jamesteohart - stock.adobe.com
IBM has sold the bulk of its Watson Health data and analytics business to a global investment firm, offloading technology acquisitions it invested billions in over the last decade.
The assets acquired by Francisco Partners include extensive data sets and software such as Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex and imaging software from Merge Healthcare.
The deal is expected to close in the second quarter of this year, subject to regulatory approvals. Financial terms were not disclosed.
Health IT investment didn't succeed
IBM built out Watson Health from technologies it acquired from health IT vendors, including the $2.6 billion acquisition of Truven Health Analytics in 2016 and the $1 billion acquisition of Merge in 2015. The tech giant delivered a number of products and services under the Watson Health brand, including Imaging AI Orchestrator in November.
But IBM's billions in investments in healthcare tech, high-profile partnership deals and new products hadn't yielded success in the healthcare market compared to IT giant Microsoft. Google disbanded its health unit in August 2021, but other tech companies are investing further into the market. Oracle recently made a move in electronic health records with its acquisition of EHR vendor Cerner in December.
IBM's decision to sell its data assets is an indication that it's not enough to have the data. Applying advanced analytics on the data to generate insights that can make a difference in real-world applications is where the true value lies, according to Paddy Padmanabhan, founder and CEO of Damo Consulting.
"IBM had several missteps early on, especially in cancer care applications, that created significant setbacks for the business that they could not recover from," Padmanabhan said in an emailed statement.
Watson sale anticipated
After a flashy start in the early 2000s, a major hospital ended its collaboration with Watson and its oncology treatment recommendation system. Other hospitals defected from IBM Watson Health in the ensuing years.
By last May, IBM was already exploring the sale of the unprofitable Watson unit.
Alan Pelz-SharpeFounder, Deep Analysis
"It comes as no surprise at all as Watson Health was described long ago by IBM as a moonshot, but it failed to take off," said Alan Pelz-Sharpe, founder of Deep Analysis. "That it has been sold to an investment firm means that this is likely not its final resting place, but will likely be tidied up, restructured and then resold at a later date."
The sale of the Watson unit could foreshadow IBM selling off more of its divisions and technology assets, Pelz-Sharpe said.
"It is a sensible move, as IBM could not make a go of it, and not only was it costly to the firm, but it was a distraction as they try to pivot and focus on the cloud business," he said. "What that also means is this is unlikely to be the last IBM division to be offloaded, clearing the decks and balance sheets for the company to move forward afresh and focused."
In a press statement, IBM said offloading its Watson Health business is part of the vendor's goal to focus on its platform-based hybrid cloud and AI strategy.
Over the past 20 years, Francisco Partners has invested in over 400 technology companies. A number of its deals centered on healthcare technology, with past investments in Availity, eSolutions, Capsule, GoodRx, Landmark, QGenda, Trellis and Zocdoc.
Under the terms of Francisco Partner's deal with IBM, the current management team will continue in similar roles in the new standalone company and continue to serve existing clients.