IBM Corp. is said to be looking at offloading its Watson Health healthcare technology unit, possibly through a sale or a merger with a special-purpose acquisition company.

The Wall Street Journal reported on the discussions late Thursday, citing multiple sources familiar with the matter. The tipsters didn’t say what price IBM is targeting for the prospective sale. But they did share some financial information about the Watson Health unit itself, which is reportedly generating about $1 billion in annual revenues and currently isn’t profitable.

Watson Health sells analytics tools, artificial intelligence software and other products for the healthcare sector. One of its offerings is Health Insights, a data warehouse that allows organizations such as hospitals to gain insights into questions like how to increase their operational efficiency. The unit also provides more specialized products, including clinical datasets that medical professionals can use as a reference when developing treatment plans.

Watson Health’s solutions portfolio is built in no small part on assets that IBM gained through its $2.6 billion acquisition of Truven Analytics Inc. in 2016. To realize a return on investment, IBM may seek to sell Watson Health for a higher price than what it paid to buy Truven.

Executives are reportedly studying several potential ways to spin off the unit. One possibility said to be on the table is a sale to a private equity firm or an “industry player”. Another option: a merger with a special purpose acquisition company, an arrangement that would take Watson Health public. 

SPACs, which are also known as blank check companies, are entities set up by investors to acquire an existing business and list it on a stock exchange. A SPAC merger provides a faster route to public markets than a traditional initial public offering. For IBM, such an arrangement may be a compelling way to spin off Watson Health because, if it were to retain a partial stake in the unit, it could benefit from any share price increases the unit realizes over time as an independent company.

However, the Journal’s tipsters cautioned that there’s a chance a sale may not happen.

IBM previously announced plans to spin off its managed infrastructure services unit and turn it into an independent, publicly traded company by the end of 2021. The business, which reported revenues of about $19  billion last year, assists over 4,500 large organizations worldwide with tasks such as network administration.

The managed infrastructure services unit’s upcoming spinoff is part of a plan by IBM Chief Executive Officer Arvind Krishna to refocus the company on its higher growth hybrid cloud and AI businesses. That plan is likely also one of the drivers behind reported discussions at IBM to spin off Watson Health.

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