Lawson Bets More Heavily on Healthcare

Published: January 18, 2010

by Timothy Prickett Morgan

Over the years, Lawson Software has carved out a number of niches for itself in the midrange and enterprise application space, including providing solutions to governments and healthcare providers. With a $160 million acquisition of Healthvision Solutions, Lawson is making some heavy bets that the medical industry is going to do a lot more automation and that it needs to be one of the key providers of software to hospitals, medical practices, clinics, and doctors.

Healthvision, which is based in Dallas, sells integration products and services to hospitals and other healthcare organizations. The company was founded in 1989 and has offices in the United States, Canada, and the United Kingdom, where its Cloverleaf integration tools are used by some 800 customers in over 3,000 healthcare facilities; about 200 of those customers use Lawson's ERP software as their back-end systems, and in North America, 33 percent of hospitals and 40 percent of large integrated delivery networks (that's healthcare-speak, not IT-speak) use the Cloverleaf tools.

Like a number of other smart private equity firms that specialize in tech companies, Battery Ventures took Healthvision's parent company, called Quovadx, private in 2007 with mix of cash, debt, and balance sheet bookkeeping that has, as a story in the Wall Street Journal explains brilliantly, ended up splitting Quovadx in two. The other half was spun out as Rogue Wave Software, which sells enterprise C++ development tools, terminal emulation, and a number of other tools, and it apparently got stuck with the debt. The point is, Battery Ventures put up $25 million in debt, $18 million in cash, and sold only a piece of the company three years later for $160 million.

All of that is beside the point, unless you want to put your money into this here private equity kitty I am thinking about putting together. . . .

Anyway, Lawson shelled out $160 million to acquire the Healthvision piece of Quovadx, and that company's solutions mesh nicely with its S3 healthcare modules. (The S3 product, which hails from the Lawson side of the house, is what the company leads with when it sells ERP systems to healthcare providers and governments, while the code that came from the Intentia side of the house is aimed at food and beverage, equipment and service rental, and fashion companies; both the S3 and M3 suites are deployed at manufacturers, distributors, and service companies.) Lawson says that it has approximately 600 customers in the healthcare industry, with a third of them using Healthvision's Cloverleaf integration products.

Healthvision's Health Information Exchange products are sold outright and delivered in SaaS format. The HIS suite is comprised of a variety of tools for managing electronic healthcare records--a big part of the healthcare reform bill that is being hammered out in the U.S. Congress right now--as well as electronic data interchange modules to link into insurance providers for payment, clinical portals that allow for test data results to be transmitted to medical offices over the Internet, and a consumer portal to allow patients to have access to their own medical records. Lawson has a 60 percent share for ERP software among the top integrated delivery networks in the United States, and it doesn't want a competitor sweeping in and stealing away the integration and medical records biz. Lawson also gets its hands on the MediSuite healthcare information system, an integrated product that is used in Canada extensively.

Lawson was founded in 1975 and didn't even get into the healthcare space with point solutions until 1996. Including the Healthvision deal, which closed last week, Lawson has done 15 acquisitions, the biggest one being the acquisition of rival AS/400 application vendor Intentia in April 2006. The only other healthcare-related acquisitions were in October 2003, when Lawson shelled out some dough to buy Apexion Technologies, a provider of healthcare supply chain software, and in April 2004, when Lawson bought some of the assets of Siemens Medical Solutions Health Services.

Being a privately held company, Battery Ventures didn't say much about the Healthvision business. But Lawson is a publicly held company, and it is required by law to say something. In the first 12 months after the Healthvision deal closes (which it has already), Lawson expects the products to deliver between $60 million and $70 million in additional revenues, and adds that about 60 percent of the company's revenues are recurring thanks to software maintenance and support contracts. Lawson expects the Healthvision products to add 6 cents to 7 cents per share to earnings in those 12 months. (Lawson paid a heavy premium for Healthvision, but the payoff can be huge if healthcare reform goes through.) Lawson added that these profit figures exclude somewhere between $16 million and $22 million in various charges relating to the acquisition. Lawson had $371 million in cash before the Healthvision deal was done.

Lawson needs to hold onto at least some of that cash as a cushion in a still poor economy, but could make other targeted acquisitions if the right opportunity arises.

That said, the company is still under pressure. In the second quarter of fiscal 2010 ended in November 2009, Lawson's sales fell by 10.7 percent to $184.4 million, and net income was down 9 percent to $2.75 million. Lawson said that new software license fees fell by 6 percent in the quarter, to $28.4 million, maintenance revenues were off 5 percent, to $85.1 million, software revenues among existing customers fell by 6 percent, to $113.5 million, and consulting revenues plummeted by 18 percent, to $70.9 million.

"Lawson's operating profit continued to improve in the second quarter," said Harry Debes, president and chief executive officer at Lawson as the company reported its financials. "Our revenue results exceeded our guidance and our non-GAAP earnings meet the high end of our guidance range. While the economy remains challenging overall, our strategy of focusing on targeted vertical markets is helping us achieve our performance objectives."

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