Massachussetts-based athenahealth (NASDAQ:ATHN) just stirred things up a bit in the physician software market. The company announced Monday that it planned to buy point-of-care software provider Epocrates (NASDAQ: EPOC) for $293 million. That price reflects a 22% premium compared to the stock's Friday close. Was this a good move for athenahealth? Let's take a look.

Upward mobility?
One opportunity that athenahealth sees from the acquisition is in getting exposure to a much-larger customer base. Epocrates' network counts more than 1 million health care professionals as users, including around half of all physicians in the U.S. Currently, around 38,000 providers use athenahealth's systems. 

Another potential positive is that the clear trend in health care is toward mobile applications. Epocrates has been a longtime leader in the mobile health space, with clinical applications for smartphones and tablets. Jonathan Bush, CEO of athenahealth, stated that the company sees the opportunity "to redefine the mobile toolset for care givers."

Both of these factors were important in athenahealth's decision to buy the smaller company. Epocrates has a strong brand presence, with recognition among 90% of U.S. physicians. The acquisition could open doors for athenahealth that might otherwise have remained closed.

Also, while competitors such as Quality Systems (NASDAQ:NXGN) have launched mobile applications, athenahealth hasn't done much in the growing area thus far. The acquisition will help the company establish a significant presence in point-of-care solutions. Its larger resources could also enable more effective competition against current Epocrates rivals, including WebMD's (NASDAQ:WBMD) MedScape division.

Cloudy judgment?
While the merger makes sense in several ways, one significant question remains: Did athenahealth pay too much?

Consider that while Epocrates boasts large numbers of users, most of those use only the company's free drug reference product. The company hasn't shown impressive revenue or earnings growth. In fact, only one quarter in 2012 thus far has had positive earnings.

Despite this lackluster financial performance, athenahealth is paying more than 50 times forward earnings for Epocrates. Perhaps that price is easier to pay since athenahealth looks expensive itself, with a forward P/E of nearly 64. However, the key difference is that athenahealth has grown sales at a rapid pace while Epocrates has not.

Also, athenahealth showed $180 million in total cash on its balance sheet as of the end of last quarter. The Epocrates purchase will wipe much of this out, although the exact amount depends on how much will be borrowed to finance the transaction. This leaves athenahealth in a worse position in the event that other acquisition opportunities emerge.

On the fence
The market appears to have liked the acquisition. Shares for athenahealth were up 2% at yesterday's close. I'm sitting on the fence on this one, though. The combination brings some interesting opportunities. What I don't know, however, is whether those opportunities will make enough money to offset the cost. Maybe they will, but I won't be surprised if they don't.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.