HGP Health IT
Annual Market Review
HEALTH IT & HEALTH INFORMATION SERVICES
JANUARY 2023
www.hgp.com
2
TABLE OF CONTENTS
Executive Summary
3
Health IT Market Trends
11
Health IT M&A (Including Buyout)
14
Health IT Capital Raises (Non-Buyout)
19
Healthcare Capital Markets
20
Macroeconomics
25
Health IT Headlines
28
About Healthcare Growth Partners
31
HGP Transaction Experience
34
1
9
8
7
6
5
4
3
2
Copyright© 2023 Healthcare Growth Partners
From armchair epidemiologists to armchair economists, never has society paid more attention to
subject matter previously overlooked. Of course, the economy has always been a discussion topic,
but the COVID economic response and the ensuing inflation and rising interest rate environment put
economic data and Federal Reserve Federal Open Market Committee (FOMC) meetings at the
forefront of the news cycle and social conversation.
Towards the end of 2022, overall market sentiment was pessimistic, reflecting a lack of confidence in
the FOMC to manage inflation without shocking the economy into recession. In early 2023, market
sentiment is flashing glimmers of hope based on encouraging economic data that signals the Fed may
be able navigate inflation and lead the economy into a soft landing. A full quarter of Q4 CPI prints is
signaling momentum that inflation can be contained in a resilient labor market. The market is
showing more signs of confidence, and while it remains early to extrapolate that into a true upswing,
sentiment appears to be moving in the right direction.
In an effort to make sense of the economic outlook and better understand how the market is
behaving, HGP will take our readers through the facts, relaying data and anecdotal observations to
help piece together the mosaic that shapes the current and future state of capital markets. As shown
in the table below, public growth tech, broader public markets, private HIT markets, and the FOMC all
experienced varying inflection points in response to the inflationary environment – notably growth
tech led the market downturn, will it lead it out?
Abstract
1)
Inflation Metrics: Inflation started flashing as early as Q2 2021, but few paid attention at the early
onset, seeing inflation as transitory.
2) Public Growth Tech: Growth tech, both frothy and highly sensitive to interest rates, began its
decline in Q4’21 ahead of the broader markets and well ahead of FOMC action.
3) Broader Public Markets: Broader public markets began to sell off in Q1’22, but it wasn’t felt as
acutely until Q2’22, 2 quarters after the growth tech downturn.
4) HIT Private M&A & Investment Activity: Private HIT markets, which are typically slower to react,
only began to register sharp declines in M&A and investment activity in Q2’22.
5) Fed Funds Rate: The Fed was the last to respond, beginning its hike cycle in Q2’22, much later
than when growth tech began responding to the threat of rate increases.
3
EXECUTIVE SUMMARY
Building the Health IT Market Mosaic
Copyright© 2023 Healthcare Growth Partners
1
Indicators
Q1’21 Q2’21 Q3’21 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22
Public Growth Tech
Enterprise SaaS xRev
Broader Public Markets
NASDAQ Index
Private HIT Activity
Investment Value (annlz’d)
Fed Funds Rate
20.6x 8.9x
14.2k 10.6k
1.7% 4.3%
$24B $12B
Key Inflection Periods
Annual Core CPI
7%
6%
5%
4%
3%
2%
1%
-
Core CPI
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
0%
1%
2%
3%
4%
5%
6%
7%
Jan-21
Apr-21
Jul-21
Oct-21
Jan-22
Apr-22
Jul-22
Oct-22
MoM CPI Growth
YoY CPI Growth
MoM
YoY
EXECUTIVE SUMMARY
4
1
MONTHLY CORE CPI
Jan-21 thru Dec-22
Core CPI
head
fake
Copyright© 2023 Healthcare Growth Partners
Macro Indicators
The analysis begins with synthesizing the key elements that are driving the macroeconomic and
interest rate environment and outlook, since these trends underly the valuations and cost of capital
that dictate investment and capital market activity, particularly in growth sectors such as Health IT.
The FOMC meets seven times per year, and the next meeting is held February 1, 2023. In the interim,
the market generally tracks inflationary and labor/ productivity readouts that inform each of those
meetings. Many, if not a consensus, feel the Fed will overshoot, leading to the current yield curve
inversion. A yield curve inversion implies that longer-term interest rates are lower than shorter-term
rates and is historically a near certain indicator of a recession, generally measured by the spread
between the 2-year and 10-year treasury rates. However, in this case, the yield curve inversion may
also imply the expectation that inflation will be contained. A full schedule of 2023 key economic data
reporting dates can be found on page 27.
Core CPI has been running much hotter than the FOMC target 2% with the annual rate of Core CPI
persisting near 6-6.5% throughout 2022. However, while monthly CPI is more volatile, it is a more
current indicator and trended favorably to an annualized 3.1% rate based on the Q4 2022 data.
However, as the data indicates, a few months of improved Core CPI may not solidify a long-term
trend, such as July – September ’21 which may have misled the FOMC into not acting sooner.
MOST AGGRESSIVE FED FUNDS RATE HIKE CYCLES, POST 1980
0%
1%
2%
3%
4%
5%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28
Change in Hike Cycle
Months Into Hike Cycle
2022
1988-89
1994-95
2004-
06
1999-00
It’s common knowledge the
FOMC has raised the Fed
Funds rate from near 0% to
4.25-4.5%, and the FOMC is
now projecting a terminal rate
between 5-5.5% with no rate
decreases through 2023. The
increase represents the fastest
and most aggressive hike cycle
since the 1979-80 cycle, which
saw the fastest rate increase in
history equaling 10% over 7-
months.
EXECUTIVE SUMMARY
5
1
The strength of the labor markets is viewed by the FOMC as a strong corollary and leading indicator
of prices and price inflation. The reason being is that prices are often set as a derivative of wages,
one of the largest expenses to produce goods and services. Unemployment statistics are closely
linked to wage growth, since the supply and demand of the labor force is a determinant of wages.
Wage growth is viewed as stubbornly high by the FOMC and is a key metric to monitor over the
coming months to solidify the falling CPI trend.
Given the importance and stubborn nature of wages, especially in the eyes of the FOMC, it is worth
noting that annual wage growth was increasing above a historical rate of 2%, hovering around 3-4%,
even before the pandemic, which likely indicates that this component of inflation may prove to be
the most entrenched, but throughout this hike cycle the FOMC has telegraphed a more modest wage
growth target of ~3.5%. As of December 2022, wage growth decreased to 4.6%.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Unemployment Rate
Wages and Salaries Growth
UNEMPLOYMENT AND ANNUAL WAGE GROWTH
Dec-21 – Dec-22
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
LONG-TERM WAGE GROWTH RATE
Jan-15 thru Dec-22
LT wage growth rate
was hovering above 3%
before the pandemic
Copyright© 2023 Healthcare Growth Partners
EXECUTIVE SUMMARY
6
1
HGP Health IT M&A & Investment Activity Data
With this important macroeconomic backdrop, the following analysis pivots to the data and HGP’s
observations that highlight the trends in Health IT.
Undoubtedly, the capital market slowdown due to the interest rate and macroeconomic environment
has left a mark on Health IT.
It’s important to note that while investment activity has been
undeniably falling, it remains at a healthy level when put into a historical context – 2H 2022
investment value is about the same as that seen in 2H 2019. It remains unclear as to whether
investment hit the bottom or will continue on a downward trajectory, though many market
participants remain optimistic 2023 will bring economic clarity and restore investor confidence.
$5B
$10B
$15B
$20B
$25B
$30B
$35B
$40B
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
HEALTH IT ANNUALIZED US PRIVATE EQUITY INVESTMENT VALUE
6-mo Moving Average
Copyright© 2023 Healthcare Growth Partners
In 2022, M&A volume (see chart on pg. 7) also dropped to pre-COVID levels. After an extended period
of “risk-on” mentality, which peaked during the post-COVID hype cycle, investors, including strategic
acquirors, dramatically shifted down their risk tolerance. This is driven by two key factors:
1) Rising Cost of Capital: Rising rates means a higher cost of capital, which makes financing business
operations and acquisitions more expensive. Additionally, many leveraged enterprises have
floating rate debt. The credit (debt) markets also tightened, with lenders more selective with loans
and terms, particularly lenders with a floating cost of capital (those who pay interest on deposits).
2) Concerns over a Recession: The inverted yield curve points toward a potential recession, and
companies are less inclined to increase risk (and spend) in the face of potential adversity.
Companies are tightening budgets to prepare for the possibility of a more severe recession,
whether this materializes or not.
