Allscripts plans to sell off its stake in Netsmart

Allscripts plans to sell its stake in Netsmart two years after making an initial investment. (Getty/scyther5)

Allscripts plans to sell off its interest in Netsmart, executives told investors on last week’s earnings call.

The decision comes more than two years after the EHR vendor invested $52.7 million into the company that offers EHR and technology solutions for more than 24,000 post-acute care providers, including behavioral health providers and home health agencies.

According to its most recent filing, Allscripts reported $455.8 million in redeemable convertible noncontrolling interest in Netsmart.

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During an earnings call last week, Allscripts President Rick Poulton said after researching several alternatives, the company “began detailed negotiations with multiple parties” to sell its interest in Netsmart.

“We have signed a letter of intent and buyer diligence currently continues,” he said. “Based on the work accomplished to date, we expect to answer a definitive documentation on the sale during the third quarter.”

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Poulton added that proceeds from the transaction would go towards bringing down the company’s debt levels and share repurchase. The transaction would wipe out $645 million in nonrecourse debt.

He said the ownership structure of the company, set up in a joint venture with GI Netsmart Holdings in 2016, was “not sustainable for the long term” and the company saw an opportunity to capitalize on the high value of post-acute care assets.

“We think it's in the best interest of our shareholders to let somebody who values this more own it and will reward our shareholders with the benefits of that,” he said.

Allscripts reported a solid second quarter with a 23% increase in revenue compared to the previous year and $64.7 million in gross profit. However, bookings were down significantly from last year, which Poulton attributed to an “inherently longer sales cycle” driven by the shift from Meaningful Use to “ROI-driven demand.”