Goldman Sells Last Hudson Street Vestige


Goldman Sachs received $32.5 million for its remaining stake in Epocrates Inc, after the healthcare technology company was acquired by athenahealth Inc., according to a securities filing on Friday.  Epocrates was Goldman’s last remaining investment related to its Hudson Street initiative to distribute independent research providers.

The sale represented a small loss for Goldman.  The bank cashed in 2.8 million shares for $11.75 apiece, according to terms of athenahealth’s buyout. Goldman had also sold $4 million worth of stock when Epocrates went public in January 2011, bringing its total stock sales to $36.5 million.  Goldman had originally acquired 3 million shares in Epocrates for $40 million in 2007.

Epocrates sells popular mobile applications for doctors and has one of the largest opted-in panels of physicians and other healthcare practitioners in the U.S.    In 2007, the panel size numbered about 145,000 physicians  available for custom surveys on specific questions (it has since grown to over a million).

As we noted at the time, Goldman was developing its own expert network subsidiary which it called Vantage Marketplace LLC.  Epocrates’ panel of doctors was a way to add the healthcare sector to Goldman’s new expert network.  Goldman shut down its expert network subsequent to its investment in Epocrates.

The main reason for the investment in Epocrates, however, was to promote independent research.  When Hudson Street was first formed in 2007, regulators were pushing aggressively for unbundling commissions to provide more transparency on what was paid for research.  We speculated at the time that Hudson Street was Goldman’s hedge against worsening economics for its proprietary research: “One of the major reasons for the formation of Hudson Street Services is the growing proliferation of Commission Sharing Agreements, Client Commission Arrangements, and the move to unbundling research from execution services.  In this environment, Goldman has decided that it makes considerable sense in trying to increase its share of trading volume AND increase its share of clients’ research commissions by offering both its proprietary research and unique third party research products and tools.”

However, Hudson Street never lived up to the lofty expectations Goldman had for it.  Partly that was because Goldman’s institutional sales force was more motivated to sell its proprietary research than independent research.  Partly it was because the regulators did not push unbundling as hard as it first appeared.

Maybe Goldman was just too early.  If commissions resume their downward slide, perhaps distributing independent research will become a more attractive alternative to losing money on proprietary research.




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