On Aug. 6, International Business Machines Corporation (IBM, Financial) announced that it would be acquiring Merge Healthcare Inc. (MRGE, Financial). Since the deal was announced, Merge’s stock price has jumped 31.24% to end the day at $7.10 on Aug. 21.
In the terms of the deal outlined by IBM, the company reported it will pay $1 billion in cash, which is equivalent to $7.13 per Merge share. The merger is expected to be completed by the end of 2015. It is currently in the process of obtaining regulatory approval and shareholder approval from Merge.
The acquisition of Merge by IBM will greatly benefit the health care industry and both companies overall. Within the industry, Merge is known for its data and imaging platform which will be integrated with IBM’s Watson cognitive computing capabilities. With the data and imaging platform, Watson will have the ability to see and analyze images, providing more comprehensive analysis capabilities for the health care industry. In April, IBM created a Watson Health business specifically to utilize the capabilities of its Watson product in the health care industry. Merge will be the third acquisition for Watson Health since it was created in April. Other acquisitions within Watson Health include Phytel and Explorys.
Overall, Merge is a thriving health care company. In its most recent earnings report on July 23, it reported second quarter revenue of $65.6 million, an increase of 21.3% from the second quarter of 2014. Earnings for the quarter were $10.2 million, up 132% from the second quarter of 2014. Earnings per share for the quarter also showed strong growth of 80% to $0.09.
The firm’s health care products have been growing considerably, contributing to the overall strength in revenue growth. In the second quarter, Healthcare Software and Other segments grew revenue 30% from the comparable quarter to $17.8 million. Healthcare Maintenance revenue was also up a strong 29% from the comparable quarter to $32.8 million. These two business segments also grew robustly for the quarter when including the firm’s DNA revenue. With DNA revenue, Healthcare Software and Other grew revenue 25% from the second quarter of 2014 to a total of $22.7 million. Including DNA revenue, total Maintenance revenue was up 28% from the second quarter of 2014 to $32.9 million.
As these product lines become integrated with IBM’s Watson Health business, they will add tremendous value, helping the full affects of Watson’s cognitive analysis capabilities to greatly benefit the health care industry and IBM’s profit overall.
In the second quarter, Jim Simons (Trades, Portfolio) of Renaissance Technologies LLC increased his shareholder position in Merge buying 425,600 shares for an approximate value of $2.0 million. After the purchase, Simons’ health care portfolio allocation increased to 12.6% and his portfolio position in Merge accounted for 0.02%. Overall, Merge still appears to have continued upside potential, making its stock a good value buy in prior to the merger with IBM.
