Elliott wins the Athenahealth battle (again)
Jonathan Bush sounded improbably chipper when we spoke, in the wake of Monday's news that Athenahealth would be sold for $17 billion by the activist hedge fund that had forced him out of the company he founded.
- "I knew you'd be calling, so I picked an unnecessary argument with my wife to get it all out first," he said.
- That's always been Jonathan Bush. Unconventional. Heart worn bluntly on his sleeve. And, in the mind of Paul Singer and some other investors, the right man to start a health-tech company and the wrong man to lead it once mature.
Backstory: Athenahealth was an early winner in the digitization of health records and billing, founded in 1997 and going public a decade later.
- Both the company and Bush were also the occasional targets of short-sellers, including David Einhorn.
- When revenue growth slowed in the late teens, and the stock price stagnated, Singer's Elliott Management took aim. Months after getting the cold shoulder from Athenahealth's board, which by early 2018 would be chaired by former GE CEO Jeff Immelt, Elliott went hostile.
- Reports of Bush acting inappropriately at work and at home began to surface, some based on old court documents, with rampant speculation that Elliott was slamming its steel-toed boot on the scale (this was shortly after allegations that Elliott had used private investigators in a different campaign).
- Bush stepped down. Elliott and private equity firm Veritas Capital took Athenahealth private in 2018 for $5.7 billion, which was less than the $6.5 billion it originally offered. Bush called it "a steal."
Fast forward: Bain Capital and Hellman & Friedman, both of which kicked the tires back in 2018, agreed to buy Athenahealth for $17 billion. Elliott and Veritas will retain minority stakes, with a source saying their combined position is expected to be worth just under $1 billion.
- Athenahealth is now almost as valuable as Cerner, one of the two dominant hospital EHR vendors alongside Epic Systems. The buyers' basic thesis is that the total addressable market is massive and still growing, particularly for independent docs, which means they can succeed as a top contender.
- It's the second mega-buyout of a health-tech company in 2021 for Hellman & Friedman, which was part of the $30 billion takeover of Medline. In other words, it knows how to find the financing and is one of few firms (along with Bain) that could write this sort of check.
- Bush went on to found another startup called Zus Health, which recently raised Series A funding led by Andreessen Horowitz.
Elliott pulled the old private equity playbook of tearing down to build back up. It sold Athenahealth's campus for $525 million and wound down some ancillary efforts to focus on organic growth of its core business. Today, its revenue and headcount are significantly higher than they were in 2018.
- Bush says he respects Bain and H&F, but remains disappointed by how things went down with Elliott: "They behaved in a very bad way and profited from it. It's not about them really — blame not the bird of prey — but that regular shareholders weren't the ones who got the gains."
- Elliott's retort, of course, would be that shareholders weren't getting gains under Bush (though he quit before the buyout, so round and round the rhetoric can go.).
The bottom line: This new deal represents a new chapter in the Athenahealth story, but not the final one.