NDCHealth Checks Out

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A few months ago, when NDCHealth (NYSE: NDC) held its conference call for earnings and a litany of other issues, I noted how much the analysts focused on when all of the company's restatements, restructurings, and negativity would finally be over.

With today's announcement that Per-Se Technologies (Nasdaq: PSTI) and Dutch firm Wolters Kluwer are purchasing the company's operations, it appears that the storm clouds may have finally passed. True, the sale price per share isn't much more than NDC's stock price back in January -- or just last week -- though it is about 40% higher than the shares' low last March, when discussions of a sale apparently began in earnest.

The combined payments from Per-Se and Wolters Kluwer will yield NDCHealth shareholders $19.50 per share in a mix of cash and Per-Se stock. For shareholders, this means a buyout at approximately 20 times the company's average free cash flow over the last three years. Free cash flow at both NDCHealth and Per-Se has steadily declined over that period, largely due to competition driven by McKesson (NYSE: MCK), WebMD (Nasdaq: HLTH), and others in the crowded field of medical data management.

The combined Per-Se and NDCHealth business would appear to offer customers more of a one-stop shop. Both businesses focus primarily on physician and hospital markets, but Per-Se is focused more on internal administrative processes, while the portion of NDCHealth it acquired primarily specializes in transactions between organizations and connectivity to retail pharmacies. (Wolters Kluwer snapped up NDCHealth's pharmaceutical information management business.)

The combined company also expects to realize $15 million - $20 million in potential cost savings in the first year. While these synergies are very likely to exist, I'd caution investors against expecting that entire sum's savings in a single year; it often takes a bit more time to merge operations and cultures than planners expect.

For NDCHealth, it's the end of a long, strange saga that saw the company go from a free-cash-flow growth machine with a stock price above $40 a few years ago to a cash-bleeder beset by SEC investigations, restatements, and restructurings.While its buyout may not be the cure-all some NDCHealth investors hoped for, it certainly does them no harm.

Vital signs of further Foolishness:

• NDCHealth Still Ailing
• WebMD's Misleading Results
• Diagnosing WebMD's Health

Nathan Parmelee has no financial interest in any of the companies mentioned.