M&A
January 22, 2022
4 minutes read

Deal: IBM To Sell Watson Health Assets To PE Firm Francisco Partners

Old-guard tech giant IBM (NYSE: IBM) has struck a deal to sell some of the assets of its struggling Watson…

Old-guard tech giant IBM (NYSE: IBM) has struck a deal to sell some of the assets of its struggling Watson Health division to a private equity firm. Francisco Partners, a leading PE firm, has agreed to buy IBM’s healthcare data and analytics assets currently grouped under Watson Health. The assets include some acquisitions IBM previously made to build up a robust healthcare tech business, although it didn’t quite reach its goal.

Both parties didn’t disclose the financial terms of the deal. However, a Bloomberg report said Francisco Partners would pay over $1bn+ for the assets. This amount may seem huge, but recognize that IBM spent around $4bn on acquisitions to build up Watson Health. Now, it seems to be selling most of those assets for a mere $1bn.

IBM launched Watson Health in 2015, intending to use its core artificial intelligence platform to enable healthcare providers to analyze enormous amounts of data and ultimately make a dent in cancer treatment research. However, many of the company’s ambitions didn’t work out, and some customers have complained that the products didn’t match the hype around them.

Although IBM doesn’t break down financial figures from Watson Health, The Wall Street Journal reported last year that the unit has roughly $1bn in annual revenue and isn’t profitable. Hence, it makes sense that IBM wants to get a money-bleeding asset off its hands. A private equity firm like Francisco Partners is an expected suitor for that asset. PE firms usually perform some financial antics on money-bleeding assets like that and may end up coming out on top.

Francisco Partners is a two-decade-old PE firm focused on technology investments. It currently has over $25bn of assets under management. The firm maintains its headquarters in San Francisco, as its name hints.

IBM may be a stale name in the tech world, but the company still brings in tens of billions of dollars in revenue each year. For example, it reported $74bn in revenue in 2020 and $54bn in the nine months ended September 2021. However, revenue growth has been minute, typically under 5% in recent years.

IBM has identified “hybrid cloud” as its most promising business line. The term refers to a computing environment that combines both an on-premises data center (a private cloud) with a public cloud service, allowing enterprises to share data and applications between them. IBM has spent significant money buying cloud companies, over a dozen from 2021 to date. Let’s hope they don’t meet the same fate as Watson Health.