Mergers & Acquisitions

IBM Sells Watson Health

M&A Handshake

IBM is selling most of its Watson Health division to private equity firm Francisco Partners, creating a new standalone healthcare entity and giving both companies (IBM and the former Watson Health) a much-needed fresh start. 

The Details – Francisco Partners will acquire Watson Health’s data and analytics assets (including imaging) in a deal that’s rumored to be worth around $1B and scheduled to close in Q2 2022. IBM is keeping its core Watson AI tech and will continue to support its non-Watson healthcare clients.

Francisco’s Plans – Francisco Partners seems optimistic about its new healthcare company, revealing plans to maintain the current Watson Health leadership team and help the company “realize its full potential.” That’s not always what happens with PE acquisitions, but Francisco Partners has a history of growing healthcare companies (e.g. Availity, Capsule, GoodRx, Landmark Health) and there are a lot of upsides to Watson Health (good products, smart people, strong client list, a bargain M&A multiple, seems ideal for splitting up).

A Necessary Split – Like most Watson Health stories published over the last few years, news coverage of this acquisition overwhelmingly focused on Watson Health’s historical challenges. However, that approach seems lazy (or at least unoriginal) and misses the point that this split should be good news for both parties. IBM now has another $1B that it can use towards its prioritized hybrid cloud and AI platform strategy, and the new Watson Health company can return to growth mode after several years of declining corporate support.

Imaging Impact – IBM and Francisco Partners’ announcements didn’t place much focus on Watson Health’s imaging business, but it seems like the imaging group will also benefit from Francisco Partners’ increased support and by distancing itself from a brand that’s lost its shine. Even losing the core Watson AI tech should be ok, given that the Merge PACS team has increasingly shifted to a partner-focused AI strategy. That said, this acquisition’s true imaging impact will be determined by where the imaging group lands if/when Francisco Partners decides to eventually split up and sell Watson Health’s various units.

The Takeaway – The IBM Watson Health story is a solid reminder that expanding into healthcare is exceptionally hard, and it’s even harder when you wrap exaggerated marketing around early-stage technology and high-multiple acquisitions. Still, there’s plenty of value within the former Watson Health business, which now has an opportunity to show that value.

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-- The Imaging Wire team