), a provider of cloud-based services for physician practices and
inpatient settings, inked a definitive agreement to acquire
) 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.
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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.
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
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
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.
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
) carries a Zacks Rank #3 (Hold). We maintain our long-term
'Neutral' recommendation on athenahealth.