HIT US-Based
Investments
2019
2020
2021
2022
1H
2H
1H
2H
1H
2H
1H
2H
Value
$6.4B
$5.0B
$5.9B
$10.5B
$15.7B
$13.8B
$9.5B
$5.0B
Start of CV-19
Inflation hits 39-yr high
EXECUTIVE SUMMARY
7
1
It is worth noting that the pullback is largely not driven by company or sector fundamentals within
Health IT, which is why so much attention has been put into macro considerations in this review.
Healthcare and Health IT is a growth and durable industry.
However, some industry-specific factors created headwinds for pockets of Health IT in 2022. Hospital
margins came under significant pressure due to a downturn in inpatient volume and a huge increase
in labor costs. That pressure is easing, and hospital margins are much improved and should continue
to do so in 2023. The impact on Health IT vendors was significant – elongating sales cycles and
reducing bookings because of delayed purchasing decisions. While some of these headwinds will
persist, hospitals will continue to invest in technology that delivers strong ROI and helps navigate
both the cost and innovation curves.
Most importantly, the fundamentals that underly the Health IT market – a $4 trillion spend, an aging
population, chronic conditions and comorbidities, clinical burnout and resource constraints, and
advancements in technology – set the table for the ongoing tectonic shift in this industry.
Copyright© 2023 Healthcare Growth Partners
HEALTH IT ANNUALIZED US M&A VOLUME
6-mo Moving Average
100
200
300
400
500
600
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Start of CV-19
Inflation hits 39-yr high
While buyer appetite has waned, anecdotally, HGP has seen seller interest remain strong. As a result,
the number of sellers waiting on the sidelines is steadily building, and HGP believes there is the
potential for significant deal flow if economic indicators continue to restore confidence to markets
rattled by the fear of a deeper recession. Many expect buyers will continue to operate with a
cautious mindset as they try to better gauge the pulse of the economic environment. The market is
ideal for both buyers willing to capitalize on the market reset and for high-quality sellers that
demonstrate superior performance despite challenging market conditions.
HIT US-Based
M&A
2019
2020
2021
2022
1H
2H
1H
2H
1H
2H
1H
2H
Volume
165
174
157
236
241
214
182
139
EXECUTIVE SUMMARY
8
1
Both HGP’s recent experience and the data support a flight to quality. From a data standpoint, 2022
showed a stark difference in performance of companies trading on revenue multiples versus EBITDA
multiples. Based on HGP’s segmentation of xRevenue-valued and xEBITDA-valued public Health IT
companies, in 2022 the xRevenue cohort declined 55% while the xEBITDA cohort declined only 5%.
The results largely mirror our experience in the private markets – valuations for many unprofitable
SaaS companies fell 50% or greater over the course of the year, not unlike the Enterprise SaaS
category. However, the falling tide does not necessarily beach all boats just as the rising tide does not
lift them. While the tide went out for those not achieving the higher standard sought out by
investors, high quality growth companies are continuing to fetch premium valuations.
Copyright© 2023 Healthcare Growth Partners
Valuation Trends – Public Health IT, Enterprise SaaS, and Private Health IT
Per the chart below, corporate valuations fell significantly from the post-COVID peak to levels lower
than pre-COVID averages. HGP’s observations of this trend:
1) Private HIT valuations have been the most resilient, although admittedly there are fewer
multiples to draw from in recent quarters, making the current data less statistically significant.
Overall, Private HIT valuations have not fallen as much as their public Health IT and Enterprise
SaaS counterparts, nor did they rise as much during the upswing.
2) Public HIT has always traded at a discount to Enterprise SaaS. This is partially due to the fact that
the composition of these indices are not exactly apples to apples, as the Public HIT index includes
companies that are not pure SaaS and several smaller companies. However, many growth stage,
privately held Health IT companies have a similar profile as Enterprise SaaS which makes it an
important metric to monitor.
5x
10x
15x
20x
25x
30x
Dec-18
Jun-19 Dec-19
Jun-20 Dec-20
Jun-21
Dec-21
Jun-22 Dec-22
Enterprise SaaS
TTM Revenue
Multiples
Public HIT
Company TTM
Revenue
Multiples
Private HIT
Company
Revenue
Multiples, 8-mo
Moving Average
HEALTH IT REVENUE MULTIPLES
As compared to Public HIT and Enterprise SaaS indexes
Company Type
Avg. Valuation Multiple
2022 % Δ in
Valuation
2022 Stock
Return
Beg. of Year
End of Year
xRevenue HIT
10.8x
3.6x
-66%
-55%
xEBITDA Health IT
15.8x
13.5x
-15%
-4%
EXECUTIVE SUMMARY
9
1
Piecing Together the Mosaic
Inflation Metrics: Inflation started flashing in Q2 2021, but few paid attention at the early
onset, seeing inflation as transitory.
Fed Funds Rate: The Fed was the last to react, beginning its hike cycle in Q2’22, much
later than when growth tech began responding to the threat of rate increases.
HIT Private M&A & Investment Activity: Private HIT markets, which are typically slower to
react, only began to register sharp declines in M&A and investment activity in Q2’22.
Broader Public Markets: Broader public markets began to sell off in Q1’22, but it wasn’t felt
as acutely until Q2’22, 2 quarters after the growth tech downturn.
Public Growth Tech: Growth tech, both frothy and highly sensitive to interest rates, began
its decline in Q3’21 ahead of the broader markets and well ahead of FOMC action.
Q1’21
Q2’21
Q3’21
Q4’21
Q1’22
Q2’22
Q3’22
Q4’22
Annual Core
CPI
1.7%
4.5%
4.0%
5.5%
6.4%
5.9%
6.7%
5.7%
T3M Core CPI
(Annlz’d)
2.0%
10.1%
3.0%
6.9%
5.8%
7.9%
6.0%
3.1%
Q1’21
Q2’21
Q3’21
Q4’21
Q1’22
Q2’22
Q3’22
Q4’22
Fed Funds
Rate
0.1%
0.1%
0.1%
0.1%
0.3%
1.7%
3.1%
4.3%
Q1’21
Q2’21
Q3’21
Q4’21
Q1’22
Q2’22
Q3’22
Q4’22
Enterprise
SaaS xRev
21.3X
22.9X
20.6X
15.8X
12.4X
8.9X
7.4X
6.9X
Health IT
xRev
13.4X
12.5X
9.6X
6.9X
5.9X
4.4X
3.8X
3.6X
Q1’21
Q2’21
Q3’21
Q4’21
Q1’22
Q2’22
Q3’22
Q4’22
S&P 500
3,973
4,298
4,308
4,779
4,530
3,785
3,586
3,840
NASDAQ
13,247
14,504 14,449
15,645
14,221
11,029
10,576
10,466
Q1’21
Q2’21
Q3’21
Q4’21
Q1’22
Q2’22
Q3’22
Q4’22
Health IT
M&A Volume
501
487
449
428
416
345
324
293
Health IT Inv.
Value
$25B
$32B
$33B
$29B
$24B
$19B
$12B
$10B
Copyright© 2023 Healthcare Growth Partners
Note: Data presented as of end of quarter. HIT Private M&A & Investment Activity is the annualized T6M
average as of the end of the respective quarter.
EXECUTIVE SUMMARY
10
1
Interpreting the Mosaic
Economic indicators are key to watch.
In Q4 2022, market sentiment was extremely negative and
behaving as though a recession was near certain, with 50% of economic forecasts projecting a
recession, a historically high watermark. One could make the case that this bearish sentiment
provides upside for any positive surprises. The ideal economic indicators are: 1) decreasing core CPI
and PCE readouts toward the 2% target and 2) some softening of labor markets. Some negative
economic news is good news: the goldilocks scenario is this soft landing – breaking CPI without
breaking the economy. With overall sentiment so negative in part driven by the FOMCs conservative
posture on CPI coupled with a lack of confidence in the FOMC from their delayed reaction, a string of
positive macroeconomic/CPI indicators will have a meaningfully positive market impact.
Growth tech led us into the recession and very well may lead us out. The FOMC is given a hard time
for not acting sooner, and rightfully so. In fact, growth tech reacted to the macroeconomic indicators
faster than any other sector. Admittedly, growth tech rose the most and had the most to fall, but the
correction has taken growth tech prices to levels 30-50% lower than pre-COVID, arguably an
overcorrection.
