Take Long View

What: Share of Merge Healthcare (NASDAQ:MRGE), a healthcare information company that specializes in storing and handling a variety of medical images, jumped more than 31% today after news broke that the company is being acquired by IBM (NYSE:IBM)

So what: IBM announced that it is acquiring Merge for $7.13 in cash, which puts the value of the transaction at $1 billion dollars when adding in Merge's debt load, and represents a nice premium for shareholders from yesterday's closing price of $5.41.

Now what: IBM appears to be betting big on the future of Watson Health, as the company has already made three healthcare-related acquisitions since launching in April. The goal for this acquisition is for Watson, which is best known for winning big against humans on the game show Jeopardy, to be able to 'see' and analyze a variety of medical images like X-rays, CAT scans, or MRI's, and incorporate that data alongside other medical records to help providers made better decisions. 

IBM believes that healthcare is going to be a big driver of its growth over the coming decade, and the acquisition announced today should nicely expand the capabilities of the Watson Health platform. Merge's platform is already very popular -- it is currently being used at more than 7,500 healthcare sites and clinical research institutions in the U.S. -- so the acquisition gives IBM broad access to a huge number of providers.

IBM's stock has been stuck in reverse for several years now, so I think this acquisition makes a lot of sense. Merge's technology certainly appears to have the ability to make Watson Health more useful to healthcare professionals in the future. If IBM is successful in using this acquisition to expand Watson's capabilities to drive future revenue and profit growth then investors should be cheering this news. Given today's muted reaction for IBM's stock, I'd say investors remain in 'show me' mode with Big Blue. 

 

Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.