Athenahealth, Led by Bush Cousin, Prices IPO at $18

By Tim Mullaney

Sept. 19 (Bloomberg) -- Athenahealth Inc., a medical software company run by President George W. Bush's cousin, raised $113.2 million in an initial public offering, the company's bankers said.

Athenahealth priced 6.29 million shares at $18 each, Goldman Sachs Group Inc. said today in a statement. That topped the $14 to $16 projected in filings with the U.S. Securities and Exchange Commission. Analysts including Ben Holmes of Morningnotes.com said the sale drew more orders in recent days.

The 10-year-old company sells Web-based services that automate doctors' insurance collections and their patients' records. Led by Chief Executive Jonathan Bush, 38, Athenahealth posted its first monthly operating profit in June, according to SEC filings. The company lost $5.28 million on sales of $46.4 million in the first half of 2007.

``If you're looking for a classic IPO company, this is it,'' said Francis Gaskins, president of IPODesktop.com Inc., a research service in Marina del Rey, California. ``This one isn't going to surprise people with a bad quarter. In this market, that's valuable.''

At $18 a share, the company will have a market value of almost $569 million. Underwriters led by Goldman Sachs and Merrill Lynch & Co. may purchase an additional shares if demand warrants. The company sold 5 million shares and investors sold 1.29 million, together equaling 20 percent. The shares will trade on the Nasdaq Stock Market under the ticker symbol ATHN.

Sales

Athenahealth will use the cash to reduce debt and for general purposes including marketing and product development.

Sales rose 31 percent in the first half and Athenahealth retains 97 percent of its customers annually, Gaskins said. The Watertown, Massachusetts-based company charges doctors 2 percent to 8 percent of their monthly collections rather than demanding up-front payments as traditional software companies do.

That makes the company something like software-as-a-service leaders Salesforce.com Inc. or Omniture Inc, said Renaissance Capital analyst Phil Stiller, with predictable financial performance and a growing market opportunity.

``If they get any market share at all they can be much larger,'' said Stiller. He predicts Athenahealth's cash flow, expressed as a share of sales, may widen to the high teens from 11 percent by next year.

Margins

Company executives have promised eventually to deliver 30 percent margins, excluding interest, taxes and non-cash expenses, said Stiller, who is based in Greenwich, Connecticut. The company's prospectus says clients' insurance claims are paid the first time they are submitted 93 percent of the time, more than the industry average of around 70 percent.

Athenahealth is exploiting one of the president's pet domestic initiatives, the promotion of electronic health records, which he has mentioned in several State of the Union addresses.

Athenahealth has signed several clients, including the Cleveland Clinic, to deals whose terms would have been illegal before the administration relaxed Medicare anti-kickback rules last year, Jon Bush said in December.