HIT M&A volume up, but vendors otherwise shaky

Despite recent turmoil in the financial markets, health IT M&A transactions have had a strong few months. During the first quarter of 2008, 57 HIT deals were announced, equal to the number of deals announced in Q1 2007, according to a study by Healthcare Growth Partners.

Not only did deal flow keep pace, valuations of companies involved actually grew.
The median revenue multiple in such deals made a big jump in Q1 2008, hitting 2.1x, as compared with 1.4x during the same quarter last year. Meanwhile, the median EBITDA multiple climbed too, rising to 14.2x compared with 13.4x for 2007. More than half of the deals were for less than $50 million, though a few--such as the Misys/Allscripts combination--were valued at over $100 million.

Such deals aren't necessarily a sign of industry health, however. In fact, some HIT vendors--particularly those supplying revenue management and operational systems--are facing serious cash-flow problems. Many of these vendors, whose business often requires high liquidity, are very reliant on the troubled auction-rate securities market, analysts say. Given such pressures, it seems likely that this sector is going to be the next within HIT to face a significant consolidation.

For more industry research on HIT consolidation:
- read this report (.pdf)
- read this article from InsideARM

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