Francisco Partners Acquires IBM Watson Health Unit

IBM Divests Watson Health Data Assets to Francisco Partners

In a development widely regarded as underwhelming, IBM has completed the sale of its Watson Health unit’s data assets to the private equity firm Francisco Partners. The financial details of the acquisition were not disclosed by either company.

However, prior reports indicated an estimated valuation of approximately $1 billion for the transaction.

Components of the Acquisition

The agreement encompasses a diverse portfolio of assets from the Watson Health division. These include Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex, and various imaging software solutions.

This acquisition provides Francisco Partners with a substantial collection of healthcare data resources.

The Genesis of Watson Health

IBM initially assembled Watson Health in 2015 with the ambition of achieving market leadership through a data-centric approach. This strategy involved a series of acquisitions of health data companies.

Early acquisitions included Phytel and Explorys, laying the foundation for the unit.

Significant Investments and Subsequent Challenges

IBM continued to invest heavily, spending $1 billion on Merge Healthcare. Further investment followed with the $2.6 billion purchase of Truven Health Analytics the subsequent year.

Despite initial optimism regarding Watson Health’s potential to advance IBM’s artificial intelligence initiatives, the unit ultimately failed to meet expectations. A shift in priorities occurred when Arvind Krishna succeeded Ginni Rometty as CEO in 2019.

Future Plans for the Acquired Assets

Francisco Partners intends to establish a new, independent company utilizing these acquired assets. Notably, the firm plans to retain the existing management team, at least in the short term.

Justin Chen, principal at Francisco Partners, emphasized their commitment to supporting the new company’s growth. He stated their focus will be on enabling the company to reach its full potential and deliver increased value to its customer base.

Industry Context: Increased Activity in Healthcare Tech

This sale occurs amidst a period of heightened activity within the healthcare technology sector. Last year, Oracle acquired Cerner for $28 billion, and Microsoft reached an agreement to purchase Nuance Communications in a deal valued at nearly $20 billion.

Both of these transactions are currently awaiting regulatory clearance, demonstrating the significant value that major corporations place on the healthcare vertical.

Analyst Perspective

The decision to sell Watson Health surprised industry analyst Patrick Moorhead of Moor Insights & Strategy. He noted the increasing trend towards specialized, vertical solutions.

Moorhead suggested the sale may also indicate the unit’s underperformance.

Deal Completion and Regulatory Considerations

The transaction is expected to finalize in the second quarter, pending regulatory approval. Given the sensitive nature of the health data involved, the deal may be subject to increased scrutiny from regulatory bodies.