Rise of a New Breed of Software Buyer Is Suggested by Kodak’s Latest Deal

Eager to boost its presence in the fast-growing medical imaging field, Eastman Kodak Co. acquired PracticeWorks Inc., a provider of dental digital radiography technology and dental practice management software, in mid-July in a $500 million stock-swap deal. Kodak, a player in the health imaging business for decades, already had been a top maker of dental x-ray film. The company spotted a growth opportunity as the dental community slowly is abandoning traditional film-based products in favor of digital imaging technology, which radiology departments in hospitals have been using for some time, says Anthony Sanzio, a Kodak spokesperson. Two in a single deal As part of the acquisition, Kodak would also own Paris-based Trophy Radiologie SA, a maker of dental radiography equipment, which PracticeWorks acquired from Thermo Electron Corp. in December 2002. Prior to that deal, Kodak had been thinking about buying both companies, Sanzio says. Along with PracticeWorks’ digital imaging products, Kodak is gaining dental practice management systems, which allow for the digital integration of dental images and patient records. In its medical radiology business, Kodak has been a key player in picture archiving communications systems (PACS) and radiology information systems (RIF), which enable hospitals to manage, share, and archive images and patient information. “We are extending image and information management technology into the dental space, as part of our strategy to provide integration of image and data information, archiving capabilities, and intelligent support solutions,” Sanzio says. “The deal allows us to provide more services through this dental software, particularly integrating more imaging applications into it.” Although Kodak’s latest buy is not a software deal per se, increasingly, non-software companies could end up bidding against software firms for assets, in order to provide total solutions to their customers, experts note. As technologies converge and companies aim to offer more services to customers, software firms may have to compete against traditional rivals as well as new, non-traditional competitors for assets. The convergence of wireless devices and software prompted communication device makers Nokia Corp. and Motorola Inc., for example, to acquire firms that provided complementary software for their products. In recent years, Motorola bought Starfish Software, a developer of software for wireless devices, as it planned a new generation of products that could exchange information with computers, the Internet, and wireless service providers. Nokia bought Eizel Technologies, a developer of server-based products that transform e-mails, Intranet applications, and Web content into formats accessible by mobile devices. Dave Sanderson, a Vice President at Bain & Co., says that the main reason why “hard goods” companies buy software firms is to help their customers “get more value out of their products.” “It may not be the tail wagging the dog, but it’s a necessary element of providing total solutions to customers, and owning the software may be the only way to provide the integrated solution,” he notes. Peter Skarzynski, CEO of Strategos, a strategy consulting firm, sees the PracticeWorks buy as a good example of the nature of competition today. “Companies now must worry about traditional rivals as well as non-traditional competitors, which, if they don’t pay attention to, may blind-side them,” he says. Yet, he thinks non-software firms should stick to buying assets related to their core business. Most experts agree that diversification into software would be a stretch, and rather unlikely, for even the most resource-rich “industrial” companies. But Larry Levinson, a Partner at the law firm of Jenkens & Gilchrist Parker Chapin, thinks some industrial companies could be players in software niches related to their core business. “Some non-software firms lack technology know-how and would have to change their marketing and customer service programs, but those obstacles generally would be surmountable,” he says. Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com