Private equity firm Francisco Partners is acquiring portions of the struggling IBM Watson Health business. The move comes as IBM CEO Arvind Krishna seeks to improve the company's revenue mix while abandoning certain businesses that often didn't fulfill their promise under IBM's ownership. Financial terms of the deal were not disclosed.
This is technology M&A deal number 93 that ChannelE2E has covered so far in 2022. See more than 1,000 technology M&A deals for 2022, 2021 and 2020 listed here.
In this deal, Francisco Partners will acquire IBM Watson Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex, and imaging software offerings. The deal is expected to close in Q2 of 2022.
IBM Watson Health Fails to Fulfill the Hype
The IBM Watson Health business has struggled to fulfill hype about artificial intelligence (AI) in the healthcare market. As The Wall Street Journal noted in February 2021:
"IBM spent several billion dollars on acquisitions to build up Watson. Former senior IBM executive John Kelly once touted the initiative as a “bet the ranch” move. It didn’t live up to the hype. Watson Health has struggled for market share in the U.S. and abroad and currently isn’t profitable."
Francisco Partners is a very active private equity investor in the technology market. The firm's portfolio includes the former Dell Boomi business and cybersecurity company Forcepoint. In the healthcare-oriented sector, Francisco Partners' investments have included Availity, eSolutions, Capsule, GoodRx, Landmark, QGenda, Trellis, and Zocdoc, the private equity firm noted.
Under the terms of the IBM-Francisco Partners deal, the current management team will continue in "similar roles" in the new standalone company, Francisco Partners said. Still, some pundits wonder if the private equity firm will break up and sell off the various IBM Watson Health assets.
IBM Watson Health - Certain Assets Sold: Executive Perspectives
In a prepared statement about the deal, Tom Rosamilia, senior VP, IBM Software, said:
“Today’s agreement with Francisco Partners is a clear next step as IBM becomes even more focused on our platform-based hybrid cloud and AI strategy. IBM remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT. Through this transaction, Francisco Partners acquires data and analytics assets that will benefit from the enhanced investment and expertise of a healthcare industry focused portfolio.”
Added Ezra Perlman, co-president at Francisco Partners:
“We have followed IBM’s journey in healthcare data and analytics for a number of years and have a deep appreciation for its portfolio of innovative healthcare products,” said Ezra Perlman, Co-President at Francisco Partners. “IBM built a market leading team and provides its customers with mission critical products and outstanding service.”
Noted Justin Chen, principal at Francisco Partners:
“Partnering with corporations to execute divisional carve-outs has been a core focus of Francisco Partners. We look forward to supporting the talented employees and management team, helping the standalone company focus on growth opportunities to realize its full potential, and delivering enhanced value to customers and partners.”
IBM Acquisitions and Asset Sales
Under CEO Arvind Krishna, IBM has acquired dozens of businesses while selling off or spinning off some assets. Most of the acquisitions have involved cloud- and SaaS-focused IT consulting companies rather than true software businesses. Also, IBM in 2021 spun off Kyndryl -- a massive MSP that somehow had shrinking annual revenues in a market that has been growing roughly 10 percent per year in recent years.
How much progress is IBM making in its business evolution? Customers, partners and investors will receive an update when IBM announces Q4 2021 earnings on January 24, 2022.
