Here's Which IT Stocks Benefit From Healthcare M&A

A new report by J.P. Morgan analyst Tien-tsin Huang focuses on the IT Services industry, particularly its relationship with the Healthcare sector. Huang addressed recent developments and trends in the industry and the impact they could have on the major players.

IBM Acquires Merge

Last week, International Business Machines Corp IBM agreed to purchase Merge Healthcare Inc MRGE and its medical image handling and processing platform for $1 billion.

“IBM intends to integrate Merge’s medical imaging management platform with Watson’s newly developed image analytics capabilities to generate insights from medical images, electronic health records, wearable device data, and other related medical data,” Huang explains, adding that he believes the deal “makes sense” when it comes to IBM’s business strategy.

Growing Cloud

According to the report, investors should expect a near-term pickup in outsourcing within the consumer durables, oil and gas, insurance, banking and utilities businesses. In addition, the rise of cloud services technology could drive down outsourcing prices and cap both overall spending and contract value.

Research firm IDC is projecting that global cloud services spending will reach $70 billion in 2015 with manufacturing, banking, professional services and retail making up about half of the market.

Outlook

Huang notes that Exlservice Holdings Inc EXLS, WNS Ltd WNS, Cognizant Technology Solutions Corp CTSH and Infosys Ltd INFY have reportedly been focusing on targeting business process outsourcing (BPO) deals with India-based and global healthcare providers.

The table below shows the account exposure of major service providers to leading life sciences firms, including Johnson & Johnson JNJ, Pfizer Inc PFE and Merck & Co Inc MRK.