Sage Practice Management Software Sold At Big Loss
Misguided development doomed the practice management/electronic health record system company, says an analyst.
The U.K.-based Sage Group recently announced that it had sold Sage Software to Vista Equity Partners, a San Francisco-based investment firm, for $320 million. In 2006, Sage purchased the assets that would become Sage Software from Emdeon for $565 million.
More Healthcare Insights
- The Untapped Potential of Mobile Apps for Commercial Customers
- How Healthcare Payers are using Customer Communications to Improve Productivity and Effectiveness
White PapersMore >>
- Research: Accountable Care Organizations and Health IT
- Are Cloud-Based Apps Right for Your Practice?
Sage acknowledges it lost between $95 million and $111 million on this sale at the current exchange rate. Nevertheless, it does not appear that Sage Software is bleeding red ink. For the six months ended March 11 of this year, the Sage Group says, the division earned nearly $16 million before interest, taxes, and amortization on revenue of $114 million. And for the fiscal year ended Sept. 30, 2010, Sage Software netted EBITA of $48 million on a volume of $245 million.
That isn't as impressive as it sounds, however, when you consider that Sage Software's net income shrank for the most recently reported six-month period in a prorated comparison with the fiscal 2010 figure. Moreover, the company's annual revenues were lower in 2010 than they were when Sage purchased Sage Software.
[Which healthcare organizations came out ahead in the InformationWeek 500 competition? See 10 Healthcare IT Innovators: InformationWeek 500.]
"This is one of the great boom markets in the history of the health IT industry," noted Sean Wieland, an analyst with Piper Jaffray, in an interview with InformationWeek Healthcare. "So if your claim to fame is that you made money, that might not be enough. You've got competitors like Athenahealth, which is stealing market share from Sage, and is growing earnings at 40% year over year, with profit margins well into the 20% range."
In Wieland's view, the Sage Group didn't understand what it was buying when it acquired Medical Manager and related assets from Emdeon. "When they bought it, it was a declining asset in terms of losing market share, and I don't think they ever turned it around."
Medical Manager's big mistake, Wieland said, was the development of its Intergy practice management/electronic health record (PM/EHR) system. This client-server software, he noted, required "a lot of care and feeding" and was really aimed at medium-sized to large physician groups. Medical Manager's PM customers, in contrast, were mostly practices of one to 10 physicians. The small practices couldn't cope with Intergy, and the large groups didn't want it because they viewed Medical Manager as a vendor that specialized in small groups.
But Sage Software still has a competitive advantage in its share of the market for practice management software, Wieland said. At its height, Medical Manager claimed to have systems installed in 22,500 sites, and the Sage Software website currently says that the company serves 80,000 physicians.
"They still have a large base of physicians using their billing system," Wieland pointed out. "What they need is to come up with is the upgrade path from that [to a new EHR/PM system]. It has to be cloud-based and subscription-based--not something like Intergy that is using a decade-old technology."
This is probably Vista's strategy, he said. (Vista did not return phone calls seeking comment.) "They probably thought they could drive better execution, better innovation in R&D and come up with that logical upgrade path for the existing base."
If Vista makes the right moves, the software vendor could be successful again, Wieland said. "Medical Manager still has a large customer base, and the market share [for billing systems] doesn't switch that quickly. So it's not too late."
Find out how health IT leaders are dealing with the industry's pain points, from allowing unfettered patient data access to sharing electronic records. Also in the new, all-digital issue of InformationWeek Healthcare: There needs to be better e-communication between technologists and clinicians. Download the issue now. (Free registration required.)