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Athenahealth CEO Exit Means Sale More Likely

Analysis  |  By Philip Betbeze  
   June 07, 2018

The resignation of Jonathan Bush follows allegations of misconduct and comes weeks after the company resisted a hedge fund's buyout offer.

Jonathan Bush has stepped down as CEO for Athenahealth Inc., following a series of misconduct allegations involving women, including his former wife. His departure now makes a sale of the healthcare software-as-service company to a hedge fund or other strategic acquirer more likely.

It's a dramatic fall for a charismatic and loquacious CEO, and until February, its chairman. Bush has been the unquestioned leader for the company since Athenahealth’s inception.

His departure follows reports of inappropriate behavior dating as far back as 2006:

  • Responding to a report that he assaulted his ex-wife, Bush said in a statement last month, "I take complete responsibility for all these regrettable incidents." The report, by the U.K.'s Daily Mail, cited documents from a 2006 custody battle in Massachusetts.
  • Bush settled a sexual harassment claim from a former employee in 2009.
  • Bush was publicly embarrassed by a 2017 video clip that emerged from an industry event in which, dressed as a movie character from the 2006 comedy "Talladega Nights: The Ballad of Ricky Bobby," he said he wanted to "jump down on" one of his female employees and "do inappropriate things."
  • In a statement, Bush said, "it's easy for me to see that the very things that made me useful to the company and cause in these past 21 years, are now exactly the things that are in the way."

Buyout Rebuffed
Bush leaves in the midst of a contentious $6.9 billion buyout proposal from Elliott Management Corp., which he had resisted. Elliott is a New York hedge fund that has described Athenahealth as poorly managed.

Elliott began its unsolicited bid campaign about a month ago, proposing to buy out Athenahealth and take it private at $160 per share, a premium of 27% over where the company's shares were trading at the time.

Following the announcement of Bush's departure, Elliott said it welcomed the news.

Interim Leadership

Athenahealth will be led on an interim operational basis by Matt Levine, its chief financial officer. The company will likely have a tougher time fending off Elliott and other potential suitors who may find it easier to make the substantive changes for which Elliott has been calling.

Former GE CEO Jeffrey Immelt has taken on the role of executive chairman role since Bush's resignation. Immelt was named chairman of Athenahealth's board in February, replacing Bush in that role.

Immelt is believed to have played a key role in General Electric's dramatic decline in value over his 16-year tenure as CEO. He will be leading a process to "explore strategic alternatives," which could include a variety of possible outcomes, including a sale, merger or continued independence for Athenahealth.

Analysts’ Reactions

Piper Jaffray senior research analyst Sean W. Wieland issued a report that raised its price target for the stock to $179 from $155 based on the greater likelihood of a sale following Bush's resignation. He cites several reasons the company could attract multiple bids that would improve on Elliott's earlier offer. Among them:

  • Athenahealth is among the highest quality assets in the health IT sector.
  • It was an early entry to the cloud platform, with a recurring revenue business model.
  • Athenahealth's decelerating recent growth is a function of healthcare industry dynamics rather than company-specific tactics.
  • The company has demonstrated a strong ability to drive incremental margins.
  • Many strategic buyers may now be interested, including Oracle, Microsoft, and Salesforce.

SunTrust Robinson Humphrey analyst Sandy Draper also weighed in after Bush's departure, assigning a $180 price target on the stock.

Draper describes Elliott's bid as a valuation floor and says Athenahealth is now more likely to be acquired. Among her reasons:

  • Bush founded Athenahealth, has been its only CEO, and he ran the company the way he wanted to even if shareholders didn't necessarily like it.
  • The board is reviewing strategic alternatives officially, after declining several prior calls from Eliot to do so.
  • Elliott indicated it might be willing to pay more for the company if given proper due diligence.
  • Bush owns only 2.8% of the company, and now that he's not officially involved in day-to-day or strategic decision-making, it's easier for potential buyers to make substantial changes without going around him.

Bush is a nephew of former president George H.W. Bush and a cousin of former president George W. Bush. He had led the company since its inception in 1997. It had its initial public offering in 2007; shares debuted at around $35 a share.

The software and cloud services company provides billing, electronic health record and other services to more than 100,000 accounts, including physician groups and hospitals and health systems.

Philip Betbeze is the senior leadership editor at HealthLeaders.

Photo credit: Former Athenahealth CEO Johnathan Bush at Fortune Brainstorm TECH in 2011. (Stuart Isett/Fortune Brainstorm TECH)

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