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- Thoma Bravo (private equity owner of Hyland Software) has agreed terms to acquire the Lexmark International Enterprise Software business (Kofax and ReadSoft business)
- Hyland Software itself will then acquire the Lexmark Perceptive Software business. This includes the Perceptive Intelligent Capture, Acuo VNA, PACSGEAR and Enterprise Medical Image Viewing (originally Claron Technology) product lines
- The deal is expected to close in Q3 2017 for an estimated $1.5B, with Hyland Perceptive deal to follow.
Here’s our analysis of the deal, likely outcomes and what this will mean for the imaging IT and clinical ECM market:
Powerhouse of Health Data Management?
Focusing on the Lexmark Perceptive Software deal, the main attraction for Hyland will be gaining a share in the imaging IT archiving and management market. Lexmark Perceptive is one of the top three vendors by revenue globally in this market, driven predominantly by its past acquisitions of Acuo (VNA) and PACSGEAR (image exchange and connectivity solutions), along with multiple others in viewing and workflow technology. Hyland OnBase originally launched its own VNA product competing against the Lexmark Perceptive Acuo VNA in early 2015, though it only holds a small base of customers today.
While the Lexmark-Perceptive Software business is smaller by revenue compared to the Enterprise Software deal (Kofax-ReadSoft), it does have strategic importance for Hyland. To date, barring Lexmark Perceptive , there is no other vendor that has the in-house capability to provide large-scale clinical content management and archiving technology (e.g. VNA, image exchange , workflow tools and enterprise viewing), alongside enterprise content management (ECM) for clinical, administrative and financial information management and storage. Instead, each market has remained distinct; ECM vendors have catered for non-clinical administrative and finance data, usually partnering with EMR vendors, while imaging IT vendors, health care technology vendors and a small group of independent companies have catered for clinical data management and imaging.
Therefore, the new Hyland-Lexmark-Perceptive partnership offers a potential edge over the other major clinical and non-clinical enterprise IT giants, such as IBM, GE Healthcare and EMC, by offering a complete content application layer for management of all health care related data.
Not Without Risk
While the strategic move from Hyland is clear, the operational juggling required to make it happen will be an arduous task with many challenges. The Lexmark Perceptive business was created by combining nine different businesses, which have been pieced together, with limited success, over the last five years. The acquisition of Lexmark Perceptive in November 2016 by a Chinese investment consortium also resulted in many key personnel from the original business jumping ship to competitors.
The approach of each partner in this deal has also been markedly different to date. Lexmark Perceptive has been most successful in winning large enterprise deals requiring complex customised solutions. Albeit with little evidence of a coherent strategy combining the clinical archiving business together with the Perceptive ECM business line. In contrast, Hyland has a strong reputation as an ECM vendor, catering mostly to Epic Systems EMR customers, which has been leveraged to expand into clinical content with its OnBase VNA. Hyland also has little experience in interfacing and replacing legacy clinical IT systems.
From a geographical perspective, both businesses have some commonality, with a vast proportion of their installed base being in the US. Lexmark Perceptive has also branched out internationally in the UK, Nordics and Asia Pacific region, though opportunities for large enterprise clinical content management deals are less common. Hyland has an almost exclusive US-based customer list, again driven mostly from providing ECM to support customers with an Epic Systems EMR. From a non-US perspective, adoption of large enterprise EMR akin to that seen in the US in the last five years, is weak. Instead, these markets are heavily dominated by health care technology firms for clinical data management and the large multinational ECM businesses. Consequently, non-US market penetration for the combined Hyland-Lexmark-Perceptive business will be a significant challenge given current experience and capability.
The Bigger Picture
Vendors from both the clinical and non-clinical data management market sectors will be watching the outcome of this deal closely. To date there has been little appetite, or market-available solutions, for health care providers to fully integrate data management capabilities across clinical and non-clinical segments.
However, interoperability has been a hot topic in health care IT for the past few years, in improving interfacing of systems both within and between provider networks. This has been further exacerbated by new focus on population health management and the emerging use of artificial intelligence in health care, both of which require providers to develop a more federated and accessible approach to management and storage of health care data.
If the expected combined clinical and non-clinical solution from the new Hyland-Lexmark-Perceptive provides significant commercial success, there is no doubt the wider market will react, ramping up merger and acquisition activity, especially from non-clinical enterprise ECM vendors looking for clinical data management expertise. Moreover, it would also start a ding-dong battle for market leadership of “content application” platforms that will act as the supporting layer to all health care providers’ software. Watch this space.