D2Hawkeye Growing the Medical IT Enterprise Case Solution

In 2010 D2Hawkeye was growing fast, having 270 employees and making revenue of $20 million. It offered various services including predictive modeling, medical data mining, risk, and clinical quality analyses and decision support systems – all of which aimed to assist clients in predicting and managing healthcare risk and cost. Kryder had financed the company with the help of angel investments until 2007, owing to this 75% of the company was controlled by employees and founders.

In 2010, having reached his mid-50s Kryder felt that he had outdone his personal financial goals, and it was time for him to lock his financial security. Kryder figured he had two options; either to sell to a strategic partner his entire ownership in the company or to sell part of it to a private equity partner. Selling to a strategic partner was the option that attracted Kryder more.

Problem

Atlantic Analytics was a private insurance analytics firm that was interested in acquiring D2Hawkeye. Atlantic was currently the biggest analytics company in the non-health industry. It had stepped into healthcare data analytics by acquiring several small products. Their original offer had been for between $100-120 million, the term sheet is based on two years earn-out and cash.

However, one week after the term sheet was delivered to Kryder, bankruptcy was declared. The financial crisis of 2008 followed, and valuations on all transactions fell. Atlantic now proposed a reduced offer of acquiring the company at $70-100 million showing that a decrease of 15% in the value was equivalent to the fall in the values of assets.

Since the deadline to work exclusively with Atlantic had passed, Kryder received another offer from Miller working in Beacon Capital, a local private equity firm. Beacon would invest $15million in D2Hawkeye for a stake of 18% where Kryder would be selling off 20% of his ownership at a price of $83 million. Kryder was now faced with three options; accepting the lower price from Atlantic and cashing out attaining personal liquidity, accepting Beacon’s offer at the cost of lower liquidity but being able to stay involved in D2Hawkeye’s next stage and lastly convince Atlantic to pay what they had originally offered.

Proposed Solution

Kryder believed that a partnership with Atlantic Analytics had numerous advantages. For starters, it would give attach D2Hawkeye to a big analytics brand with a big balance sheet. He also preferred working with Atlantic as the company was not tied to a company with debt and did not have a corporate environment either. The presence of debt would make equity of the company riskier which is what Kryder wanted to avoid. D2Hawkeye would have greater anatomy at Atlantic, and it would provide the company with the possibility of an international Healthcare International Technology business (Shangguan, 2007). If Atlantic were to acquire D2Hawkeye, it would be identified as a new entity in the market called Atlantic Health Analytics, and Kryder would become the CEO of this new entity.

While there were numerous benefits of accepting the new offer of Atlantic Analytics and letting them acquire the company, there were few weaknesses too. For starters changing the name of the company can lead to it losing its identity in the market-leading to demotivation amongst employees as they will have little confidence in company leadership (Hedges, 2014). Secondly owing to the economic conditions Kryder would have to settle for the new offer which pays 15% less for the assets.

Alternatives

The first alternative would be to insist and stay firm on the original offer made by Atlantic.