The official word from executives at Misys and Allscripts after the two companies announced a proposed merger in late March was resoundingly positive. Misys CEO Mike Lawrie called Allscripts the "perfect partner" and said the two healthcare IT firms share "highly compatible cultures."
But as details of the deal emerged, were financial analysts as sanguine in their assessment of the new company's potential?
Wall Street certainly doesn't seem hopeful, as Allscripts shares are hovering around $9 in late March. Still, some observers think investors are undervaluing the merged company.
"The market isn't fully appreciating the deal at this point," said Bret Jones, healthcare IT analyst at Leerink Swann, LLC. "The market is obviously concerned about what the company will look like in the end, but I think the stock should trade in the $12 to $13 range, and that's being conservative."
Jones said many investors believe the Allscripts management team should not be running the new company, given the unresolved problems with the company's Touchworks 11 EHR product and the firm's recently poor revenue numbers.
"I think Allscripts is being judged too harshly," Jones said. "I think they're a lot closer to fixing the problems with Touchworks than people realize. As for Allscripts shareholders, they now own 45 percent of a larger company and have a captive market of almost 90,000 docs for their product."
It is the opportunity for Allscripts to market its electronic health record software to users of the Misys practice management system that gives many analysts hope for the new company's future.
"The biggest benefit for the new entity will be Allscripts' ability to cross-sell their EHR to Misys clients," said Corey Tobin, equity research analyst at William Blair & Company. "Allscripts will be able to pick up the revenue cycle management aspects of Misys' Payerpath. That too should help."
Sean Wieland, an industry analyst at Piper Jaffray, said he would not characterize the merger as a matter of "desperation" on either company's part, but he did acknowledge that Misys probably had a bit more impetus to move on the deal.
"Misys didn't have a very strong EMR product to offer to its practice management customers," Wieland said. "Now the new company can upsell its PM users. However, I think that in the immediate future, Misys clients thinking about buying an EMR will probably take a wait-and-see approach, given the uncertainty."
Jones agreed, noting that Misys was not in a "growth mode" prior to the merger. He said he got the impression, during the recent HIMSS 2008 Annual Conference, that potential Allscripts clients are putting new EHR orders on hold until Touchworks 11 is fixed. Other vendors in the ambulatory EHR market are likely to take advantage of the uncertainty in coming months.
"Smaller EHR vendors will probably sell to more customers than they normally would in the short term," Jones said. "But I would be a little nervous about this merger if I were a vendor focused on the smaller end of the market. Long term, the new entity could be a dominant force in the ambulatory market."
A positive outcome for Allscripts-Misys Healthcare will not come without growth pains, Wieland suggested, as the merger might mean that the new company's sales and administrative team would likely "streamline," leading to some layoffs.
He said consolidation is probably good for the industry in the long term, however.
"I think you'll begin to see larger players separate from the smaller and mid-size firms," Wieland said. "Companies with greater scale will have the ability to differentiate themselves as the ambulatory EHR space grows more crowded."