Allscripts Healthcare Solutions Inc. (MDRX:US), a provider of electronic medical records, said it is considering a sale of the company as third-quarter revenue declined on customer uncertainty about the company’s future.
“In light of the ongoing interest expressed in the company by third parties, the company is evaluating strategic alternatives,” Chief Executive Officer Glen Tullman said in a statement yesterday without naming bidders. Allscripts received bids from private equity firms including Blackstone Group LP (BX:US), Carlyle Group LP (CG:US) and Silver Lake Management LLC, Bloomberg News reported Oct. 8.
Allscripts sought a sale after board upheaval and a shareholder lawsuit earlier this year that questioned its leadership. On Sept. 27, the company lost a bid for a $302 million contract from New York City’s public hospitals.
The Chicago-based company said it hired Citigroup Inc. to advise it and “does not intent to comment further publicly” unless the board approves a transaction. Allscripts also withdrew its 2012 forecast as it pursues alternatives.
“There is a hesitation by some potential customers to sign with Allscripts because of concerns over their viability,” Leo Carpio, an analyst with Caris & Co. in New York, said in a telephone interview. “The near-term solution is a sale. Without a sale, they would simply have to survive through a few quarters of execution. That takes a while to turn around perception.”
Net income (MDRX:US) excluding some items was $9.4 million, or 5 cents a share, compared with $19.1 million, or 10 cents, a year earlier. Earnings excluding certain items were 23 cents a share, topping the average estimate (MDRX:US) of 22 cents from 19 analysts compiled by Bloomberg.
Sales in the quarter declined less than 1 percent to $360.7 million. Analysts had expected $376.6 million. Sales were hurt by “speculation about Allscripts’ future autonomy,” Tullman said on a conference call with analysts. Clients also delayed purchases while waiting for new products, he said.
Allscripts declined less than 1 percent to $12.18 at the close in New York. The shares have dropped 36 percent this year.
The company has struggled since its acquisition of rival Eclipsys Corp. in 2010, a purchase intended to bolster the sale of records technology to hospitals. The combination promised to be lucrative as a 2009 U.S. economic stimulus law allotted $27.4 billion to help health-care providers buy electronic systems to collect and share records.
Instead, Allscripts said in April that customers had “delayed commitments” during the merger, waiting for new releases of the company’s software. On April 26, the company revealed a board dispute that led to the firing of its then- chairman, Phil Pead, and the departure of three allied directors. Pead and two of them came from Eclipsys.
Allscripts’ second-largest shareholder, HealthCor Management LP, a $2 billion asset manager, filed a lawsuit May 21 that criticized Pead’s firing and protested the company’s process for filling the three vacant board seats. Less than two weeks later HealthCor withdrew its lawsuit after Allscripts agreed to nominate three independent directors to its board.
Allscripts’ board is exploring a sale because its stock price attracted potential buyers, Tullman said on the conference call. “The board has an obligation to evaluate that and understand that,” he said.
Carpio said Allscripts probably wants to go private to fix its business.
“They realize there’s a lot of work to be done here in terms of turning around the company,” he said.
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