Siemens inks deal to buy IT firm Shared Medical Systems

By Erik L. Ridley, AuntMinnie staff writer

May 1, 2000 --

Siemens Medical Systems moved aggressively today to broaden its presence in the healthcare information technology market, announcing an agreement to purchase healthcare IT powerhouse Shared Medical Systems (SMS).

The deal, consisting of a cash offer of $73 per share, is worth approximately $2.1 billion, and is expected to close by June 30. If completed, the transaction would unite Siemens' powerful presence in imaging modalities and PACS with SMS' formidable market position in clinical and administrative information systems.

SMS has a diverse range of healthcare IT offerings, $1.2 billion in annual revenues, 7,600 employees, and a worldwide installed base of over 5,000 customers in 20 countries. The Malvern, PA-based firm also provides process and structural consulting, application services, and IT infrastructure management.

The proposed purchase is part of Siemens' strategy of strengthening the range of services and IT solutions it provides, according to Dr. Heinrich v. Pierer, president and CEO of Erlangen, Germany-based Siemens AG.

Siemens would like to increase the percentage of overall sales it derives from services from 25% to 50%. The vendor also sees the acquisition as an ideal way of bolstering its position in the U.S. market, while highlighting the firm's transformation into an IT-driven, high-tech company, v. Pierer said.

The deal will also allow Siemens to offer customers a unique package of solutions that will further differentiate it from other companies, according to Erich Reinhardt, president of Siemens Medical Engineering Group. Siemens projects that the healthcare IT market will experience 10% annual growth.

Moreover, Siemens will get access to a company that's active in the hot application service provider (ASP) market. SMS' Information Services Center operates health applications for over 1,000 health providers, with connections to over 400,000 customer workstations. The center processes 80 million transactions each day, according to the firm.

The acquisition fulfills Siemens' longtime desire to expand beyond PACS into the broader healthcare information systems sector, according to Rik Primo, director of information systems and PACS.

"For years, we have viewed PACS as just one component of the electronic patient record," he said. "After looking at our options on how to enter the healthcare informatics marketplace, we decided to accomplish this task through acquisition."

As for integration decisions, Siemens' current thinking is to maintain SMS as a stand-alone division within Siemens Medical Engineering, in a structure similar to its imaging modality divisions, according to another Siemens spokesperson.

There appears to be little product overlap between the two companies, although SMS does offer a PACS network called SMS Medical Imaging as part of its Novius for Radiology software suite. In the past, SMS partnered with Olicon Imaging Systems for diagnostic workstations. Olicon was acquired by ALI Technologies in mid-1999, and SMS has apparently continued the relationship with ALI.

For SMS, the deal ends market speculation that had surrounded the firm following a $2 billion hostile takeover bid launched earlier this year by healthcare technology firm Eclipsys. That bid was later discontinued, however, following that firm's merger with healthcare equipment purchasing Web site Neoforma.com.

SMS is coming off a challenging first quarter, one that included a 16% decline in revenues. Today the firm reported first-quarter revenues of $240.6 million, compared with $287.1 million posted for the same period last year. For the quarter (end-March 31), SMS had net income of $2.7 million, compared with net income of $18.3 million in the first quarter of 1999.

SMS attributed the sharp decline in earnings to industry-wide weakness in new software sales and a slower than anticipated return in the demand for large-system implementations following Y2K.

The Siemens deal has been approved by the SMS board, but is still subject to shareholder approvals and certain regulatory conditions. At a Friday closing price of $41.44 per share, the Siemens offer represents a 76% premium for SMS shareholders.

By Erik L. Ridley
AuntMinnie.com staff writer
May 1, 2000

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