Category: M&A

Don’t Believe The Hype

Don’t Believe The Hype

Cryptocurrency firms fell from grace (Chain and Lightyear merged to form Interstellar) as valuations and expectations got too far ahead of themselves for both the various “coin” firms as well as for blockchain – the distributed database technology that enables digital currency transactions. We are long-term bullish on each – particularly blockchain.

The crypto space isn’t the only sector that grew overheated as reality has set in to the autonomous vehicle space. Apparently robot cars won’t be shuttling all of humanity to and fro by 2025. We expect that autonomous vehicle startups will suffer a materially adverse impact to their respective valuations.

The two technology hype scenarios got us thinking about previous technology hype cycles. Thus, we created the TEK2day, CEORater “Technology Hype Curve” to visually represent an all too familiar pattern as it relates to hyping new technologies. Click HERE to download the Technology Hype Curve graphic.

7 Rules for Keeping Activist Investors Away<span class="badge-status" style="background:red">Premium</span> 

7 Rules for Keeping Activist Investors AwayPremium 

The following 7 rules apply to public companies across a variety of industries – particularly to Enterprise Software, FinTech and Information Services companies. 1.) Make Your Numbers 2.) Regular, Transparent Investor Communication 3.) Drive Expanding Operating/EBITDA Margins 4.) Don’t Stockpile Cash 5.) Control Waste 6.) Use Debt as a Tax Shield 7.) Board Composition –…

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Technology News from the Week: June 25th 2018

Technology News from the Week: June 25th 2018

Technology news items that caught our attention this week:

Waymo to launch robo-taxis in Europe: Link

Phoenix AZ as petri dish for autonomous driving: Link

Kroger is launching a fully driverless delivery service: Link

In the “Service, Maintenance, Repair” category: the US Army is using machine learning to predict when combat vehicles need repair: Link

Amazon to acquire online pharmacy PillPack: Link

Amazon plans start-up delivery service for its own packages: Link

Disney gains DOJ approval to acquire Fox assets: Link

CEORater Podcast: why we believe Disney will defeat Comcast in the quest for Fox: Link

Facebook launches Instagram Lite: Link

States agree not to fine Equifax over cyberbreach: Link

3 Rules for Tech CEOs

3 Rules for Tech CEOs

1.) Be Bold:

  • Similar to VCs, public investors want to invest in a bold vision. (See Tesla). Why does TSLA enjoy a premium valuation to other Auto OEMs? Answer: Musk’s vision and spin.

2.) Don’t Be Bullied by Investors  Dictate Your Story:

  • Tell the Street you plan to take margins down temporarily to pursue “X” initiative. Investors will cut you slack so long as you explain the rationale, the execution and the intended outcome.

3.) Balance Execution Today with Investment for Tomorrow:

  • Don’t fall into the short-term EPS growth trap at the expense of new product development, keeping your products fresh and building a culture of innovation.
  • If you pursue the short-term – investors will love you in the short-term (fleeting). The key is to build long-term value over years and decades (see AMZN, CSGP and SSNC as examples of the latter).
Personality Analytics: Technology CEOs Analyzed: Part Deux

Personality Analytics: Technology CEOs Analyzed: Part Deux

Some have asked the question regarding our most recent article: Personality Analytics: Technology CEOs Analyzed – “what does it mean?”

Let’s contemplate one example as depicted in the enclosed picture which plots the 56 Mid-Cap Software CEOs we reviewed against the personality trait “Openness“. The output is that the two CEOs who scored in the 99th percentile (Ryu of Guidewire Software, “GWRE” and Marr of Tyler Technologies, “TYL”) are:

1.) less likely to suffer stalled revenue growth on their watch;

2.) less likely to allow their products and services to become stale;

3.) less likely to be disrupted by a competitor or new market entrant;

4.) less likely to see their respective customers move elsewhere and/or become disintermediated from customers;

5.) more likely to adopt new technology to deliver their respective products and services;

6.) more likely to identify adjacent market opportunities..

..as compared to the Mid-Cap Software CEO universe we analyzed (56 CEOs in total), all else held equal.

 

Technology Companies Led by Founder CEOs Outperform the Benchmark

Technology Companies Led by Founder CEOs Outperform the Benchmark

Our Hypothesis: Founder CEOs Will Outperform Over the Long-Term

We believe that founder CEOs will generally outperform non-founder peer group CEOs as well as broader benchmarks over the long-term. We believe this to be true both in terms of stock market returns as well as operating performance as measured by traditional financial measures such as Cash ROIC, ROE, ROA and Economic Value Added.

