Braun Jones
Last week, Science Applications International Corp., (SAIC) announced the acquisition of maxIT Healthcare Holdings Inc., a healthcare IT consulting company, for $473 million in cash.
According to an article from the Washington Business Journal’s Jill Aitoro:
“The definitive agreement to acquire Westfield, Ind.-based maxIT Healthcare Holdings will bring 1,300 additional employees to SAIC and, when combined with the company’s existing team, create the nation’s largest commercial consulting practice in electronic health records (EHR) implementation and optimization services.”
SAIC, which is headquartered in McLean, Va., provides scientific, engineering, and technology applications to customers in the U.S. Department of Defense, the intelligence community, the U.S. Department of Homeland Security, other U.S. Government civil agencies and selected commercial markets. According to the company’s fact sheet, SAIC’s business is 93 percent government contracts. The other 7 percent is from international business and commercial markets.
This raises an interesting question. With government contracts accounting for such a huge slice of the company’s business, why would they want to go out and acquire a commercial consulting company specializing in the healthcare market?
The move should bolster SAIC’s capability gained from its acquisition of Vitalize Consulting Solutions (VCS) team, which SAIC acquired in 2011, and allow the government contractor to turn to the commercial sector for growth as the government tightens its purse strings. SAIC’s acquisition of maxIT Healthcare Holdings correlates with multiple trends in the sector and we can expect to see additional similar moves in the future.
Last month, the Supreme Court ruled to uphold the Patient Protection and Affordable Care Act (PPACA). The PPACA was backed by the Obama Administration and passed by Congress as a way to increase access to healthcare insurance and services to all Americans. The PPACA also has provisions for expanded utilization of advanced healthcare technologies, such as electronic health records.
Up until the Supreme Court’s decision was announced, it was unclear whether or not healthcare reform in its current form was going to be a reality. Now, with the Supreme Court upholding the PPACA, there is only one major event that could impact whether or not the act will change, and that’s the upcoming election. However, even with a win for Mitt Romney, we can be relatively sure that pieces of the healthcare act will continue to move forward.
With the healthcare reform and financial incentives for embracing IT solutions like electronic health records coming, healthcare providers, payers and other entities in the healthcare market will be looking to invest in new technologies.
Simultaneously, spending cuts are expected in the federal government. The super committee’s inability to come to a consensus on where to cut $1.2 trillion in spending to help overcome the existing budget deficit has the country poised to face sequestration, which would hack budgets across the board.
So, why would a company with 97 percent of its business in government contracts look to acquire a company like maxIT Healthcare Holdings? SAIC is working to diversify its portfolio of offerings to help overcome the impending government budget cuts, while positioning itself as a leader in an emerging market which is poised for higher growth.
And they’re certainly not the only company to do so. Simply look at the recent acquisition of IronWorks, an interactive web development firm, by ICF International, a professional services and technology solutions company that serves a wide range of markets including homeland security and defense. Another example is the recent acquisition of information security company, HBGary, by ManTech International Corp., a technology solutions provider servicing the government market. Although not healthcare focused, both of these targets have a substantial commercial customer base in attractive high growth sectors.
Federal budget cuts have government contractors looking at all possible avenues, including mergers and acquisitions, to diversify their portfolios and position themselves for growth in emerging and high-growth markets. As the government continues to tighten their belt, expect to see more government contractors announce strategic acquisitions in hot markets such as cybersecurity, cloud computing, intelligence, and healthcare IT.