PE buyout activity, such as Thoma Bravo’s acquisition of Coupa and Vista’s
acquisition of Duck Creek, may point to a floor of ~8x ARR for high quality enterprise SaaS. Further
go-private activity would signal a bottoming out of public equities.
Private market activity trails public market activity by a quarter or two. While growth equity turned
down in Q3 ‘21, the broader markets in Q1 ‘22, Health IT private market activity did not register
weakness until Q2 ’22. This is in part due to the time required to close a private transaction which
typically takes months once deal terms are agreed.
The Fed Funds Rate is extremely important but is a lagging indicator of markets. The Fed Funds
rate was the last domino to fall in the mosaic. Macro indicators lead to FOMC action versus vice
versa.
It would be dishonest not to admit that the market needs to adjust to a new normal. A 2.5% Fed
Funds rate is considered neutral, which, other than briefly touching this level in 2019, is a rate not
seen since 2008. Once the investors adjust to the reality that the capital markets can function in a
normal rate environment, activity should return more normalized level.
This market is ideal for buyers and high-quality sellers. For buyers, perhaps the investment runway
has been extended, and now is a good time to acquire sound companies that have come into hard
times. For quality sellers, these stand above the rest and are highly sought out in this environment.
Sellers experiencing strong bookings in this market are also standouts. Profitable businesses are also
in favor. Post-COVID, the market, and monetary policy, was fast and loose. Now is a time to be
thoughtful, and with an intentional approach, and we think this is a very exciting and opportunistic
market for all stakeholders.
Copyright© 2023 Healthcare Growth Partners
11
HEALTH IT MARKET TRENDS
2
HGP keeps close tabs on M&A valuations to see how the market evolves over time. While HGP can
only draw data from deals with disclosed multiples and therefore must be careful to consider bias in
any conclusions drawn from this data, one can still get a good sense for how the market values
companies within the different subsectors of health IT. The following table and accompanying box-
and-whisker plot show the distributions of revenue multiples in 13 subsectors of health IT. The
sectors were sorted according to median revenue multiple from largest to smallest.
It’s important to keep dispersion in mind when assessing valuation data, which is why HGP includes
the 25th percentile, 75th percentile, and standard deviation in our summary statistics. While
measures of central tendency like the median and mean are certainly indicative of how buyers are
valuing assets, the dispersion shows that with higher multiples, Investor’s also see higher risk. This
becomes especially apparent when charting the data using a box-and-whisker plot. Generally
speaking, the sectors with highest median revenue multiple also experience large standard deviations
and positive skew. For instance, while 25% of the observed telemedicine companies received 10.0x
revenue or more in sale transactions during the period, another 25% received less than 2.7x revenue
at exit. Companies in these hot spaces cannot forget that they still need to show strong operating
metrics in order to realize premium valuation multiples.
In 2022, a few sectors saw their median multiples tick up relative to the period between January
2017 – December 2021, namely Analytics (by 1.3x) and Infrastructure Technology (by 1.0x). This is
seen as a possible indication of the resilient nature of the sectors, when juxtaposed with sectors that
had benefited from COVID tailwinds, such as Telemed, where the US-based M&A volume was cut
more than half between 2021 and 2022.
Reported
2017 –2022
Deals with
Disclosed
Revenue
Multiples
Deals with
Disclosed
EBITDA
Multiples
Revenue Multiple
EBITDA
Multiple
25th
%-tile
Median
75th
%-tile
Mean Std. Dev.
Median
Analytics
16
7
3.7x
6.3x
8.7x
7.2x
4.7x
18.5x
RCM Tech
34
21
4.8x
6.2x
8.6x
6.9x
3.0x
16.7x
Telemed
19
5
2.7x
5.5x
10.0x
6.8x
4.9x
20.0x
Population Health
63
14
2.9x
5.2x
7.5x
6.2x
4.7x
14.2x
Life Sciences Tech
21
8
2.3x
4.9x
7.1x
5.0x
3.0x
19.5x
Infra Tech
29
19
2.8x
4.7x
7.6x
6.0x
4.5x
15.5x
Benefits Mgmt.
17
5
2.0x
4.2x
4.6x
4.2x
2.8x
14.0x
Content
8
4
2.4x
3.4x
3.7x
3.1x
1.0x
15.9x
PM/EMR
43
23
2.3x
3.4x
5.4x
4.0x
2.4x
15.3x
RCM Services
13
17
1.6x
2.4x
3.6x
2.7x
1.5x
11.0x
Outsourced Services
11
4
0.9x
2.4x
3.3x
2.2x
1.4x
9.3x
Utilization Mgmt.
4
2
1.0x
1.9x
2.5x
1.7x
1.1x
11.9x
Consulting
15
8
1.4x
1.7x
2.7x
2.0x
0.9x
12.1x
Copyright© 2023 Healthcare Growth Partners
HEALTH IT MARKET TRENDS
12
2
The box-and-whisker plot graphically displays the Median, 25th Percentile, 75th Percentile,
Minimum, and Maximum; where points beyond 1.75 times the Inter-Quartile Range are shown as
outliers. The inter-quartile range is represented by the “box” and shows the range between the 75th
Percentile and the 25th Percentile. Visually, the inter-quartile range serves to describe the variability
of the data. Note that point estimates such as the mean or median can often be misleading on their
own, as they do not convey the level of variability which can be very high such as in the Telemedicine
and Population Health sectors.
The sectors were sorted according to decreasing median revenue multiple and show a trend of
decreasing IQR as median revenue multiple decreases. Thus, while companies that fall within sectors
further to the right on the graph can expect a lower revenue multiple in a transaction, the transaction
outcome is also more predictable. A company that falls within a sector on the left, however, cannot
have as strong of confidence in their expected outcome. These observations follow a common theme
in investment theory: that with greater potential upside, there is also greater risk and volatility.
While the metrics presented here may be used as a guidepost for expected outcomes, the end result
of any transaction often depends on buyer circumstances as much as on seller or market
fundamentals, and buyer circumstances tend to be extremely unpredictable. It is not uncommon for
the clearing price of a transaction to be significantly higher than the cover bids. This usually occurs
when a buyer has unique circumstances that justify a higher price than the rest of the buyer universe.
Identifying those buyers and appropriately positioning in relation to them is part of the art of running
a successful transaction process.
Copyright© 2023 Healthcare Growth Partners
xRevenue
HEALTH IT MARKET TRENDS
13
2
Sector
Description
Representative Deals
Analytics (16 deals)
Median: 6.3x
Std. Dev.: 4.7x
Primarily represents a mix of life
sciences and provider analytics, and
to a lesser extent, payer analytics.
Inovalon (Nordic Capital), Lumere (GHX),
Central Logic (Rubicon), LeanTaaS (Bain),
Signify Health (CVS)
RCM Tech (34 deals)
Median: 6.2x
Std. Dev.: 3.0x
Includes tech-oriented RCM vendors
serving hospitals and physicians, and
to a lesser extent, payers.
Change Healthcare (Optum), VisitPay
(R1 RCM), ABILITY (Inovalon),
TransUnion Healthcare (nThrive)
Telemed (19 deals)
Median: 5.5x
Std. Dev.: 4.9x
Contains a mix of pure telehealth
tech, telehealth services, and virtual
care models.
2nd.MD (Accolade), PillPack (Amazon),
Silvercloud (Amwell), SOC Telemed
(Patient Square Capital)
Population Health (63 deals)
Median: 5.2x
Std. Dev.: 4.7x
Comprised of patient engagement,
provider connectivity, and care
management technologies.
Fitbit (Google), Iora Health (One
Medical), Preventice (Boston Scientific),
VRI (ModivCare), Castlight (Vera)
Life Sciences IT (21 deals)
Median: 4.9x
Std. Dev.: 3.0x
Includes traditional CTMS vendors as
well as other vendors that deliver
value in the drug/device process.
Medidata (Dassault Systemes), Bracket
Global (Genstar Capital), Cytel (Nordic
Capital), Pinnacle 21 (Certara)
Infrastructure Tech (29 deals)
Median: 4.7x
Std. Dev.: 4.5x
Compliance and resource
management software generally
serving provider organizations.
symplr (Clearlake), Haemonetics (GPI),
Intelligent Medical Objects (Thomas H.
Lee Partners), IPG (Evolent)
Benefits Management (17 deals)
Median: 4.2x
Std. Dev.: 2.8x
Includes benefits management and
admin software companies serving
payers and employers.