We recently created the CEORater Technology Founder CEO Index in part to help test our hypothesis. Over time we plan to operationalize the index to where investors may use it as an investment vehicle (stay tuned).

Founder CEOs tend to take a long-term view of the companies they created (their children). Where hired CEOs focus on the current quarter and year, many founder CEOs want their respective companies to thrive in perpetuity.

Legacy Matters to Founder CEOs

It’s about legacy for founder CEOs:

  • It’s why Jeff Bezos (AMZN) thinks about 50 year increments as opposed to quarterly increments;
  • It’s why Reed Hastings (NFLX) pushed OTT, original content and international investment when many investors wanted a U.S.-focused DVD distribution company;
  • It’s why Bill Stone (SSNC) has built one of largest FinTech companies during a period when much of the Capital Markets industry has become commoditized.
AMZN
Jeff Bezos, AMZN Founder & CEO
NFLX
Reed Hastings, NFLX Founder & CEO
SSNC
Bill Stone, SSNC Founder & CEO

We reviewed Total Stock Returns over the January 3rd 2017 – February 8th 2018 period:

  • The market cap weighted total stock return for the CEORater Technology Founder CEO Index over the measured period was 55.5%.
  • The market cap weighted total stock return for the S&P 500 Information Technology Index (ticker: S5INFT) was 32.0% over the same period.

Is Apple Disney’s End Game?<span class="badge-status" style="background:red">Premium</span> 

Is Apple Disney’s End Game?Premium 

Yes if You Ask Us While AT&T moving to acquire Time Warner and Disney (and Comcast?) moving to acquire Fox are interesting deals, it’s more interesting to us what the next chess move may be in a world that increasingly values content (live sports and premium original content in particular).  We recently wrote about and…

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Meet Luminar Technologies – the LiDAR Company Powering Toyota’s Autonomous Vehicle Program<span class="badge-status" style="background:red">Premium</span> 

Meet Luminar Technologies – the LiDAR Company Powering Toyota’s Autonomous Vehicle ProgramPremium 

What Is A LiDAR System? Light Detection And Ranging (“LiDAR”) sensors are detection and survey systems to estimate the proximity of a target object. LiDAR sensor systems consist of four primary elements: 1.) Lasers 2.) Scanners 3.) Photodetector receivers  4.) GPS navigation systems. LiDAR systems enable autonomous vehicles (or robots), to observe the world with: a.) Continuous 360…

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What if Alphabet Were to Acquire Walmart in an Effort to Better Compete with Amazon?<span class="badge-status" style="background:red">Premium</span> 

What if Alphabet Were to Acquire Walmart in an Effort to Better Compete with Amazon?Premium 

It’s fun to speculate. What if Google parent company Alphabet were to acquire Walmart in an effort to better compete with Amazon? One of the advantages that Amazon has in an AI-driven world is a fully integrated retail experience. Amazon customers may speak buy orders into their Alexa-powered smart device – “re-order paper towels” -…

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Apple Is Well-Positioned to Lead A Consumer-Driven Healthcare Revolution

Apple Is Well-Positioned to Lead A Consumer-Driven Healthcare Revolution

HC-IT Landscape 1

Welcome to Apple Health

Apple recently announced that this spring it will release an update to its iOS for iPhones and iPads that will include a new “Health Records” feature that will provide access to personal medical records covering allergies, conditions, immunizations, lab results, medications, procedures and vitals. Given the ubiquity of the iPhone we believe that Apple is well-positioned to succeed where others – most notably Microsoft and Google – have failed. Listen to our recent podcast on the subject:

Tower of Babel

The Healthcare IT industry suffers from data fragmentation. Some healthcare providers store medical records using difficult to account for paper-based filing systems. Forward-thinking healthcare providers leverage Electronic Medical Records (“EMR”) which are an improvement over paper-based records yet are far from perfect. EMR products from different vendors don’t talk to one another and it’s common for different software versions from the same vendor to experience less than perfect communication. A lack of standards typically creates friction in any technology process and healthcare IT is no different.

EMR software is used by healthcare professionals at small, mid-sized and large medical practices/ healthcare providers to replace inefficient paper-based medical records. EMRs are required to store patient/consumer data in compliance with HIPAA.

