IBM on Friday announced a deal with Bay Area-based Francisco Partners to sell off healthcare data and analytics assets from its Watson Health business.

WHY IT MATTERS
Financial terms of the deal were not disclosed by the companies involved, but Bloomberg reports the price tag was more than $1 billion. The parties say they expect to close the sale in the second quarter of 2022.

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

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

With more than $30 billion in assets and a two-decade list of investments in hundreds of technology companies, the private equity firm's current and past investments in the digital health sector include firms such as Availity, Capsule, GoodRx, Trellis and Zocdoc.

"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. "We look forward to supporting the talented employees and management team, helping the standalone company focus on growth opportunities to realize its full potential, and delivering enhanced value to customers and partners."

THE LARGER TREND
Like another recent acquisition, this deal is not exactly a surprise. Discussion about the broad contours of what such a sale might look like had been circulating this month – and, indeed, as far back as early last year. (A potential Oracle-Cerner merger, meanwhile, had first been mooted way back in 2008.)

Unlike Oracle's big-ticket buy, however, this one – which, as IBM was hoping, found a winning bidder by January, apparently for the price it was seeking – is more about getting out of the healthcare space than digging a deeper foothold.

Watson was the subject of a lot of early hype, of course, with not a few big promises about its potential for AI-enabled clinical decision support. And over the past decade, IBM has spent billions scooping up businesses – Merge Healthcare, Phytel, Explorsys, Truven Health Analytics and others – to build out the Watson Health portfolio.

But challenges with Watson have been well documented.

"The goal would have been to apply IBM’s AI tools to derive advanced insights but IBM evidently could not bring that vision to fruition," said analyst Paddy Padmanabhan, founder and CEO of Damo Consulting, in a statement sent to Healthcare IT News.

"IBM’s decision to sell its data assets is an indication that it’s not just enough to have the data," he said. "Applying advanced analytics on the data to generate insights that can make a difference in real-world applications is where the true value lies."

And now it's up to Francisco Partners to find profitability from those datasets and analytics tools.

IBM, meanwhile, has been loudly signaling its intent to shift focus toward what it sees as a "$1 trillion hybrid cloud opportunity," in CEO Arvind Krishna's words. And it has backed that goal with deals such as its $34 billion acquisition of Red Hat in 2018.

Krishna has promised "a maniacal focus on our open hybrid cloud platform and AI capabilities," and pledged 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 or so to the balance sheet, and freeing up other assets that haven't been paying dividends in the healthcare space, appears to be the next step in pursuit of this goal.

"The AI space has also been evolving and the industry leaders have invested in harnessing data and generating insights in new and innovative ways, especially with cloud-based models," said Padmanabhan. "Selling off the data assets essentially means an end to the Watson Health experiment. However, it may allow IBM as an organization to refocus and develop a new approach to healthcare."

ON THE RECORD
"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."

Twitter: @MikeMiliardHITN
Email the writer: mike.miliard@himssmedia.com
Healthcare IT News is a HIMSS publication.