Zix: Prescription for Divestiture?

by Brenon Daly

One conclusion to draw from the recent pickup in divestitures is that dividing corporate attention often means diluting corporate returns. Consider the situation at Zix Corp (ZIXI). The Dallas-based company has a small but growing business selling email encryption. In mid-2003, Zix moved into electronic prescriptions through its $1.5m acquisition of the assets of PocketScript. The plan was to expand its business of providing secure communications to the billions of prescriptions written every year in a less costly and more secure way.

However, after nearly six years of trying to realize those goals, Zix has little to show for it. Revenue from the e-prescriptions unit totaled just $5.4m, or 19% of Zix’s overall sales, in 2008. Sales at the division last year slipped 11% from the year before, compared to a 26% increase in its core email encryption business. (And we would note that both units employed some 73 people, giving an idea of the relative returns of each unit.)

Moreover, the e-prescriptions division has only one-third the number of subscribers that Zix estimates would be required to cover the costs of developing the service, according to the company’s own calculations. And now, Zix has acknowledged that it may never get the business to that level on its own. The firm hired Allen & Co late last week to advise it on ’strategic alternatives’ for its e-prescriptions unit.

Comments

[Ben Around:]

They are at least showing iniative in developing or unloading the business that is not performing to expectations. The business model they have chosen still shows they know what they have to do to compete in the tough eRx market. The plan to get providers to shoulder the expense of implementation was and may still be a viable plan. But the current market conditions make it tough for the expansion of the business with the providers under pressure themselves to perform.

Perhaps some deep pocket company looking to enter the market will find them interestng.

Jun 18 09:36 AM

[ManAboutDallas:]

They need to sell the e-prescribing business right across Haskell Street to ACS. In fact, they ought to sell the whole company to ACS. Or ACS ought to come calling with its chequebook open wide. Perfect fit in both lines of business and ACS has the resources to finally realise the promise Zix has always offered.

Jul 10 03:23 PM