Francisco Partners’ Acquisition of IBM’s Watson Health Assets
On January 21, 2022, the International Business Machines Corp. (IBM) announced that it has agreed to sell a large portion of its Watson Health business to investment firm, Francisco Partners. The assets being sold, which include wide-range data sets and products, as well as image software offerings, are valued at more than $1 billion, though the acquisition price has not yet been disclosed. The sale from IBM is the company’s latest step in reshaping its core business around the cloud, and scaling back their healthcare-analytics business.
Why Sell?
IBM had high ambitions when they launched Watson Health in 2015. Their goal was to use their core artificial intelligence platform to help healthcare providers analyze diagnostic tests and health data to improve patient outcomes and ultimately revolutionize cancer treatments. To many, the Watson Health initiative was a massive risk in trying to disrupt a complex healthcare industry, and as critics expected, the ambitions did not pan out for IBM as they saw limited success. In recent years, many healthcare partners and clients working with IBM have shifted away from the integration of Watson technology which has led to a low impact generated from the initiative.
IBM’s Future
IBM is working towards reshaping their core business with an emphasis on cloud platforms, largely in part to competitors’ efforts at gaining ground in the cloud-computing industry. Though its rivals, such as Microsoft and Amazon, are to increase their market share of the industry, IBM has also made large strategic investments. In 2019, IBM acquired open-source software company Red Hat for $33 billion, furthering their growth in cloud-computing.
If IBM wants to see future growth in their hybrid-cloud business, they must find a way over a big obstacle: decreasing corporate IT spending as of last year. IBM’s cloud and cognitive-software business missed growth targets last year due to the hurdle, so this quarter’s results will be telling of how the tech giant bounced back.
Was this the right move for IBM?
IBM exited the healthcare sector around the same time that competitors were making large investments in it. Last year, Microsoft spent $19.6 billion in its acquisition of Nuance Communications Inc. in hopes of upgrading hospitals’ digital record-keeping, meanwhile Oracle Corp. recently announced it would buy medical records systems provider Cerner Corp. for $28 billion. Also, in addition to this acquisition by Francisco Partners, the private equity firm has previously invested in other healthcare companies including GoodRx Holdings, Zocdoc Inc., and Capsule Corp. These moves point to potential profitability and strong investor sentiment in the healthcare sector, though sometimes it is best to stick to what you are good at.
