Cerner bought Kantar Health for $375M to pivot from EHR sales to a $1B data business
With COVID freezing hospital IT budgets and 2020 revenue down 3%, the EHR vendor bet on data-as-a-service, buying its way into pharma with Kantar Health.
What was changed
Reporting Cerner's fourth-quarter 2021 results in February 2021, Healthcare Dive describes an EHR giant steering beyond its core business. Full-year 2020 revenue was $5.5 billion, down 3% year over year, because Cerner's hospital clients shored up resources to fight COVID-19 and forewent IT projects. Management bet the worst was behind it and that project and sales activity would only increase, guided 2021 revenue to $5.75–5.95 billion (about 6% growth at the midpoint), and emphasized a pivot away from traditional IT sales toward higher-growth data businesses.
The pivot's building block was Kantar Health, the data analytics company Cerner bought in December 2020 for $375 million in cash — CFO Marc Naughton called it a 'strong complement to our existing data-as-a-service efforts and a meaningful entry to the pharmaceutical market', with executives expecting it to eventually generate $150 million in annual revenue. At J.P. Morgan's healthcare conference in January, management set the goal of growing into a $1 billion data business for health and life sciences, drawing on data assets covering 100 million patients and 500 million-plus encounters.
The other growth leg was federal: for the first time the Department of Defense, Department of Veterans Affairs and Coast Guard were all on the same EHR after the first go-live of Cerner's embattled $16 billion VA project at Mann-Grandstaff in Spokane in October 2020 — dogged by delays and snowballing spending since 2018, per Healthcare Dive, but regaining momentum with deployments planned for 2021. Q4 revenue was $1.4 billion (down 3% on divestitures) with net earnings of $142 million, and CFO Naughton departed at quarter-end, replaced by former Tiffany CFO Mark Erceg.
Why it worked
Core EHR sales depend on hospital capital budgets, which COVID froze — a data business monetizes an asset the pandemic could not lock down.
Buying Kantar Health purchased instant pharmaceutical-market credibility instead of building it from a provider IT background.
The federal EHR installs gave Cerner a revenue leg at a scale no competitor shared, cushioning the commercial slowdown.
What can be applied
When your core product's buyers stop buying, the data you already hold can seed the next business — if you buy the vertical expertise to monetize it.
Aftermath
The article stops at February 2021 guidance: most 2021 revenue was expected in the back half, and analysts such as SVB Leerink's Stephanie Davis were 'incrementally more confident' in Cerner's ability to keep pace with digital health. It carries no realized results for the data business.