The private equity firm, which already owns a 9% stake in Athenahealth, says the takeover is needed to address strategic and operational failures, and an unwillingness by leadership to change course.
Elliott Management has made a cash offer to buy the medical IT company Athenahealth Inc. for $160 per share and take it private in a deal valued at about $7 billion.
In an eight-page letter making the acquisition pitch to Athenahealth leadership, Elliott Partner Jesse Cohn said the Watertown, Massachusetts-based Athenahealth has a history of underperformance both strategically and operationally.
"Unfortunately, we are faced now with the stark reality that Athenahealth as a public-company investment, despite all of its promise, has not worked for many years, is not working today and will not work in the future," Cohn wrote.
"Given Athenahealth's potential, this reality is deeply frustrating, but the fact remains that Athenahealth as a public company has not made the changes necessary to enable it to grow as it should and to create the kind of value its shareholders deserve."
Cohn's letter ticked off a list of grievances that include:
- Operating Effectiveness: Athenahealth has long been unable to drive any operating leverage. Despite maintaining a 30% long-term operating margin target for many years, margins for 2017 were just 14%, well below the company’s peers and still down from 2011 margins of 17%, when the company was one-quarter its current size and lacked the benefit of scale. Recently, the company took steps to improve margins to 16-17% for 2018 (based on guidance), but the company appears to be struggling with execution of this plan.
- Product Execution: Operating issues go well beyond efficiency, as Athenahealth's streamlined introduction was a significant and disappointing step backward that led to years of (Net Promotor Score) declines. Similar issues have plagued other Athenahealth offerings such as its inpatient solution and Epocrates.
- Strategy Execution: Athenahealth has a publicly described grand vision, but has repeatedly failed to execute. Inpatient is a prime example, where the company has been unable to deliver consistent quality of service in order to promote the adoption of a product that is otherwise disruptive.
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.