When the Advisory Board finally announced this week it would sell its healthcare business to Optum and its education businesses to Vista, Paul Keckley, editor of The Keckley Report, said it was a long time coming. It was the product of a business model that tried to encompass a little too much for a company not quite big enough to expand both "vertically and horizontally" at the same time.
He's referring to the evolution of The Advisory Board Company, which started as a healthcare company that packaged research under an "annuity-based subscription model." Then came the acquisitions of data analysis provider Crimson and Southwind Health Partners, a Nashville-based physician-alignment and practice-management firm to become a consulting firm. Then the acquisition of the physician practice management firm PivotHealth, jumped them into education as well.
For a somewhat small, publicly traded company it was too much. They were attempting to increase their revenue opportunity per client in their current market while duplicating the process in a new market – education – creating the potential for dilution of value, Keckley said. He cited the decline in the Company's value, trading in the mid to high 50s in 2015 and in 2016 in the mid 40s to low 50s.
"You looked at the revenue base of the company and cost structure and you really weren't seeing the value that's being created. That's always tough when you're going vertical and horizontal to pursue growth. It's not a reflection of bad strategy. It's the nature of how markets respond to value based strategy. And every company that tries to go deeper in one market and also enter a second market at this stage, they're still a fairly small company, you're gonna encounter that."
Enter Optum, which Keckley referred to as the "Amazon of healthcare." They're a company in the service delivery side of the industry, but eyeing a future where they can leverage their IT and their $150B market cap. A company with a solid client base and loads of potential but a foundering business model that has left them undervalued would seem a likely target for them.
With the Advisory Board's impressive industry footprint and database and Optum's claims-based data, analytics strength and desire to be the "infomediary of the healthcare industry," the acquisition seems like a good fit.
But no acquisition comes without risk, or at a minimum a period of adjustment. Optum has a lot to look out for in the coming months.
"You never know post-acquisition whether the cultures and the product portfolios and the personnel are a good fit. It takes a while to figure that out. There's no amount of due diligence that tells you that. You have to live together for while," Keckley said.
Optum's core of data and analytics has spawned scalable functions like technology enabled call-center management, but they aren't necessarily in the business of consulting. Questions remain whether the consultants will be absorbed into the new model or not.
The bigger strategic question, Keckley said, is if provider organizations will be comfortable knowing that their data can now be seen by UnitedHealthcare.
"The biggest risk in this is does the hospital market especially say Advisory Board you were always our go-to because you were an independent trusted source and now you're part of United. That's the bigger risk. As an acquirer, Optum will have to do some due diligence to make sure it doesn't lose its 20 biggest Advisory Board accounts and be cognizant of the fact that there's gonna be some push back."