Blockbuster deals are not confined to the substance abuse industry these days,
but also are to be found not surprisingly among the companies that supply the
industry. In that vein, Netsmart Technologies Inc. (Nasdaq: NTST) announced in
September that it had acquired CMHC Systems of Dublin, Ohio, in a transaction
that will make Netsmart, already the behavioral health care industry’s largest information
technology provider through its Creative Socio-Medics unit, even bigger.
Netsmart’s competitors, including other top treatment industry IT vendors like
Sequest Technologies and Qualifacts Systems, may feel some pressure themselves
to merge with other players in order to attempt to match the scale that has now
been achieved by Netsmart. Earlier this year, Qualifacts was involved in merger
negotiations with another IT vendor that broke down because the two sides could
not agree on price, according to Qualifacts CEO Steve Mason. After its merger
with CMHC, Netsmart now has over 1,150 behavioral health industry clients,
141 of which are addiction treatment centers, including top industry names such
as Hazelden and Betty Ford. Despite Netmart’s size, the behavioral health IT
business remains highly fragmented, just like the addiction treatment and behavioral
health industries it serves.
In a filing earlier this year with the Securities and
Exchange Commission, Netsmart listed 14 vendors it considers to be competitors
in the behavioral health IT space. Netsmart’s presence in the addiction treatment
industry is not nearly as considerable as in other parts of behavioral health, including
in the area of big state contracts, where Creative Socio-Medics is strong, and
in community mental health centers, where CMHC is overwhelmingly dominant.
“We are in the midst of a strategic review of the business following our merger
with CMHC,” says Netsmart CEO Jim Conway. “And a big part of that will be a
very strong focus on increasing our marketing efforts to get a bigger slice of the
addiction treatment IT market.” One area
where Netsmart is dominant, however, is in a
niche part of the addiction treatment IT market,
computerized automated methadone dispensing.
The company solidified its position in the niche
this summer with the purchase of Addiction
Management Systems, a pioneer in developing
computerized automated methadone dispensing.
Netsmart’s nearly $18.2 million cash and stock
deal for CMHC has been warmly greeted by
the stock market, which since the deal was announced
on September 20 had pushed up the
value of Netsmart’s shares by nearly 25 percent
to almost $15 per share by the end of October,
giving Netsmart a total market capitalization of
around $86 million. The rise in the share price
was very good news indeed for CMHC founder
John Paton, who took slightly less than 400,000
Netsmart shares as part of the purchase price for
CMHC, which he founded in 1978. Paton was
highly visible just days after the acquisition announcement,
speaking at an important Washington
behavioral health IT conference. However,
it is Conway who will hold the reins at the new
company, which will jettison the Creative Socio-
Medics and CMHC names, henceforth operating
as Netsmart. Since Conway joined the company
in 1999, the company’s revenues have grown
by over 450 percent to $50M, with some of that
growth from acquisitions, but most coming from
organic internal efforts, according to Conway.
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