The Cognizant-TriZetto deal shows that there is growing appetite among software companies to mop up healthcare IT providers despite the deliberations surrounding ObamaCare, industry watchers say.
All indications are that Indian companies, especially the tier-1 players, may loosen the purse strings for acquiring companies that render technology services to payers, hospitals and physicians.
So what’s driving this optimism? “One, the US healthcare sector is a huge industry representing more than 15 per cent of GDP. Two, the healthcare IT sector remains highly fragmented,” said Peter Schumacher, CEO of Value Leadership Group, a management consulting firm.
A recent report by Mercom Capital suggested that there has been an increase in M&A transactions in the health IT sector, with 57 in Q2 compared with 54 in Q1. Health IT management companies saw the most M&A activity, having completed 20 transactions.
"It was a quarter of several milestones. It was the first billion-dollar fundraising quarter for the healthcare IT sector, which has now raised almost $7 billion in venture funding since 2010. M&A deals were also at their highest levels this quarter…,” Raj Prabhu, CEO of Mercom Capital, said in a press statement dated July 16.
For acquirers, the downside is that healthcare IT companies command steep valuations. “Only time will tell if these bets pay off for shareholders,” said Schumacher.
According to some estimates, about 42 changes have been made to the Patient Protection and Affordable Care Act (popularly called as ObamaCare), ever since it was signed into law by President Barack Obama in 2010.
However, Harish HV, Partner at Grant Thorton India LLP, believes that changes to ObamaCare may augur well for IT companies as the systems and services will have to be tweaked accordingly.
Interestingly, Indian IT companies have not been as aggressive as their global peers when it comes to healthcare M&A. “Most of the deals have been in sub-$20 million category to acquire niche capabilities,” said Harish. However, things could change with the Cognizant’s multi-billion dollar bash.
“I suspect there will be a many ‘reactive’ deals in healthcare IT, especially from the larger companies,” said Harish.