IBM said Friday that it will sell off the healthcare data and analytics assets housed under its Watson Health unit to private equity firm Francisco Partners.
The deal signals that IT giant IBM (IBM) is stepping back from its ambitions in the healthcare space as it focuses on building hybrid cloud computing capabilities, an effort that has accelerated since Arvind Krishna took over the CEO position in 2020.
IBM stood up Watson Health as a separate business unit in 2015 with the goal of using data to help doctors, researchers and insurers solve some of healthcare’s biggest problems. The company invested in a series of deals to acquire healthcare data, and took on challenges ranging from improving diabetes care to overhauling cancer treatment.
But the bold bet didn’t pan out. The Wall Street Journal reported nearly a year ago that Watson Health generated around $1 billion in annual revenue and no profit, and that IBM was considering selling the business.
The healthcare tech space has also become increasingly competitive. Google (GOOGL GOOGLE) in 2019 confirmed a partnership with Ascension, one of the nation’s largest nonprofit health systems, to collect and analyze patient health data. Last April, Microsoft (MSFT) spent $16 billion to buy healthcare AI developer Nuance to pair with its Microsoft (MSFT) Cloud for Healthcare business. And last month, Oracle (ORCL) said it would acquire healthcare software firm Cerner for $28.3 billion.
“The Watson Health sale has been anticipated for quite some time,” Paddy Padmanabhan, CEO of healthcare and tech advisory firm Damo Consulting, said in an email. “IBM was clearly not gaining much traction in the healthcare market while others such as Google and Microsoft have pulled ahead.”
Watson Health was borne out of IBM’s larger Watson effort, which aims to use artificial intelligence to solve a range of problems for businesses and consumers — from creating a computer that can debate humans to getting sports fans engaged in big events. IBM remains committed to its other Watson projects, Tom Rosamilia, senior vice president of IBM Software, said in a statement.
Under Krishna, IBM has been working to transform itself from a legacy IT services provider to a modern cloud business, a strategy boosted by its 2018 acquisition of open source software provider Red Hat, which Krishna helped broker. The company is making a big play in “hybrid cloud” — a setup wherein companies may use multiple clouds in addition to on-premises servers. In late 2020, IBM announced it had set aside $1 billion to invest in getting other companies onto its hybrid cloud platform. A month later, IBM announced the spin-off of a quarter of the company to focus on the cloud.
The terms of IBM’s agreement with Francisco Partners were not disclosed. Watson Health’s current management team is expected to remain in place at the new entity, according to the two companies.