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Late last December, Oracle revealed its plans to acquire EHR vendor Cerner for almost $30bn.
The deal will see the tech giant buy the healthcare firm in an all-cash tender offer of $95 a share, resulting in a total equity value of $28.3bn. The acquisition of Cerner will give Oracle a direct route into a large number of providers in the US and beyond, and marks Oracle as only the latest company with a legacy in technology to beat a path into healthcare.
Assuming it is approved by regulators, the deal is set to close in 2022, and is expected to be accretive to Oracle’s earnings right away, while Cerner will be organised as a dedicated business unit within Oracle.
The Signify View
For some years, the healthcare market has been seen as one of the key sectors into which investment from big tech companies would one day flow. There have been several instances of this happening in the past with Google, Amazon, and IBM among those that have already acted upon their designs for the sector, with varying levels of success.
More recently, however, these broader ambitions have started to become more tangible, and more serious, with the most notable move being made by Microsoft in April, when the company announced it was taking over radiology transcription specialist Nuance for $19.7bn. That deal, which so far has received antitrust approval from the U.S. Department of Justice, the Australian Competition Commission and, most recently, the European Commission, represents something of a change in strategy for Silicon Valley firms. In the past, tech firms have tended to focus on the internal development of products to sell into healthcare. Microsoft, however, bucked this trend, investing heavily into a successful healthcare company in a bid to, among other things, access a host of sales opportunities for its own cloud offering.
Oracle’s bid for Cerner lies along similar lines. Instead of investing heavily on research and development internally, and risking falling into one of the traps of moving into healthcare – a lack of pragmatic clinical expertise – Oracle has spent externally. Cerner’s latest financial results, for Q3 2021, saw revenues of $1.4bn, with an adjusted operating margin of 21.9%, and so, the vendor represents a strong revenue generator for Oracle in its own right. However, as illustrated in Signify Research’s Electronic Medical Records – Market Intelligence Service Cerner’s use in approximately 25% of acute hospitals in the U.S in 2020, as well as a strong presence elsewhere, including 9.5% of the revenue share in EMEA, acquiring Cerner also provides Oracle with a vast amount of sales opportunities for its core cloud services offering.
About That Cloud
Cloud providers are increasingly interested in the healthcare market, and more similar deals are likely to follow; there are rumours, for instance, that . This raises questions of compatibility. Oracle will naturally hope that when Cerner’s customers make the transition to cloud, they will do so using Oracle’s cloud services. The same is true of Nuance customers for Microsoft and will be for any cloud providers that take this approach into healthcare. This means that in the mid-term, imaging IT vendors are unlikely to limit themselves to just one cloud provider, as this could drastically shrink the number of hospitals that they are able to sell to. This cloud compatibility is even expected in cases where one cloud provider is nominally preferred or partnered. GE Healthcare’s TruePACS for example is promoted as being built in partnership with AWS, but GE’s software can be deployed on the customers chosen cloud platform; AWS or otherwise.
The cloud market is not straightforward, however. In the U.S. Cerner accounts for 27% of all EHR revenue but is losing market share to its chief rival Epic. Despite this, it still has a strong presence internationally. This will be advantageous for Oracle, which will look to sell its cloud services across the world. However, there are, in some markets still some regulatory hurdles that will increase the difficulty of cloud adoption and make Oracle’s ambition more challenging. In Australia, for example, there are strict rules around data centres, and their location. The sentiment in Nordic countries meanwhile is comparatively against public cloud, again, making this a difficult region for Oracle to capitalise on its newly-found access. As such, while Cerner’s international reach will open opportunities, Oracle will still have to work hard to capitalise on them.
Although Cerner’s biggest market is by far the U.S., it does have a presence globally
Healthcare’s Digital Deficit
Ultimately, this increased interest in the healthcare sector is, for the most part, a positive change. The Covid-19 pandemic, in particular, has recently highlighted some of the frailties of the broader healthcare sector from the perspective of digitisation. This emphasised the opportunity that awaited Silicon Valley companies that had the technology and the resource to come and offer solutions to these frailties within imaging and elsewhere. It increasingly seems as though these vendors have taken this cue, and are making much more concerted efforts into healthcare. While there have been false starts in the past from vendors such as Google, Amazon and Microsoft, and rumours suggest that other vendors such as IBM are also looking to free themselves of their healthcare concerns, the present investment represents a new level of commitment.
Not every deal will impact medical imaging to the same degree, with Microsoft’s acquisition of Nuance likely to have a much more direct effect than Oracle’s acquisition of Cerner, particularly for Imaging IT vendors, despite being around two-thirds the size. Regardless, the wave of investment into this digitisation, the additional spending in the market and the added impetus to adopt and embrace broader trends driven by big tech means that Oracle’s impact will ripple out to all parts of healthcare, including imaging. Microsoft and Oracle have shown their hands first, but it is unlikely their peers won’t soon follow.
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This Insight is part of your subscription to Signify Premium Insights – Medical Imaging. This content is only available to individuals with an active account for this paid-for service and is the copyright of Signify Research. Content cannot be shared or distributed to non-subscribers or other third parties without express written consent from Signify Research. To view other recent Premium Insights that are part of the service please click here