What is the difference between the value of a database company in 2012 and then, forty-three inflation-free months later, in February 2016? According to IBM Watson Health, who have just bought Truven Health for $2.6 billion from Veritas Capital, who bought it from Thomson in 2012 for $1.25 billion, a neat 100%. Now, private equity is capable of wondrous things in short time periods, and Mike Boswood and his team are great managers and have made great strides with the company, but when things double in value over such a short period, other factors must be coming into play. Maybe there is a sudden perceived shortage of clinical evidence data in healthcare? Hardly seems likely. Fresh stuff is produced daily, and better recorded than ever before. The good folk at Hearst Business will be looking at the balance sheet valuations of Zincs and First Databank, and over at the BMJ, Clinical Evidence takes on a bright new gleam of interest. A gusher in Ann Arbor, Truven’s base, could float an awful lot of other boats.
But, just a minute, what is Truven Health Analytics? Well, at base dear old Micromedex, an indexing and recording database for clinical evidence. And is it sparkly and new? No, it’s about 40 years old. It records decisions and costs, centred on drug use, and has spawned great tools for doctors and hospitals its Formulary Advisor, Red Book and PDR Electronic Library are the tool sets that enable administrators and clinicians to know if they are using the right products in the right combinations at the right dosages and for the right price. Pretty valuable stuff then? Yes, it fully justified the price that Veritas paid in 2012. In earlier times it had been hard to deploy the data effectively – I remember initially encountering it on microfiche (use Google to look this up if you are under 50). When it was densely impenetrable. But Truven has, in recent years, added another word to its title. It is now Truven Health Analytics. And therein lies our tale.
Truven, I must be clear, does more than pure clinical evidence. Services like Marketscan or the patient information services support policy, administration and patient welfare. Its client roster begins with the 100 top US hospitals and includes another 8400 healthcare data buyers. Anyone entering the sector would love to get hands on its client list. So has IBM bought this as a prestige, flagship purchase? There is no evidence of that. Watson Health has made three acquisitions already. Phytel and Explorys have been with them for ten months, and the most recent, Merge Healthcare, cost a mere billion dollars. However, this is the first large data play they have made, and one of the key issues here is probably people – one thing that IBM would have been short of in healthcare was sector data scientists, curators and architects. Now it has a whole cadre. And yet, a 100% price hike?
So let’s get back to that Analytics word that has added itself to the Truven name. Truven, I learnt four years ago, stands for a concatenation of “trusted” and “proven”. Neat, eh? Health is Health. And Analytics… stands for a burgeoning ambition to turn analysis into solutions. The use of the word in the company name was, I suspect, a sign post pointing towards a destination. But for IBM it represents an arrival point – where they now are and intend to be. The coming together of Watson and Truven is thus the wheel hitting the road, or the data hitting the fan. It had to be a big price, if it is to carry the weight of problems solved, solutions created, revolutionary productivity gains and quality hurdles surmounted. You could call this the marketing price, securing not so much the value of Truven but the power and importance of what happens next at IBM Watson Health.
Yet I still have two niggling reservations. One concerns healthcare data. It’s a sector famous for data profusion. All that stuff so arduously recorded and so expensively stored in administrative systems built to withstand the storms of litigation by insurers and patients. If Truven and Hearst can collect it at source, why couldn’t IBM? If IBM is creating a big data solution, then the highly organised and structured databases of Hearst and Truven are a drop in their ocean. Why not lease the data, already becoming commoditised, rather than owning it? We come back to all those data scientists but by now they are beginning to sound like very expensive staffers.
And my final concern, of course, is for my friends and colleagues at Thomson Reuters. Mercifully the trustees of the Woodbridge Trust, beneficial owners of 53% of that company, are supremely unlikely to read this blog, but surely they will find out at some point that an asset their management disposed of in four years ago has doubled in price in the intervening period. They will then reflect that their managers are currently selling Thomson Reuters Science and IP. In patent information and in science citation indexation, these are two of the most data rich information companies in the market place. As ever, it seems that Thomson Reuters want to sell both units together, always looking at a clean deal with low fees. But what if a private equity player should buy them, split them up and add the word Analytics on the end of each – and then sell them for double the purchase price. Thomson Reuters only has one shareholder who matters but that would not entirely reduce the mutterings about valuations and returns. In fact, someone in the City is probably running some analytics on it right now!keep looking »