Connecture (Francisco Partners),
PinnacleCare (Sun Life), WageWorks
(HealthEquity), LifeWorks (Telus)
PM/EMR (43 deals)
Median: 3.4x
Std. Dev.: 2.4x
Includes ambulatory, acute, post-
acute, alternate site, and
departmental EMR/PM systems.
Cerner (Oracle), Intelerad (HGCapital),
athenahealth (Veritas), Therapy Brands
(KKR), AllScripts (Harris)
Content (8 deals)
Median: 3.4x
Std. Dev.: 1.0x
Transactions are a mix of online
consumer content and provider-
oriented clinical content.
WebMD (Internet Brands), Care.com
(IAC), Medlife (PharmEasy), MedCerts
(Stride), mdBriefCase (Think Research)
RCM Services (13 deals)
Median: 2.4x
Std. Dev.: 1.5x
Outsourced revenue cycle
management services generally
serving hospitals and physicians.
Intermedix (R1), AGS Health (Baring),
MedData (Frazier), mNet (SSM),
Ensemble (Berkshire), CloudMed (R1)
Outsourced Services (11 deals)
Median: 2.4x
Std. Dev.: 1.4x
Includes non-RCM outsourced
services primarily serving payers as
well as providers.
Sedgwick & MedRisk (Carlyle Group),
Sound Physicians (Summit), ReCept
Pharmacy (OmniCell)
Consulting (15 deals)
Median: 1.7x
Std. Dev.: 0.9x
Project-based IT consulting and staff
augmentation companies generally
serving provider organizations.
The Advisory Board Company
(UnitedHealth), Navigant (Guidehouse),
CynergisTek (Clearwater Compliance)
Utilization Mgmt (4 deals)
Median: 1.9x
Std. Dev.: 1.1x
Payer-oriented software and services
vendors focused on traditional
utilization management.
Senior Whole Health (Magellan), New
Century (Evolent), HealthHelp (WNS
Holdings)
The following table provides additional context on the valuation trends within each sector as well as a
sample of recent transactions within each.
Copyright© 2023 Healthcare Growth Partners
14
HEALTH IT M&A (INCLUDING BUYOUT)
3
HGP has observed a number of tangible and intangible company and transaction characteristics that
typically define where a deal falls on the valuation distribution. Growth, profitability, and recurring
revenue are the most commonly identified factors used to justify valuation multiples. Not all health
IT companies capture premium valuations just because they operate in health IT. However, those
companies that offer a combination of growth, address an unmet need, and fit into the vision of
healthcare reform are seeing valuations significantly higher than historical patterns of activity.
Premium value is also created when a seller fulfills the specific needs of a buyer at a specific point in
time. Timing and serendipity are external factors that play a large and sometimes unpredictable role
in the creation of value.
Copyright© 2023 Healthcare Growth Partners
HEALTH IT REVENUE MULTIPLES DISTRIBUTION 2017 — 2022
BEST
GOOD
PASSABLE
AVOID
Recurring
Revenue
Monthly
Subscription or
Monthly Transaction
Annual Subscription
or Prepaid
Transactional
1-Year+ Prepaid
Subscription
Perpetual License +
Maintenance
Revenue
Metric
Contracted Annual
Recurring Revenue
Annual Recurring
Revenue
Trailing Twelve
Month
Sum of Parts
Revenue Multiples
Revenue
Growth
35%+
20-35%
10-20%
<10%
Gross
Margin
80%+
70-80%
60-70%
GM <70% for SaaS
Lower for Services
Gross Revenue
Retention
95%+
90-95%
Depends on
Customer Type
<90%
Customer
Concentration
<10%
10-20%
20-30%
1 customer > 30% or
a handful of >50%
Profitability
20%+
0-20%
Small Losses
Large Losses
HGP’S TARGET METRICS FOR EMERGING GROWTH HEALTH IT COMPANIES
2%
9%
17%
25%
18%
15%
14%
16%
34%
18%
30%
2%
0%
0%
0-1x
1-2x
2-3x
3-5x
5-7x
7-10x
>10x
Software
Services
HEALTH IT M&A (INCLUDING BUYOUT)
15
3
The M&A frenzy of 2020 – 2021 is no longer, and M&A volume has dropped back to pre-COVID
levels. In 2022, deal volume and value declined by 31% and 60%, respectively, and in Q4, deal volume
hit its lowest watermark in the last 5 years. With the rising cost of capital and concerns over a
potential recession, buyer appetite has declined considerably; however, seller interest has remained
strong, and a significant pipeline of deals could come to market as macro conditions stabilize. The
market is ideal for both buyers willing to capitalize on the market reset and for high-quality sellers
that demonstrate superior performance despite challenging market conditions.
The most notable pocket of the Health IT M&A market was in take-private transactions. PE firms and
well capitalized strategic buyers seized on the opportunity and acquired multiple companies whose
valuations were adversely affected by the broader market downturn. Seven take-private deals closed
in 2022 (Cerner, Change Healthcare, Vocera Communications, Tivity Health, Convey Health Solutions,
Castlight, and SOC Telemed), and two more are in the hopper (Signify Health, One Medical) to close
in early 2023.
Copyright© 2023 Healthcare Growth Partners
HEALTH IT M&A ACTIVITY 2017 – 2022
Deal Value
Deal Volume
$29,194mm
$41,681mm
$46,572mm
$70,961mm
$114,552mm
$45,099mm
$771mm
$968mm
$3,300mm
$3,048mm
$9,567mm
$4,034mm
315
309
339
393
455
321
70
78
94
131
218
141
0
50
100
150
200
250
300
350
400
450
500
$B
$20B
$40B
$60B
$80B
$100B
$120B
$140B
2017
2018
2019
2020
2021
2022
US - Deal Value
Non-US - Deal Value
US - Deal Volume
Non-US - Deal Volume
GLOBAL HEALTH IT M&A DEALS BY QUARTER
97 95 94 99 92
111 102
82
111
96 100
126 117
97
145
165
177 185
165
146 152
114 119
77
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017
2018
2019
2020
2021
2022
16
3
Software Companies
Services Companies
Revenue
Multiple
EBITDA
Multiple
Transaction
Value
Revenue
Multiple
EBITDA
Multiple
Transaction
Value
All
Transactions
# of Transactions
250
111
261
44
33
52
Median
4.6x
16.0x
$ 175
2.0x
11.6x
$ 219
Mean
5.7x
17.4x
$ 834
2.2x
12.5x
$ 766
<$30mm
Transactions
# of Transactions
59
18
60
9
7
10
Median
3.3x
10.6x
$ 14
1.7x
9.8x
$ 12
Mean
4.4x
15.5x
$ 16
1.9x
9.7x
$ 15
$30-100mm
Transactions
# of Transactions
44
15
44
12
6
12
Median
4.0x
13.2x
$ 59
2.4x
9.2x
$ 48
Mean
4.6x
15.4x
$ 57
2.2x
9.3x
$ 52
$100-
500mm
Transactions
# of Transactions
78
26
79
12
7
14
Median
4.8x
15.0x
$ 215
1.7x
10.9x
$ 250
Mean
6.0x
16.4x
$ 240
2.1x
11.4x
$ 269
$500mm-
$1B
Transactions
# of Transactions
20
11
24
5
5
6
Median
6.4x
18.7x
$ 650
2.6x
13.0x
$ 670
Mean
6.7x
18.0x
$ 703
2.8x
14.8x
$ 670
>$1B
Transactions
# of Transactions
49
41
54
6
8
10
Median
6.5x
17.7x
$ 1,770
2.4x
16.1x
$ 2,775
Mean
7.2x
19.4x
$ 3,264
2.4x
17.2x
$ 3,128
Getting more granular into valuation multiples, it is useful to note that multiples are often somewhat
correlated to a target’s enterprise value. Software company valuations steadily climb as enterprise
value increases until approximately the $1B valuation mark. Services company multiples experience a
similarly steady climb in EBITDA multiples, and in larger increments at the $500mm and $1B valuation
marks. The inflection points are in part due to a private equity universe that has expanded leverage
capacity for larger transactions, which in turn drives up valuation multiples as the enterprise value
increases.
HEALTH IT M&A (INCLUDING BUYOUT)
Copyright© 2023 Healthcare Growth Partners
17
3
The above tables demonstrate the positive relationship between valuation and scale. As software
businesses grow in scale, so do their multiples. Revenue multiples steadily increase from 3.3x to 4.8x
as companies begin to reach the $100mm mark. As software businesses grow further to over
$500mm and reach mature scalability, they experience a material step up in value, with revenue
multiples further increasing to a median of around 6.4x.