How to Achieve EMR Nirvana

Step 1.) Universal Adoption of Secure EMRs: All electronic medical records are required to be stored in a secure-HIPAA-compliant format. This includes text-based, image-based and video-based health records. I considered breaking out “security” as its own “step” given that many CEOs and Boards are slow to address CyberSecurity (see our many CEORater Podcasts and TEK2day.com writings that cover CyberSecurity). No industry is more at risk of CyberBreaches than healthcare given the vast stores of sensitive Personally Identifiable Information (“PII”). We’ve frequently communicated about CyberSecurity and have been a vocal critic of Equifax and “sleepy” CEOs and Boards in the aftermath of Equifax’s 2017 CyberBreach (discovered in July 2017, disclosed in September 2017). I ultimately decided against breaking out CyberSecurity as a separate step given that it must become a way of life, embedded in every workflow, implicit in every operational process. That said, the EMR should become the single version of the truth replacing paper-based medical records.

Step 2.) EMRs On-Demand: EMR data elements must be searchable and readily accessible by any authorized person any time, anywhere in a HIPAA-compliant manner across platforms (zero friction goal). This is true both at the point of care and outside the point of care. One such example outside the point of care would be the application of advanced analytics across millions (if not billions) of anonymous personal medical records – only of course when patients/consumers elect to share their anonymous information. For example, if everyone who owns an iPhone volunteered certain anonymous health record elements to Apple it is not unreasonable to expect that Apple could move society steps closer to personalized healthcare by way of machine learning analytics at massive scale. For our money the world’s most valuable company over the next 100 years will be the company that cracks the code to personalized healthcare/medicine. But I digress..

Step 3.) Portability: EMRs must be portable. For example, if I take a job with a new employer that moves me from Dallas TX to Seattle WA a great deal of friction is eliminated from my move process if my complete EMR is readily accessible from one location that I control (iPhone).

M&A as a Catalyst

Apple could accelerate its Health initiative with one of several Healthcare IT acquisitions. We would focus on the EMR segment.  Acquiring an EMR vendor would enable Apple to tightly integrate its Health App with EMRs to a greater degree than would be possible through EMR partnerships. Cerner and Epic are the leading EMR software vendors – each with a long history and vast domain expertise. Cerner recently recruited a new CEOBrent Shafer – after the untimely passing of its former founder and CEO Neal Patterson. Epic continues to be led by its founder and CEO Judith Faulkner. Were we to advise Apple from an M&A perspective we would focus on Cerner (tkr: CERN) and Epic (private) with athenahealth (tkr: ATHN) as the alternate.

  • athenahealth: Boston-based athenahealth is led by its founder and CEO – Jonathan Bush – cousin to former President George W. Bush. Jon Bush is an entrepreneurial dynamo and in the event of an acquisition would be unlikely to stay beyond the negotiated earn-out period. In addition, ATHN has recently experienced senior-level turnover. Therefore, it would be essential that Apple gain comfort with the key senior leadership team members before executing an acquisition of athenahealth.
  • Epic: Judith Faulkner founded Epic in 1979 and doesn’t have to deal with the turnover that is typical in San Francisco, New York and Boston. The firm is culturally stable.
  • Cerner: enjoys similar cultural stability. New CEO Brent Shafer comes from Philips North America where he was CEO since February 2014. Co-founder and former interim CEO Cliff Illig remains a significant CERN shareholder.
CEO Profiles
CEO Profiles via CEORater.com

Consumerization” of Healthcare

We believe that if the iPhone becomes the preferred EMR access point the patient/consumer will be empowered at the expense of:

  • Healthcare Providers: will have less customer lock-in as a result of portability/ reduced friction associated with changing providers. Many healthcare providers will gravitate toward transparency (i.e. publish pricing if they feel they are price competitive) in an effort to capture business. Major hospital systems are already losing share to neighborhood providers and urgent care centers. We expect this pressure on the large hospital systems to continue (see our earlier post on the healthcare industry).
  • Health Insurers: will continue to face economic pressure. The perverse government subsidization of various components of the healthcare system makes it impossible to have true price discovery and to establish a real healthcare market.

More Fodder for Apple Pay

  • Apple Pay and Apple Insurance? Should Apple Health effectively execute its strategy of becoming the preferred medical record access point it will be the connective tissue between consumers and healthcare providers. This will afford Apple the opportunity to monetize this symbiotic relationship by way of facilitating payments and/or offering its own brand of healthcare insurance – perhaps offering pay-as-you-go and peer-to-peer insurance models. Time will tell.

Healthcare IT Vendors

Partial List of Healthcare IT vendors sorted by Run Rate revenue. The “Run Rate” figure for each company was derived by multiplying the “Most Recent Reported Q” or “MRRQ” revenue figure for each company by “4” unless otherwise noted. For example, GE’s MRRQ revenue figure of $5,402 x 4 = Run Rate revenue of $21,608. Note that rounding may impact certain of the Run Rate revenue figures.

Healthcare IT vendor revenue