athenahealth to Buy Epocrates - Analyst Blog
January 09 2013 - 9:30AM
Zacks
Recently, athenahealth
Inc. (ATHN), a provider of cloud-based services for
physician practices and inpatient settings, inked a definitive
agreement to acquire Epocrates Inc. (EPOC) for
about $293 million in cash. The aggregate purchase price is based
on a price of $11.75 per share, which reflects a 22% premium over
the closing price of Epocrates on January 4, 2013.
athenahealth plans to fund the acquisition with available cash and
available borrowing capacity from its existing credit facility.
Exiting the third quarter, the company had cash and cash
equivalents and short-term investments of $180.2 million, up 52.1%
year over year, with no outstanding debt.
The Acquiree
Epocrates is a provider of point-of-care digital solutions in the
healthcare industry. Its portfolio consists of well-regarded
medical applications, which are currently available on major U.S.
mobile platforms. The company launched its mobile and web-based
electronic health record (EHR) solutions in July 2011. Epocrates
reported revenues of $113.3 million in 2011, up 9% year over
year.
Stockholders at Epocrates (accounting for 17.5% of the company’s
outstanding common stock) have expressed that they are in favor of
the transaction. The acquisition is expected to close in the second
quarter of 2013, subject to standard closing conditions.
Benefit of the Acquisition
The acquisition will enable athenahealth to increase its user
network as Epocrates currently serves over a million healthcare
professionals, including 330,000 physicians in the U.S. Further,
the buyout will enhance brand awareness for athenahealth as
Epocrates is recognized by 90% of physicians in the U.S.
Given the widespread mobile user base of Epocrates, athenahealth is
expected to improve efficiency of new mobile workflows. Moreover,
the mobile expertise of Epocrates in conjunction with
athenahealth’s cloud-based network should enable the latter to
commercialize novel mobile applications.
We believe that the acquisition is part of the company’s strategy
to expand beyond the current cloud-based services – athenahealth’s
mainstay. We are optimistic about the company gaining a competitive
edge over industry stalwarts, following the acquisition.
In addition, the acquisition is expected to improve athenahealth’s
access to small group physician practices with Epocrates’ credible
client base. The buyout might offset the trend toward consolidation
of small physician group practices, which is a potential negative
factor for athenahealth. This presents a solid growth opportunity
in the near-term.
Deal under Scrutiny
Following its recent announcement, the agreement has been subjected
to legal scrutiny. The deal is currently entangled in lawsuits as
law firms assert that the agreement does not uphold the interest of
Epocrates’ stockholders. This stems from their belief that
athenahealth is underpaying for the acquisition.
Our Recommendation
Estimate revision trends for 2012 and 2013 reflect a bearish
sentiment for athenahealth. Accordingly, the stock carries a
short-term Zacks Rank #5 (Strong Sell). One of its peers
Cerner Corporation (CERN) carries a Zacks Rank #3
(Hold). We maintain our long-term ‘Neutral’ recommendation on
athenahealth.
ATHENAHEALTH IN (ATHN): Free Stock Analysis Report
CERNER CORP (CERN): Free Stock Analysis Report
EPOCRATES INC (EPOC): Free Stock Analysis Report
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