A Medical Device Daily

Clinical software maker Allscripts (Chicago) reported that it has signed a definitive agreement to acquire A4 Health Systems (Cary, North Carolina), a provider of practice management and electronic health record (EHR) solutions for small- and mid-sized physician groups, for about $272 million in cash and stock.

A4, which is privately held, has a customer base of more than 1,600 healthcare organizations nationally.

The company said the strategic acquisition of A4 would double its clinical software revenues and the size of its sales force, while significantly expanding Allscripts' existing product portfolio and providing the company with an integrated EHR/PMS for small to mid-sized groups.

With more than 400 employees nationwide, A4 also provides emergency room and care management solutions to the multi-billion-dollar hospital emergency department and discharge planning markets. Both are key points of connection with the electronic healthcare record, Allscripts noted.

The transaction consideration will consist of $215 million in cash and 3.5 million Allscripts shares valued at about $57 million, based on Wednesday's closing price of $16.30 per share. Allscripts said it intends to finance the acquisition using cash on hand and through the issuance of new common shares.

The transaction, which has been unanimously approved by both companies' boards, is expected to be accretive to Allscripts 2007 earnings.

The acquisition is subject to A4 shareholder approval and other customary closing conditions, including the receipt of financing and regulatory approvals, and is expected to close in the first half of 2006.

“A4 is an established with small to mid-sized physician practice groups and emergency departments,“ said All-scripts CEO Glen Tullman in a conference call on the acquisition. “Together with A4's strong product offering and robust sales channel, we will be able to provide an industry leading portfolio of practice management and electronic health record solutions.“ He added that the merger is a “strong fit with little overlap.“

Upon closing of the transaction, John McConnell, A4's CEO, will join Allscripts' board of directors, signing a non-compete agreement. The company also expects other “senior operating leadership“ at A4 to join Allscripts.

Allscripts also reported that it entered into an amended strategic alliance agreement with GE Healthcare's (Waukesha, Wisconsin) newly acquired IDX Systems (Burlington, Vermont) unit.

GE acquired IDX earlier this month for $1.2 billion (Medical Device Daily, Jan. 5, 2006) to accelerate efforts to seamlessly connect clinicians from physicians' offices to hospitals with comprehensive, enterprise-wide EHR solutions, creating a digital community that supports more efficient and cost-effective patient care.

Under the terms of the amended agreement, Allscripts' existing alliance with IDX will continue through the five years remaining under the original agreement, supporting the ongoing integration and compatibility of the Allscripts and IDX products.

GE will continue to offer Allscripts' TouchWorks EHR within the IDX client base, in addition to its own Centricity Ambulatory EMR.

The agreement also allows Allscripts to enter the practice management systems (PMS) market and to offer an integrated practice management and EHR solution. Depending on the needs and size of the practice, Allscripts will offer the integrated A4 practice management/electronic health record solution, its TouchWorks EHR in combination with the A4 practice management system, or, for IDX practice management clients, TouchWorks EHR integrated with IDX Groupcast or Flowcast products.

Over the next 18 months via the amended agreement, GE and IDX will continue to market Allscripts TouchWorks EHR and GE's Centricity to current customers and Allscripts will continue to market the combined Allscripts/IDX solution to the IDX base. New IDX clients will also continue to receive free interfaces from Allscripts.

Allscripts royalty for sales to the existing IDX installed base will be reduced by 50% immediately and will then be phased out over time.

“The modification of our agreement reaffirms our commitment to working closely with GE and IDX to support our mutual clients and cooperate into the future,“ said Tullman “Clients value the many years we have invested in working together with IDX to ensure seamless interfacing and integration of our combined solution.“

He added that the new deal with IDX preserves the best parts of the companies' earlier agreement and opens up “significant new opportunities in the $10 billion physician practice market.“

Tullman noted that while the company's solution with IDX makes it the preferred choice for large medical groups, “approximately 80% of all the contracts in groups with less than 25 doctors are combined packages where the group purchases an electronic health record solution and a practice management system at the same time.“ He said that with the amended strategic alliance with IDX and the addition of A4, “we can now provide the combined solutions to meet the demand of this rapidly growing market.“

Allscripts also reported that it expects to report record total 4Q05 sales of about $33.7 million. Clinical software sales are anticipated to be about $29.2 million.

Lehman Brothers is acting as exclusive financial advisor to Allscripts on the A4 transaction.

In other dealmaking news:

Encore Medical (Austin, Texas) reported expiration of the Hart-Scott-Rodino waiting period for its acquisition of Compex Technologies (New Brighton, Minnesota).

Encore last year agreed to acquire Compex for about $94 million in stock and the assumption of $15 million in debt, subject to adjustments (Medical Device Daily, Nov. 15, 2005). Encore said it expects the deal to close this quarter.

Compex makes transcutaneous electrical nerve stimulation and neuromuscular electrical stimulation products used for pain management, rehabilitation, fitness and sports performance enhancement in clinical, home healthcare, sports and occupational medicine settings.

LHC Group (Lafayette, Louisiana), a provider of post-acute healthcare services primarily in rural markets in the southern U.S., said it intends to acquire a 67% interest in Stanocola Home Health (Baton Rouge, Louisiana), the transaction to be completed early next month.

Stanocola reported net '05 revenue of about $2.2 million. The new joint venture will continue to operate in Baton Rouge, and will maintain two offices in the Baton Rouge service area. The combined census for the new joint venture is about 350 patients, with annual net revenues for 2005 of about $6.2 million.

Keith Myers, president and CEO of LHC Group, said, “Stanocola is one of the oldest healthcare providers in Baton Rouge, and, much like LHC Group, the staff at Stanocola has a philosophy of service that will help ensure a successful integration into the LHC Group family.“

LHC Group provides home-based services through its home nursing agencies and hospices and facility-based services through its long-term acute-care hospitals and rehabilitation facilities.

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