By Marc B. Marlin
Beyond the glitzy booths and late night parties, the HIMSS annual conference is the place to identify trends of mindset and action. From a value creation and M&A perspective, we’re keenly interested in what the corporate buyer and investor community are looking for thematically for their business. What capabilities, customers, contracts do they believe can drive their organic growth over the near to medium terms, and thus foreshadow likely M&A priorities.
There has been a meaningful M&A focus on Federal health/HIT in the government services sector for the past decade.
That said, there has also been a broad generalization as what is HIT for most buyers/investors. The firm providing IT infrastructure to HHS was generally viewed in the same comparable set as the firm performing data analytics for NIH. If it touched Federal health, it was a tier I M&A priority. However, times may be changing if our HIMSS read proves accurate in a bifurcation of market perception between HIT and IT for Health.
There seemed to be a general tone that IT for health customers (ranging from IT infrastructure, application O&M, and even next generation IT initiatives such as cloud migration) is becoming increasingly difficult for firms to differentiate. We’d stop short of characterizing the market as “commoditized”, but competition in this segment is fierce. This competitive dynamic is further magnified by the increasing acquisition of these services under large contracting vehicles with many awardees (see CIOSP3, and SPARC expectations), protests, and set-aside preference. As a result, we’ve either seen or folks expect to see margin compression for these solutions, amidst continued strong funding.
On the other hand, HIT and broader health-related professional services seems be viewed as a still highly attractive organic growth story, but a more compelling opportunity to differentiate beyond price via subject matter expertise and technology prowess. Priority areas of interests mentioned included support for the state model (a potential beneficiary of a Trump health plan), using technology to bridge the non-technical federal customer and private sector subject matter experts, and the professional services (clinical, research, data analytics) that identify, implement and quantify health reform initiatives that increase quality, lower cost and improve outcomes. The poster child remains Truven Health Analytics (acquired by IBM in 2016); however, firms of all sizes that can connect the dots around true health, may find themselves being highly pursed from an M&A perspective in 2017.