Services businesses do not seem to benefit as drastically from increased scale as do software
companies. While median revenue multiples do not rise substantially as services companies mature, a
few scalable, high-quality Services businesses that traded on EBITDA multiples had implied revenue
multiples that were outliers, as can be seen in the 90th percentile for companies in the $500mm-$1B
range in EV.
2017 – 2022 Software Revenue Multiple Distribution by Target Enterprise Value
Percentile
<$30mm
$30-100mm
$100-500mm $500mm-$1B
>$1B
90th Percentile
6.9x
8.1x
12.0x
12.0x
13.0x
75th Percentile
5.4x
6.7x
7.7x
8.0x
8.8x
50th Percentile
3.3x
4.0x
4.8x
6.4x
6.5x
25th Percentile
2.1x
2.7x
3.0x
4.4x
4.6x
2017 – 2022 Services Revenue Multiple Distribution by Target Enterprise Value
Percentile
<$30mm
$30-100mm
$100-500mm $500mm-$1B
>$1B
90th Percentile
3.2x
3.5x
3.9x
5.0x
3.3x
75th Percentile
1.9x
3.0x
3.2x
3.6x
2.9x
50th Percentile
1.7x
2.4x
1.7x
2.6x
2.4x
25th Percentile
1.1x
1.1x
1.3x
1.3x
1.7x
Generally, companies have three valuation inflection points: proof-of-concept, growth scalability, and
mature scalability.
1. Proof-of-concept is value created when a company shows that its product can be successfully
sold and deployed in a commercial setting.
2. Growth scalability occurs when an earlier stage company begins to show profitability or at least
scale at high levels of growth, although the organization is still small and lean.
3. Mature scalability takes place after a company has matured to a level where it takes on real
corporate and organizational infrastructure and the company begins to show strong profitability.
HEALTH IT M&A (INCLUDING BUYOUT)
Copyright© 2023 Healthcare Growth Partners
18
3
While valuations have fallen since the post-COVID peak, the step-down in valuations is less severe in
private health IT as compared to the public benchmark. For software companies, revenue multiples
declined by 20% (7.3x to 5.9x), a modest depression compared to their actively traded public HIT
peers, who experienced a 66% loss in value in 2022 (10.8x to 3.6x). Note that the declined level of
activity in 2022 inserts a sampling bias into the dataset of disclosed multiples.
It is worth noting that the 2022 xEBITDA for services companies is atypically close to that of software
companies. Delving into the dataset, there is a small sample size of 9 services transactions mostly
comprising high-quality mega deals. These include Aspirion, CloudMed, Ensemble Health Partners,
and Revecore. Due to the large size and high quality of these transactions coupled with the limited
number of transactions in the dataset, the 2022 EBITDA multiple for services may not be a reasonable
valuation indicator for services transactions on the whole.
Detailed multiples trends can be found in the following bar charts. It should be noted that valuation
multiple trends can be very volatile given the limited availability of data.
HEALTH IT M&A (INCLUDING BUYOUT)
SOFTWARE AVERAGE M&A MULTIPLES 2017 — 2022
SERVICES AVERAGE M&A MULTIPLES 2017 — 2022
4.3x
5.3x
5.3x
4.9x
7.3x
5.9x
12.8x
19.6x
18.3x
15.8x
18.8x
15.3x
2017
2018
2019
2020
2021
2022
Revenue
EBITDA
Copyright© 2023 Healthcare Growth Partners
1.9x
1.8x
2.6x
1.7x
2.5x
3.1x
9.4x
10.1x
15.0x
9.6x
16.0x
13.7x
2017
2018
2019
2020
2021
2022
Revenue
EBITDA
$7,618mm $10,803mm $11,442mm $16,363mm $29,428mm $14,484mm
$3,134mm
$5,728mm
$6,730mm
$6,976mm
$15,231mm
$5,514mm
416
546
577
539
698
518
247
251
261
302
391
308
0
100
200
300
400
500
600
700
$B
$5B
$10B
$15B
$20B
$25B
$30B
$35B
$40B
$45B
$50B
2017
2018
2019
2020
2021
2022
US - Deal Value
Non-US - Deal Value
US - Deal Volume
Non-US - Deal Volume
19
HEALTH IT CAPITAL RAISES (NON-BUYOUT)
4
Capital raise activity echoed the M&A market with an undeniable decline as compared to 2021,
though still at a healthy level when assessed in the context of pre-COVID periods. At its peak in Q1
2021, global deal value reached almost $14B and gradually tapered off each passing quarter,
eventually to land at $2.5B – a low watermark for the last 4 years. Looking to 2023, the cumulative
overhang of private equity capital, which peaked in 2020 and remains at historically high levels,
bodes well for the resilience of health IT investment activity as investors look to deploy that capital
for years to come.
HEALTH IT INVESTMENT ACTIVITY 2017 — 2022
GLOBAL HEALTH IT INVESTMENT DEALS BY QUARTER
Deal Value
Deal Volume
128
191 190
154
204
238
199
156
181
241
211 205 199 197
222 223
247
287 303
252
288
215
173
150
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017
2018
2019
2020
2021
2022
Copyright© 2023 Healthcare Growth Partners
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
HIT Index
S&P 500
NASDAQ
20
HEALTHCARE CAPITAL MARKETS
5
HEALTH IT INDEX PERFORMANCE 2022
HGP tracks a custom index within the health IT space. What classifies a company in the universe of
health IT, and ideally creates a valuation premium, is a strong information technology and data
component that creates scalability and competitive strength. This is particularly relevant to services
organizations that use technology and data analytics to streamline their operations. With this in
mind, HGP evaluated the performance of publicly traded health IT companies against the S&P 500
and the Nasdaq indices, in order to assess the health IT companies within the wider market.
The HIT index was not immune to the brutal sell-off in the overall technology markets in 2022,
continuing the downward trend that began in November 2021. While the HIT index had closed 2021
down 16%, a significant underperformance to the overall market, it tracked S&P 500 and NASDAQ
indices more closely in 2022, though still underperforming and closing the year down 47%.
The cratering valuations in the public markets made some of the larger index constituents attractive
acquisition targets, and a handful of take-private transactions occurred as a result. This is noteworthy
given that these acquisitions that were closed in 2022 have removed close to 20% of the aggregate
market cap of publicly traded health IT companies (10% in count); as a result, the public HIT index
became even more growth-oriented. This shift is expected to deepen with Signify Health – CVS and
One Medical – Amazon acquisitions closing in early 2023, as well as other companies being taken
private.
-46.6%
-33.1%
-19.4%
Target Company
Buyer/ Investor
EV
Cerner
Oracle
$28B
Change Healthcare
Optum
$13B
Vocera Communications
Stryker
$3.1B
Tivity Health
Stone Point Capital
$3B
Convey Health Solutions
TPG
$1B
Castlight
Vera Whole Health (GTCR)
$370mm
SOC Telemed
Patient Square Capital
$300mm
Copyright© 2023 Healthcare Growth Partners
HEALTHCARE CAPITAL MARKETS
21
5
To drill-down into the drivers behind the variability within the Health IT index, HGP classified the 70
constituents into their respective sectors – Benefits Tech, Consumer Health, Infrastructure, Pharma
Tech, Population Health Management, Tech-Enabled Payers, Value-Based Care, and Virtual Care.
Though every index has lost value in the double digits, the Value-Based Care basket is seen as a bright
spot that outperformed against the major market indices. While this index has only four constituents,
it’s worthy to note that One Medical, whose $3.9B acquisition by Amazon was announced in July
2022, is one of the four. Despite closing the first half of 2022 down 55%, ONEM stock price flourished
after the announcement, and closed the year down only 4%.
Consumer Health and Tech-Enabled Payers separated from the flock and underperformed their peers
significantly, disadvantaged by the relatively low number and recency of their constituents, who
entered the public markets riding on growth and are now being caught flat-footed with their lack of
profitability, which has been the favored metric of 2022.
The consolidation activity in the public HIT markets shows that there is strong investor interest in the
industry, and the market thesis remains indisputable. HGP will be closely tracking the shifting
dynamics of the bear market, which tends to create opportunities that are challenging to seize, but
more rewarding for those who can seize them.
