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3M’s M*Modal Acquisition Set to Capitalize on Healthcare Cloud Growth

To capitalize on healthcare cloud growth, 3M recently announced plans to acquire M*Modal’s cloud-based clinical documentation unit for around $1 billion.

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Source: Thinkstock

By Fred Donovan

- Healthcare cloud computing is expected to continue its strong growth in 2019, as organization move more sensitive data to the cloud.

To capitalize on this growth, 3M recently announced plans to acquire M*Modal’s cloud-based clinical documentation unit for around $1 billion. The companies expect to complete the transaction in the first half of this year.

M*Modal is a healthcare technology provider of cloud-based, conversational AI-powered systems that enable physicians to capture and improve the patient narrative.

3M plans to add the Pittsburgh-based M*Modal business to its 3M Health Information Systems unit, which supplies software and services to healthcare providers and payers. 3M HIS products, which include the 3MTM 360 Encompass software platform, combine clinical documentation systems and risk assessment methodologies to capture and analyze patient information.

Around 750 employees supporting the technology business of M*Modal are expected to join 3M upon completion of the transaction.

“This acquisition builds on our strategic commitment to invest in our Health Information Systems business and expands the capabilities of our revenue cycle management and population health priority growth platform,” said 3M Health Care Business Group EVP Mike Vale.

“Together, we will enable doctors to improve the patient experience, while enhancing documentation accuracy and operational efficiency for both providers and payers,” added Vale.

3M plans to maintain a strategic business relationship with M*Modal’s remaining transcription, scribing and coding services business for customer support. M*Modal’s technology business annual revenue is estimated to be $200 million.

“We are excited that we can further accelerate our mission of creating time to care for more clients with the resources and global reach of 3M,” said M*Modal President Michael Finke. “By combining capabilities, we can more quickly deliver on our mission of bringing conversational AI and ambient intelligence directly into clinical workflows. This is a great outcome for our clients, partners and team.”

3M estimates the acquisition to be $0.10 dilutive to earnings in the first 12 months following completion of the transaction. Excluding purchase accounting adjustments and anticipated one-time expenses related to the transaction and integration, 3M estimates the acquisition to be neutral to earnings over the same period.

The effective enterprise value multiple is around 10 times estimated annual adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for the first 12 months following completion of the transaction, including expected run rate synergies, according to 3M.

Goldman Sachs acted as the financial advisor to 3M and Cleary Gottlieb Steen & Hamilton LLP acted as legal counsel to 3M. TripleTree acted as the financial advisor to M*Modal and Latham & Watkins acted as legal counsel to M*Modal.

Heathcare cloud computing market set for 22% CAGR

According to market research firm Technavio, the healthcare cloud computing market is forecast to increase at a compound annual growth rate of 22 percent through 2022.

The software-as-a-service (SaaS) segment is projected to reach 65 percent of the total market by 2022. Other healthcare cloud market segments include infrastructure as a service (IaaS) and platform as a service (PaaS).

Edge computing is an important trend in the healthcare cloud marketplace. Edge computing optimizes cloud computing by performing computing applications at the network’s logical end-point, explained Technavio.

Sensors, controllers, as well as other connected devices acquire and evaluate IoT data and/or send it to a local computing device such as servers or laptops for analysis. Data can be quickly retrieved and utilized in edge computing, the tech research company noted.

Some vendors provide edge computing software for monitoring epileptic patients, detecting a patient’s epilepsy episodes and telling their family members or caretakers.

Edge computing can make a record of vital signs and events, which may be used by medical professionals to be able to determine better treatment choices for patients.

Edge computing can create a network of smaller datacenters with features tailored to meet specific demands. Digital projects that create or require data can be processed much faster when the computing power is close to the device or person generating it.

“Organizations that have embarked on a digital business journey have realized that a more decentralized approach is required to address digital business infrastructure requirements,” said Gartner Principal Research Analyst Santhosh Rao. “As the volume and velocity of data increases, so too does the inefficiency of streaming all this information to a cloud or data center for processing,” Rao observed.

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