The deal is expected to increase Cerner revenue and employment by more than a third each — boosting Cerner’s worldwide employment to 20,000 and its revenues to $4.5 billion a year.
Both Cerner and Siemens sell software and consulting services to health care providers to help them manage and share patient health records.
Cerner chairman and chief executive Neal Patterson said in a press release, “Siemens’ health care IT assets provide additional scale, R&D, an impressive client base, and knowledgeable and experienced associates who will help Cerner achieve our plans for the next decade.”
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He said the combined operations “will drive the next generation of innovations” in the electronic medical records industry.
Analysts said the acquisition would quickly give Cerner more market share while company officials said the acquisition would solidify Cerner’s position as the industry’s dominant player. The deal will shore up its competitiveness against its main rival, Epic, and others.
The Siemens’ health information technology business is being sold by its parent company, SiemensAG, a German multinational engineering and electronics conglomgerate, which also will develop a related strategic alliance with Cerner.
“We’re really excited as this relates to Kansas City,” Cerner president Zane Burke said of the acquisition. “It’s a neat event from a company that started 35 years ago on a park bench in Loose Park to grow into the largest health care IT workforce in the world with the largest investment in health care IT in the world.”
Cerner intends to finance the Siemens Health Services acquisition with cash on hand.
The transaction, approved by the Cerner and Siemens boards, is expected to close in the first quarter of 2015, subject to regulatory approval by the Securities and Exchange Commission and other agencies.
Together, Cerner and Siemens Health Services will have $4.5 billion in annual revenue, the companies said.
“Based on analysts’ estimates for Cerner, we expect 2014 revenues of $3.3 billion,” Burke said in an interview. “That puts Siemens Health Services at about $1.2 billion of the expectation.”
Cerner reported 2013 revenue of $2.91 billion.
The company’s stockclosed at $54.34, down 80 cents on the day. The acquisition announcement was made public after the market closed.
The unified company will employ about 20,000 workers in more than 30 countries. Cerner now employs about 14,000, with about 9,600 in the Kansas City area.
About 5,000 Siemens’ employees affected by the acquisition will become Cerner associates, but Burke said it’s too early to talk about specific plans for Siemens’ associates or management.
Siemens Health Care now has most of its U.S. workers in Malvern, Pa., in addition to employing others in Germany.
“We’ve always admired Siemens … and for the last four or five years we’ve had conversations about working together,” Burke said. “The discussions turned into this agreement after they reached out to us about six months ago.”
The combined operation expects to make $650 million in annual research and development investments and have products and services in 18,000 client facilities around the globe.
John Glaser, chief executive of Siemens Health Services, said in a press release that his company believes Cerner is “one of the most competitive companies in health IT today” and is well positioned to serve Siemens’ existing clients
As part of the related strategic alliance with the Siemens parent company, which has a three-year initial term, Cerner and Siemens each will contribute up to $50 million to finance projects related to improving medical technologies, workflow and clinical outcomes.
An early focus of the alliance will be on improving the timely and accessible workflow of medical images, the companies said.
In respect to the business acquisition, Cerner said it expected to add 15 cents a share to its non-GAAP diluted earnings per share in 2015 and more than 25 cents a share in 2016.
For the full year 2013, Cerner’s adjusted net earnings were $496.8 million and adjusted diluted earnings per share were $1.41.
Non-GAAP earnings exclude share-based compensation expenses, one-time transaction costs, and acquisition-related amortization and deferred revenue adjustments.
Cerner has been undergoing explosive growth and made no secret that it intended to continue.
It opened two new nine-story towers in Kansas City, Kan., in 2013 and 2014, to house its “continuous campus” for about 4,000 employees who support IT activity at its client hospitals and doctors’ offices. The development was part of a $414 million deal struck in 2010 that also produced the Sporting Park soccer stadium, home of Sporting Kansas City.
Cerner also paid $42.5 million in December 2013 for expansion of its “innovation campus” at Three Trails Crossing in south Kansas City, which is expected to house 15,000 jobs when built out.
Burke said that the innovation campus expansion was planned based on “organic growth” within Cerner but that the Siemens acquisition probably will accelerate that development slightly.
Cerner is using health care databases to track aggregate patient outcomes in an effort to understand and improve overall population health. It uses “big data” to identify health conditions, treatments and interventions with the goal of reducing health care costs by managing chronic conditions and reducing emergency room visits.
“The knowledge and strength of our combined resources opens up great possibilities for future collaboration and development,” Glazer said.
Cerner said it will continue to support Siemens Health Services core software platforms, including Siemens’ Soarian product, for at least 10 years after the acquisition.
Patterson said Cerner is “committed to supporting Siemens’ clients, and we want them to have confidence that we have the vision, scale and resources to help them achieve their plans for building their organizations’ futures.”
In remarks to Forbes magazine, Patterson said, “What we’re acquiring is something we understand very well. … From a financial point of view this is not heavy lifting, this is a very good deal.”
Cerner has been taking a lead role among U.S. health care IT providers in addressing the “interoperability” of medical software — making different software packages share data. It was a founder of CommonWell Health Alliance, a group of several leading health care IT providers.
CommonWell’s founding members were Cerner, Allscripts, Athenahealth, CPSI, Greenway, McKesson and Sunquest, all of which compete for health care IT business.
Not included in the CommonWell alliance was Epic, a private and employee-owned health care IT developer that is Cerner’s main competitor. Last year health industry observers estimated Epic revenues at $1.7 billion.
Made $1.3 billion cash offer for Siemens Health Services.
Posted $2.91 billion in 2013 revenue; $3.3 billion expected in 2014.
Employs 14,000 associates, with 9,600 of them in the Kansas City area; 20,000 expected after acquisition.
Provides health care information technology for patient records at hospitals, doctors’ offices, pharmacies and related facilities.
Gains market share and R&D funds with acquisition.