HIT & SUBSECTORS INDEX PERFORMANCE 2022
2022 Index Performance
Health IT
-46.6%
Infrastructure
-28.4% Tech-Enabled Payers
-74.9%
Benefits Tech
-42.4%
Pharma Tech
-49.2%
Value-Based Care
-17.1%
Consumer Health
-74.8%
Pop Health Mgmt
-40.3%
Virtual Care
-63.7%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
HIT Index
Consumer Health
Virtual Care
Value-Based Care
Infrastructure
Benefits Tech
Pharma Tech
Pop Health Mgmt
Tech-Enabled Payers
Copyright© 2023 Healthcare Growth Partners
HEALTHCARE CAPITAL MARKETS
22
5
Detail on the sectors and companies HGP tracks as part of the health IT index can be found below.
Multiples shown are based off 2023E revenue and EBITDA.
HIT AND SUBSECTOR INDEX PERFORMANCE DETAIL AS OF DECEMBER 31, 2022
*: Companies that went public in 2021.
Copyright© 2023 Healthcare Growth Partners
Company
Share Price
% Change
EV/
Rev
EV/
EBITDA
Company
Share Price
% Change
EV/
Rev
EV/
EBITDA
Benefits Tech
Benefitfocus
0%
2.3X
13.6X GoodRx
-86%
2.3X
9.4X
Castlight Health (acq.)
NA
NA
NA HealthEquity
41%
7.0X
22.5X
Convey Health (delist.)
29%
NA
NA Progyny
-39%
2.7X
16.2X
Ehealth
-81%
0.8X
NMF SelectQuote
-93%
0.9X
NMF
Evolent Health
1%
1.9X
22.0X Thorne Research*
-41%
0.7X
4.8X
GoHealth
-82%
1.0X
10.5X
Consumer Health
23andMe*
-69%
2.4X
NMF Peloton
-79%
1.6X
NMF
Owlet Baby Care*
-78%
0.7X
NMF
Infrastructure
Allscripts
-4%
2.5X
8.7X NRC Health
-9%
NA
NA
Cerner (acq.)
NA
NA
NMF Omnicell
-72%
2.2X
18.0X
Change HC (acq.)
NA
NA
NMF OptimizeRx
-73%
2.7X
20.8X
CPSI
-8%
1.5X
8.5X Phreesia
-24%
5.4X
NMF
Doximity*
-34%
13.4X
NMF Roper Technologies
-11%
8.5X
20.9X
HealthStream
-6%
2.6X
13.0X Streamline Health
11%
3.7X
NMF
Inovalon (acq.)
-73%
5.2X
7.6X Tabula Rasa
-66%
1.2X
22.5X
MultiPlan
5%
1.9X
11.1X Vocera (acq.)
NA
NA
NMF
NextGen Healthcare
-4%
2.5X
8.7X
Pharma Tech
Certara*
-44%
7.1X
19.9X Science 37*
-97%
NMF
NMF
Invitae
-88%
3.1X
NMF Schrödinger
-46%
3.6X
NA
IQVIA
-28%
3.2X
13.4X Simulations Plus
-25%
10.1X
26.7X
Model N
33%
6.1X
NMF SOPHiA GENETICS*
-84%
NMF
NMF
Pear Therapeutics*
-77%
3.6X
NMF Veeva Systems
-38%
10.3X
26.4X
HEALTHCARE CAPITAL MARKETS
23
5
Revenue Multiples
EBITDA Multiples
Median Values
2023E
2024E
2023E
2024E
Enterprise SaaS
5.6X
4.9X
19.6X
19.7X
Health IT (all)
2.3X
1.9X
14.5X
13.1X
Pharma Tech
4.8X
4.1X
23.1X
20.5X
Pop Health Mgmt
3.4X
2.8X
16.8X
13.3X
Infrastructure
2.6X
2.4X
13.0X
12.1X
Benefits Tech
1.9X
1.6X
13.6X
10.9X
Value-Based Care
1.7X
1.3X
NMF
NMF
Consumer Health
1.6X
1.4X
NMF
NMF
Virtual Care
1.3X
1.0X
14.2X
13.1X
Tech-Enabled Payers
NMF
NMF
NMF
NMF
*: Companies that went public in 2021 or 2022.
HIT AND SUBSECTORS INDEX VALUATION MULTIPLES
While all subsectors
trade at a deep
discount to Enterprise
SaaS, mature
subsectors within HIT
trade at healthier
valuations. The Health
IT Index is trading at a
~60% discount to
Enterprise SaaS on a
2023E xRev basis and a
~25% discount based
on 2023E xEBITDA
basis.
Copyright© 2023 Healthcare Growth Partners
Company
Share Price
% Change
EV/
Rev
EV/
EBITDA
Company
Share Price
% Change
EV/
Rev
EV/
EBITDA
Population Health Management
Definitive Healthcare*
-61%
6.4X
22.6X Sema4*
-94%
NMF
NMF
Health Catalyst
-74%
1.5X
NMF Sharecare*
-67%
0.8X
11.0X
NantHealth
-75%
3.5X
NMF Signify Health*
97%
6.7X
24.3X
Premier
-13%
3.2X
8.8X
Tech-Enabled Payers
Bright Health*
-81%
NMF
NMF Oscar*
-69%
NMF
NMF
Clover Health*
-76%
NMF
NMF
Value-Based Care
Alignment HC*
-16%
1.1X
NMF One Medical
-4%
2.9X
NMF
Oak Street Health
-39%
2.0X
NMF Privia Health*
-14%
1.5X
NMF
Virtual Care
Accolade
-70%
1.5X
NMF
iRhythm Technologies
-20%
5.6X
NMF
Akili Interactive*
NA
NMF
NMF LifeStance Health*
-49%
2.0X
27.6X
DocGo*
-22%
1.2X
10.6X SmileDirectClub
-86%
0.6X
NMF
Amwell
-54%
0.7X
NMF SOC Telemed (acq.)
NA
NA
NMF
Babylon Health*
-96%
0.2X
NMF Talkspace*
-69%
NMF
NMF
Cue Health*
-84%
0.2X
NMF Teladoc Health
-75%
1.7X
15.4X
EUDA Health*
NA
3.1X
NA UpHealth*
-93%
0.8X
9.3X
Hims & Hers Health*
0%
1.6X
NMF
HEALTHCARE CAPITAL MARKETS
24
5
HEALTH IT IPOS AND SPACS
Copyright© 2023 Healthcare Growth Partners
In no category was the difference between 2021 and 2022 more stark than the IPO market. The IPO
market has virtually shut its doors – according to the EY Global IPO Trends report, Americas IPO
activity fell to a 13-year low by volume and a 20-year low by value after a record-breaking 2021.
Americas IPO volume fell 76% from 532 to 130 over the year. Value took an even harder fall,
dropping 95% from $174.5 billion to a mere $9 billion. The underlying cause, largely a result of
macroeconomic and inflationary pressure, is market volatility and the reset in corporate valuations,
which taken together rattled investor confidence and risk tolerance.
SPACS, which had a burst of popularity in 2021, saw a dramatic crash in 2022, both in terms of
successfully completed reverse mergers and the rampant redemption rates hindering the ability to
get deals done. In 2022, SPAC IPOs in the Americas fell 86% and 92% in transaction volume and value,
respectively. There is a glut of SPACs that face a liquidation in the next 6-months due to their
expiration without completing a de-SPAC. According to EY, more than 80% of the 480 SPACs
currently seeking targets face expiration by mid-2023 following 60 SPAC liquidations in 2022.
According to EY, the IPO market typically rebounds quickly and robustly after a retrenchment.
In
order to fire up the market, valuations will need to stabilize, and successful IPOs will foster the
additional flow of transactions. More favorable conditions seem likely for 2023, particularly in the
latter half of the year. With the IPO markets all but closed in 2022, a strong pipeline has formed, and
the market expects a wave of IPOs at the first opportunity.
In the Health IT market, only two companies went public in 2022 through SPACs, marking the tail-end
of the SPAC frenzy of 2020-21. Both companies faced headwinds in the markets, similar to their
predecessors, losing more than 70% of their opening price.
• Akili Interactive, maker of video game-like digital therapeutics intended to improve attention
function in children with ADHD, merged with Chamath Palihapitiya’s SPAC Social Capital and raised
more than $163mm through its IPO.
• EUDA Health, a Singapore-based telehealth company, raised $86mm through a reverse merger
with SPAC 8i Acquisition 2 Corp.
