The blockbuster merger between Allscripts and Eclipsys announced Wednesday is "a match made in heaven on a PowerPoint slide," says Sean W. Wieland, senior research analyst at Piper Jaffray. But he anticipates some rough going at the start.

As with so many acquisitions of this size and complexity, Wieland says, "the devil is in the details."

Speaking on a conference call on Wednesday morning, Allscripts CEO Glen Tullman (who will retain that title at the new combined company) explained that there was "both strategic and financial rationale" for the deal.

Indeed, he said, with Allscripts's strength in the ambulatory space, and Eclipsys's robust presence on the acute side, "our clients are almost forcing us to work together.
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Eclipsys president and CEO Phil Pead (who will be chairman of the new firm) echoed the sentiment, calling the merger something that "many of our mutual clients have been hoping would happen for a long time."

Wieland says that may true. But also that not everyone is entirely pleased with the deal – at least in the short term. "From a strategic perspective it makes a lot of sense," he says. While "Eclipsys is a strong hospital player with a weaker ambulatory care side," Allscripts's strengths are almost a mirror image of that.

But Wieland says the melding of the two companies will be a "very complex" process. There's some not-inconsiderable overlap on the physician side of things (with much less on the hospital side). And so in the early going that may make for some rough patches.

"For certain customers, this is the ideal scenario," Wieland says. He cites the example of North Shore Long Island Jewish Health System, which uses both the Eclipsys Sunrise Enterprise suite and the Allscripts Emergency Department and Care Management solution – and has recently offered to subsidize a large portion of the cost of implementing Allscripts EHRs for more than 7,000 docs in New York City and Long Island.

But other customers are wary, he says. "The sense is there will be a lot of effort" expended on the deal, and that consequently "focus will be taken away" from certain Allscripts products that could use improvement.

Specifically, as Wieland writes in an assessment, "we hear concerns from some customers that the Allscripts Enterprise (TouchWorks) needs some work and [that] the merger could be a distraction to the management."

Speaking on the conference call yesterday, Pead expressed confidence that "given our respective architectures, we believe we'll be able to deliver this integration very quickly."

Wieland is inclined to agree: "I believe that they will be able to execute."

His conviction is borne out by recent history; Wieland says he gives Allscripts "a lot of credit" for the way it handled the relatively seamless merger with Misys in 2008.

Nonetheless, Allscripts (MDRX) stock tumbled yesterday, falling 10 percent on the news amid heavy trading.

Not unexpected, since, as Wieland writes, "capital restructuring has a lot of moving parts." Along with the merger, Allscripts is reducing Misys's controlling interest to 8 percent, with the remainder of the new firm to be divvied up by Allscripts (55 percent) and Eclipsys (37 percent) shareholders.

And despite some jitters as the dust settles. Wieland is bullish on its longer-term prospects, writing that fourth-quarter expectations are encouraging, with "preannounced Q4 bookings at $117 million ahead of our $108 million estimate."

Other analysts share that view.

"Ideally, the timing of this deal would have been better well ahead of the imminent stimulus (ARRA) opportunity so [an] integrated product offering could be marketed to interested hospitals and physicians, write Jefferies & Company analysts Richard Close, Dana Hambly and Sean Dodge. "Despite this, the fact of little overlap in customer and products we believe reduces risk of delayed purchasing and product integration concerns (to some extent)."

They add that the deal should allow the combined company to be a "viable vendor in some deals the individual companies would not be included in as separate entities," and that the perception of the vendor "as viable alternative to Epic or Cerner is enhanced."
 
“We talk in our study about how there was no clear market leader in EMR and that there was a window for new entrants to enter the market,” wrote Bruce Carlson, publisher of market researcher Kalorama Information on Wednesday. “This deal doesn’t close that window, but perhaps the opening just got a little smaller.”

He added that “despite Allscripts's name recognition in the physician market, it would have been hard for any company to maintain leadership in EMR without reaching into the hospital space as well. It’s not easy to break into the hospital EMR market, so an acquisition was the logical play here.”