IBM offloads some Watson Health assets to Francisco Partners

USA – IBM has announced a deal with San Francisco-based Francisco Partners to sell healthcare data and analytics assets from its Watson Health business.

The financial terms of the transaction were not disclosed by the parties involved, but Bloomberg reports that it was worth more than US$1 billion. The parties expect the transaction to close in the second quarter of 2022.

IBM launched its Watson Health unit in 2015 with the goal of harnessing the power of artificial intelligence for medical applications, but the technology’s impact has fallen short of early expectations.

Sources said last year that IBM was considering selling its health analytics unit in order to streamline operations and become more competitive in cloud computing.

Francisco Partners will acquire “extensive and diverse” datasets and technology products amassed and built over the years by IBM and its various healthcare acquisitions, such as Clinical Development, Health Insights, MarketScan, Micromedex, Social Program Management, and other imaging and radiology tools.

According to IBM and Francisco Partners, the agreement will create a new standalone company that will continue to serve existing provider, imaging, life sciences, payer, and other healthcare clients.

With more than US$30 billion in assets and a two-decade track record of investing in hundreds of technology companies, Availity, Capsule, GoodRx, Trellis, and Zocdoc are among the private equity firm’s current and past investments in the digital health sector.

Partnering with corporations to execute divisional carve-outs has been a core focus of Francisco Partners,” said Justin Chen, principal at Francisco Partners, in a statement.

The announcement comes as other large technology companies continue to make inroads into the healthcare sector.

Oracle paid US$28 billion for Cerner, an electronic health record company, in December, while Microsoft paid US$19.7 billion for Nuance Communications, an AI software developer, in April.

Unlike Oracle’s big-ticket acquisition, however, this one – which, as IBM hoped, found a winning bidder by January, apparently for the price it sought – is more about exiting the healthcare space than establishing a stronger foothold.

Watson, of course, was the subject of a lot of early hype, with a lot of big promises about its potential for AI-enabled clinical decision support.

And, over the last decade, IBM has spent billions of dollars acquiring companies such as Merge Healthcare, Phytel, Explorsys, Truven Health Analytics, and others in order to expand the Watson Health portfolio.

Meanwhile, IBM has been making a concerted effort to shift its focus toward what CEO Arvind Krishna refers to as a “US$1 trillion hybrid cloud opportunity.” And it has supported that goal with transactions such as its US$34 billion purchase of Red Hat in 2018.

Krishna has promised a “maniacal focus on our open hybrid cloud platform and AI capabilities,” as well as a pledge that “day by day, product by product, project by project – we are dedicated to helping our clients unlock the immense value this represents.”

Adding a billion dollars to the balance sheet and freeing up other assets in the healthcare space that haven’t been paying dividends appears to be the next step in achieving this goal.

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,” said Tom Rosamilia, senior vice president of IBM Software.

IBM remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT,” he added. “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.”

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