US HEALTH IT IPO AND SPAC VOLUME
7
9
12
2
13
2
0
5
10
15
20
25
30
2018
2019
2020
2021
2022
IPOs
SPACs
25
MACROECONOMICS
6
2022 was a strange, rollercoaster of a year — while the pandemic’s impact is still at play, other forces
have come into the macroeconomic picture and become realities that we deal with every day, whether
at the gas pump or the supermarkets: inflation was this year’s main story and its Goliath to be dealt
with, in which case Jerome Powell and the Fed policymakers formed the proverbial David. CPI and
unemployment readouts and FOMC meetings became highly anticipated dates in any given month, and
everybody seemed to have an opinion on what constitutes a recession.
To avoid a hard landing, the FOMC increased the Fed funds rate cautiously yet steadily (from 0.08% to
4.33% to end the year) and largely stabilized the annual inflation at roughly 6%, spooking the markets of
a recession and bringing down asset prices in the meantime. While S&P 500 ended the year down 19%,
NASDAQ and DJIA diverged and ended the year down 33% and 9% respectively, highlighting the
disparate trends in technology and industrial sectors. As tech companies found out they were bloated
with cheap capital and excess hiring, they resorted to massive layoffs in order to pivot from growth to
profitability. On the other hand, 2022 largely favored energy and industrials as oil and commodity prices
increased as a result of Russia’s invasion of Ukraine.
To revisit the supply and demand factors that had been impeding growth and inflating prices, and how
they evolved since our last report:
Supply-Side Issues:
▪ China is abandoning its Covid Zero policy and reopening the economy. This is expected to further
relieve supply chain issues, which had been on the mend to revert to pre-COVID levels.
▪ While unemployment remains low, wage growth has slowed down from its 11% peak to 6%.
Given wage growth is the main component of inflation, this is a healthy sign.
▪ Even though the war in Ukraine pushed the global energy supply into crisis in the first half of
2022, oil prices are now off their peak at $120/bbl levels in 1H 2022, ending the year at $80/bbl
levels. For the time being, energy prices seem to be contained, which will prevent inflation from
spiraling.
Copyright© 2023 Healthcare Growth Partners
0%
1%
2%
3%
4%
5%
6%
7%
Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23
Effective Fed Funds Rate
% Change in Core CPI (YoY)
FED FUNDS RATE VS. INFLATION
4.33%
5.70%
MACROECONOMICS
26
6
Demand-Side Issues:
▪ While consumer spending hasn’t decreased, it is showing signs of a cool-down, as the month-
over-month Personal Consumption Expenditures increase approaches zero.
▪ Slowdown in wage growth is a positive (as a deflationary factor) on the demand side as well, as a
leading indicator to decreasing disposable income and consumer spending.
▪ The stimulus programs have come to a halt. As the Congress was split in the midterm elections of
2022, it is likely that the government will not be undertaking a major stimulus effort in the next
two years.
▪ Households are less levered and seem to have stable financial health to shoulder a recession and
pull of a soft landing: the household debt-to-GDP ratio is hovering around its low watermark in
two decades of 75%, significantly lower than the 100% ratio ahead of the ’08 crisis.
A difficult year is now in the rearview mirror, and every new year deserves a hopeful beginning.
Though many do not expect the markets to come back roaring, there is hope that the economy can
adjust to a “new normal” with a healthy level of inflation, modest growth, and accessible capital
(that is not necessarily cheap).
Copyright© 2023 Healthcare Growth Partners
2022 US STOCK MARKET PERFORMANCE
Feb 24 – Russia begins invasion
operations in Ukraine
Mar 8 – US and UK ban Russian oil,
EU reduces demand on Russian gas
May 2 – SCOTUS draft opinion
overturning Roe v Wade is leaked
May 4 – Fed raises rates by 50 bps
Jun 15 – Fed raises rates by 75 bps
Jun 24 – SCOTUS overturns Roe v
Wade
Jul 13 – Inflation peaks at 9.1%
Jul 27 – Fed raises rates by 75 bps
Aug 2 – House Speaker Pelosi visits
Taiwan
Aug 16 – Biden signs the Inflation
Reduction Act of 2022 into law
Aug 24 – Biden announces plans to
cancel student debt
Sep 21 — Fed raises rates by 75 bps
Oct 27 – Musk completes $44B
acquisition of Twitter
Nov 2 – Fed raises rates by 75 bps
Dec 14 – Fed raises rates by 50 bps
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
S&P 500
NASDAQ
DJIA
MACROECONOMICS
27
6
According to Pitchbook, the rising cost of debt and declining valuations had an immediate impact on PE
dealmaking activity in 2022, leading to a 20% drop in deal value compared to 2021. Large take-privates
constituted a bright spot for PE firms to buy up public companies at discounts ($224B in deal value,
second highest in history after 2007), meanwhile total deal value for platform deals shrank by 27% as
firms pivoted to add-ons and growth equity deals, constituting more than 80% of PE dealmaking activity.
On the front-end, dry powder is estimated to have ticked down for the first time since 2008 by 10%, but
is expected to be replenished by the near-record fundraising activity this year with $343B raised across
405 funds.
After a historic boom, global M&A activity also fell and increasingly contracted each quarter in the face
of market volatility and uncertainty: according to Dealogic data, total M&A value fell by 37%. Despite
the unfavorable environment, mega-deals like Activision – Microsoft ($75B), VMWare – Broadcom
($61B), Twitter – Elon Musk et al ($44B), IHS Markit – S&P Global ($43B), Warner Bros – Discovery
($42B), and Cerner – Oracle ($28B) underscored the ability of M&A activity to weather tough
headwinds. Anecdotally, HGP sees high quality assets continuing to trade at meaningful valuation
multiples, as the proactive buyers who are willing to take a bit of risk engage with sellers who are
motivated to get deals done, and that sentiment seems to echo across the broader M&A market.
VC funding activity is on a steep slide, as the exuberance of 2021 is long gone and Q4 ‘22 was the
bottom since COVID began, both in value and count terms. However, the “crunch” seems to be felt
differently across different stages. According to data from Cooley, a leading law firm in venture deals,
later stage rounds are being hit harder than earlier rounds: the median Series D (or higher) valuation has
declined from its peak of $3.5B in May ‘22 to $527mm in Sep ‘22, whereas Series A deals have seen a
43% decline from their all-time high, and seed stage deals continue to call for steadily increasing
valuations, showing resilience. On the front-end, VC fundraising activity has set a new high in 2022:
$163B was raised across 769 funds. The deployment of this capital over the next few years will be an
interesting trend to watch, affecting both the future of startups and return expectations of LPs.
Given these circumstances, investors and entrepreneurs are compelled to act with a heightened level of
focus, diligence, and patience in the face of headwinds such as geopolitical risks, rising cost of debt and
inflation. When the storms pass and macro conditions normalize, prospects of growth and deal activity
will be waiting those who have adapted and survived. The following table outlines key dates for
economic indicators to watch in 2023.
Copyright© 2023 Healthcare Growth Partners
2023 FOMC Meeting
Dates
Reference
Month
2023 Monthly CPI
Report Dates
2023 PPI Report
Dates
2023
Employment
February 1
Jan-23
February 14
February 16
February 3
March 22
Feb-23
March 14
March 15
March 10
May 3
Mar-23
April 12
April 13
April 7
June 14
Apr-23
May 10
May 11
May 5
July 26
May-23
June 13
June 14
June 2
September 20
Jun-23
July 12
July 13
July 7
November 1
Jul-23
August 10
August 11
August 4
December 13
Aug-23
September 13
September 14
September 1
Sep-23
October 12
October 11
October 6
Oct-23
November 14
November 15
November 3
Nov-23
December 12
December 13
December 8
28
HEALTH IT HEADLINES
7
Notable headlines from 2022 are outlined in the following pages on a quarterly basis. The headlines
in 2022 illustrate the significant influence that policy and regulatory intervention has on the
incentives that dictate health IT investment and innovation trends, the increasing vertical integration
across healthcare, and the expanding presence of non-traditional companies in the health IT market.
Q1 HEADLINES
Elizabeth Holmes is found guilty of defrauding Theranos' investors
January 3: A jury found Elizabeth Holmes guilty of defrauding investors out of hundreds of millions of
dollars. The verdict capped the downfall of one of Silicon Valley's most dynamic and scandal-plagued
young executives who promised to revolutionize blood testing with an innovative technology that
required just a small sample of blood pricked from a patient's finger.
Microsoft, Cleveland Clinic and Providence join coalition to innovate AI in healthcare
January 18: With healthcare increasingly placing bets on artificial intelligence, Microsoft has formed a
coalition with some of the nation’s top health and life sciences organizations to build and track new
AI innovations. The Artificial Intelligence Industry Innovation Coalition (AI3C) unites 9 other big names
alongside Microsoft: Brookings Institution, Cleveland Clinic, Duke Health, Intermountain Healthcare,
Novant Health, Plug and Play, Providence, the University of California, San Diego and UVA.
