believe ATHN would likely have traded to ~$105-$110 per share without a deal.”
Athenahealth specializes in technological services for medical groups and health systems, and the company’s third-quarter earnings, released late Friday, are an important piece of context.
Net income rose to $26.4 million, or 64 cents per share, from $13 million, or 32 cents per share in the year-earlier period, with third-quarter results benefiting from the positive impact of a new accounting standard. Adjusted earnings-per-share were $1.08, above the FactSet consensus of $1.00 but below some on Wall Street’s expectations.
See: Athenahealth shares surge 24% on $7 bln Elliott Management bid
Revenue rose to $329.5 million from $304.6 million in the year-earlier period, also benefiting from the positive impact of the new “revenue recognition” standard for U.S. companies, but missing the FactSet consensus of $337 million. The company also increased its 2018 revenue expectations.
But analysts like Leerink’s Larsen focused more on the company’s roughly 30% year-over-year decline in bookings as well as sequential margin declines.
Athenahealth’s electronic medical records business has been flagging, and “the largest enterprises we have spoken with seem to be migrating to CERN CERN, -1.41% and Epic,” Larsen said. “We don’t see how more restructuring will be able to correct for this.”
Athenahealth shares rose 9.5% in extremely heavy Monday morning trade after confirming the deal, which was led by affiliates of Veritas Capital and Elliott Management Corp.’s Evergreen Coast Capital.
Read: Athenahealth’s stock jumps after buyout deal confirmed
Back in May, when Elliott offered $160 per share for Athenahealth, it represented a nearly 30% premium to the company’s stock price.
Elliott was one of Athenahealth’s largest shareholders, holding nearly 9% of its stock, and slammed the company on a number of fronts. The stock had “deeply underperformed” for more than five years, Elliott said in a letter to Athenahealth’s board of directors.
The hedge fund previously approached the company about taking it private in November 2017 but “the company refused to engage,” according to the May letter.
Related: Athenahealth’s stock rallies after report company has received multiple buyout bids
“Unfortunately, we are faced now with the stark reality that Athenahealth as a public-company investment, despite all of its promise, has not worked for many years, is not working today and will not work in the future,” according to the May letter. “Given Athenahealth’s potential, this reality is deeply frustrating, but the fact remains that Athenahealth as a public company has not made the changes necessary to enable it to grow as it should and to create the kind of value its shareholders deserve.”
Company shares surged after the offer but have generally declined in the six months since then. The S&P 500 SPX, -1.97% has dropped 3.5% over the last three months, and the Dow Jones Industrial Average DJIA, -2.32% has risen 2.5%.
And, considering the recent financial results, Veritas Capital and Evergreen Coast Capital could well have their work cut out for them.
If Elliott bought Athenahealth, Larsen said late last week, “it is unclear to us what they will actually be able to do to cause a resurgence in demand in the [electronic medical records] market.”
