Highlight Report

Oracle indulges in a copycat transaction in a desperate bid to enter healthcare

January 7, 2022

The Situation: Oracle will acquire Cerner, a leader in electronic health records software and services for approximately $28 billion pending regulatory approvals. Oracle’s acquisition of Cerner is expected to give Oracle a direct entry into healthcare, improve its cloud presence at an industry level, and, most importantly, provide it with a higher degree of control over healthcare data.

Oracle is estimated to have $40 billion in cash and is among the top 15 public companies, according to S&P Global Market Intelligence in November 2021; its large cash balances put it in a good position to invest. However, its deployment of capital on Cerner is challenged by three critical elements: its acquisition thesis of solving for interoperability (integration of patient data across siloed systems and processes), the target company’s value in a relatively saturated market, and a lack of accretive value to its stakeholders.

Everything is a nail because I have a hammer

Microsoft purchased Nuance for approximately $20 billion in 2021, Amazon brought PillPack for $1 billion, Walmart took on MeMD for an undisclosed price, while Google acquired Nest and Fitbit for a combined $5 billion-plus in a continued trend of big tech entering the $4 trillion US healthcare market. Each of these acquisitions was supported by a thesis around healthcare data control—either to solve interoperability or to profit from the disconnection across healthcare systems, technologies, and markets.

Oracle is desperate to benefit from the enormous financial opportunities in US healthcare markets. Recognizing it was falling behind in the cloud race and suffering from a severe case of FOMO (fear of missing out), it plopped down a mind-boggling $28 billion to purchase Cerner, an EMR/EHR (electronic medical records/electronic health records) systems leader in the US market. EMR/EHR are digital records of patient medical charts and health consumer health records allowing for a systemic approach to managing healthcare.

However, interoperability is not a problem that wants to be solved, given the entrenched perverse motivations across the healthcare ecosystem to maintain the siloed structure. My colleague and I published an approach to managing data that will move ownership—and hence data control—from enterprises to consumers. This approach will reconfigure the EHR/EMR market, solve for interoperability, and reduce the financial opportunity for enterprises.

Evolution includes extinction

The US EMR/EHR market is saturated; most healthcare providers and health systems have implemented EMR/EHR systems, driven by the Meaningful Use (MU) incentives as part of the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act. So, most large players, including EPIC, All Scripts, Cerner, and others, have been expanding their value-chain footprint (population health, health analytics) and moving to the cloud to drive value beyond EMR/EHR. By all accounts, market value will soon hit the ceiling without a fundamental change to the current healthcare delivery paradigm, exchanging sick care for health.

We estimate the global EHR market is large and growing; however, the global EHR scene is nascent, disorganized, and highly competitive. Its financials and risk factors make it less tempting than the US markets have been. In many ways, the EHR systems market on this side of the Atlantic is hitting the wall for growth.

So many players are looking for sugar daddies to go out on the high, and kudos to Cerner for being able to do just that.

Accretive value, you say?

Typical successful acquisition cases include some of the following: improving the target’s performance, accelerating product speed to market, reducing costs to improve resource management, scaling, and including early-stage winners in the enterprise portfolio. Oracle’s acquisition is missing all these archetypes, not necessarily disqualifying its acquisition case but certainly increasing the barriers to success.

Visiting Oracle’s stated position on the Cerner acquisition combined with the commentary of other industry pundits suggests that its acquisition of Cerner has no accretive value. Rather, it is an attempt to catch up (cloud), emphasizing its direct entry into the healthcare market on the coattails of an industry leader (Cerner) and a focus on a problem (interoperability) that much of the industry, including the US federal government (Center for Medicare and Medicaid Services), has made significant progress on.

Oracle’s Cerner acquisition—if the regulators approve—will be perhaps the second-largest healthcare deal of all time. That should tell us that this deal must deliver some serious value to its investors and positively impact the US health and healthcare landscape. Sadly, it is more likely to disappoint and potentially ruin the value Cerner has been delivering to hospitals and providers for a long time.

The Bottom Line: Oracle’s acquisition of Cerner in an apparent bid to solve for interoperability in healthcare is a poor deployment of enormous capital without any accretive value to itself. It could have approached the same goal through a partnership-based ecosystem with arguably greater value and lower risk to its stakeholders. This acquisition is destined to join the legions of bad deals.

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