ONC completes critical 21st Century Cures Act requirement, publishes the Trusted Exchange
Framework and the Common Agreement for Health Information Networks
January 18: The U.S. Department of Health and Human Services’ (HHS) Office of the National
Coordinator for Health Information Technology (ONC) and its Recognized Coordinating Entity (RCE),
The Sequoia Project, Inc., announced the publication of the Trusted Exchange Framework and the
Common Agreement (TEFCA). Entities will soon be able to apply and be designated as Qualified
Health Information Networks (QHINs). QHINs will connect to one another and enable their
participants to engage in health information exchange across the country.
IBM sells Watson Health assets to investment firm Francisco Partners
January 21: The assets acquired by Francisco Partners include extensive and diverse data sets and
products, including Health Insights, MarketScan, Clinical Development, Social Program Management,
Micromedex and imaging software offerings, the company said in a press release.
DOJ sues to block UnitedHealth-Change Healthcare deal
February 24: The Department of Justice filed suit to intervene in UnitedHealth Group's acquisition of
Change Healthcare, just days shy of the company's planned consummation date of Feb. 27. In an
announcement, the DOJ said that the deal would harm competition in commercial health markets as
well as the market for technology that insurers use to process claims and reduce healthcare costs.
Teladoc to partner with Amazon on Alexa-enabled virtual visits
February 28: Teladoc Health announced that it was partnering with Amazon to launch voice-activated
virtual care on Alexa-supported Echo devices. According to the companies, U.S. customers around the
country can connect with a Teladoc provider via audio at any time for general medical needs.
Copyright© 2023 Healthcare Growth Partners
HEALTH IT HEADLINES
29
7
Amazon Pharmacy teams up with Blue Plans in 5 states to roll out prescription discount savings
card
March 8: Amazon Pharmacy is partnering with Blue Plans in five states and Prime Therapeutics to
tackle the affordability of prescription medications. The online retail giant's pharmacy arm is rolling
out a prescription discount savings card that's available to some Blue Plans members.
Bipartisan legislation would broaden telehealth benefits for employees
March 31: The House of Representatives has drafted a bill that would provide new virtual care
options for American employees. The Telehealth Benefit Expansion for Workers Act would amend
HIPAA and the Affordable Care Act to allow employers to offer standalone telehealth service
programs – not unlike dental and vision plans – in addition to existing health insurance plans.
3M is said to consider sale of its healthcare IT division
April 26: 3M Co. is said to consider a possible divestiture of its healthcare information technology
unit. The move comes after 3M (MMM) originally evaluated a sale of the unit in 2015, though it
shelved the plan in 2016. The healthcare IT unit is located within 3M's larger health group, which
contributed about $9B of 3M’s 2021 revenue.
Walmart Health rolls out virtual diabetes program as retail giant moves deeper into treating
chronic conditions
April 28: Walmart's telehealth provider, MeMD, is rolling out the virtual diabetes program as a
standalone service or as part of a comprehensive medical and behavioral telehealth program for
enterprise customers and health plans. The retail giant collaborated with the American Diabetes
Association on the virtual program, which was developed to help employees and members close gaps
in diabetes management through early intervention, Walmart Health executives said.
DOJ launches investigation into Cerebral's prescribing practices
May 7: Mental health startup Cerebral said it is under investigation by the Department of Justice
(DOJ) for "possible violations" of the Controlled Substances Act. Cerebral Medical Group received a
grand jury subpoena from the U.S. Attorney’s Office for the Eastern District of New York. The
Controlled Substances Act regulates the distribution of potentially addictive medicines like Adderall
and Xanax.
NowRx, Hyundai partner on last-mile medication delivery
May 13: Silicon Valley startup NowRx is teaming up with Hyundai Motor Group for a pilot project
testing last-mile medication delivery, with an eye toward testing autonomous vehicles down the
road. NowRx, a digital pharmacy that offers same-day and same-hour prescription medication
delivery as well as telehealth services, plans to roll out the pilot project later this year, serving two
micro-fulfillment centers in the Los Angeles area.
Q2 HEADLINES
Copyright© 2023 Healthcare Growth Partners
HEALTH IT HEADLINES
30
7
Pharmacy retail giant Walgreens looks to disrupt the clinical trials business
June 16: Walgreens' healthcare ambitions continue to grow as the pharmacy retail giant expands its
reach into clinical trials by leveraging its vast trove of patient data, its technology assets and its retail
locations. Walgreens aims to revolutionize the antiquated clinical trials model with an eye toward
using its community reach to increase patient enrollment as well as racial and ethnic diversity in
sponsor-led drug development research, executives said.
New class action lawsuit claims Meta's discreet patient data tracker was active across 664 provider
websites
June 21: Facebook parent company Meta was hit with a class action lawsuit alleging the tech
company has been collecting sensitive patient-status data through hospital websites in violation of
the Health Insurance Portability and Accountability Act (HIPAA). The case was filed in the Northern
District of California by an anonymous patient of Baltimore’s Medstar Health System on the behalf of
“millions of other Americans whose medical privacy has been violated by Facebook’s Pixel tracking
tool.”
Supreme Court overturns Roe v. Wade
June 24: The Supreme Court has overturned 49 years of a women's right to an abortion in siding
today with Mississippi Department of Health Officer Thomas E. Dobbs in Dobbs v. Jackson Women's
Health Organization. In the 6-3 decision, Justice Samuel Alito wrote the opinion for the majority,
including Chief Justice John Roberts and Justices Neil Gorsuch, Brett Kavanaugh, Amy Coney Barrett
and Clarence Thomas. Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan dissented.
Merative, a new data company, formed from IBM's healthcare analytics assets
July 5: Six months after scooping up the health analytics assets of IBM Watson Health, private equity
firm Francisco Partners announced this past week that it is using them to launch a new healthcare
data company, called Merative.
Patient payments startup Cedar, valued at $3 billion, lays off 24% of its workforce “in order to
adapt to current market realities.”
July 8: Cedar joins other digital health startups in cutting its workforce with an eye on its bottom line.
"It is still our mission to empower individuals to easily and affordably pursue the care they need."
"Everyone at Cedar, including those leaving us, has made valuable contributions to this mission, and
we sincerely thank our colleagues for all of their hard work“, a company spokesperson said in a
statement.
Former Theranos COO is guilty of federal fraud
July 8: Ramesh “Sunny” Balwani, the former COO of failed blood testing startup Theranos and ex-
boyfriend of founder Elizabeth Holmes, was found guilty of defrauding investors and patients. Jury
deliberations stretched for four full days following a lengthy trial that got underway in March with
opening statements. A jury of five men and seven women determined that Balwani had defrauded
both patients and investors, finding him guilty on all 12 charges he faced, which included ten counts
of federal wire fraud and two counts of conspiracy to commit wire fraud.
Copyright© 2023 Healthcare Growth Partners
Q3 HEADLINES
HEALTH IT HEADLINES
31
7
Healthcare Tech Company Olive lays off 450 employees
July 19: The Columbus-based health technology company Olive announced Tuesday that it is cutting
450 jobs. Olive said the cuts are "based on the realities of today’s economy.“ Workers were told their
work will stop immediately. They will be paid and will receive benefits for 60 days and will be eligible
for two weeks severance pay for each year of service, according to a company notice.
Amazon makes further healthcare inroads with $3.9B One Medical deal
July 21: The merger agreement with the IT-driven primary care company aims to make healthcare
more "accessible, affordable and even enjoyable" with in-person and virtual care services.
Biden signs executive order on emergency abortion access
August 4: The day after the federal government filed a lawsuit against Idaho for its almost absolute
ban on abortion that would make it a criminal offense for physicians to perform emergency care,
President Joe Biden issued an executive order protecting access.
Digital health unicorn Truepill conducts third round of layoffs in 2022
August 14: Truepill, a platform that helps other companies offer diagnostics, telehealth services and
prescriptions, has conducted its third mass layoff in a string of workforce reductions, sources tell
TechCrunch. The layoff impacted about third of the company, or 175 people.
CVS Health to purchase Signify Health for $8B
September 5: CVS Health announced that it will acquire Dallas-based Signify Health, a network of
10,000 clinicians across 50 states with more than 50 health plan clients, including CVS' Aetna division,
for $8 billion.
FTC to look into Amazon, One Medical deal
September 6: The Federal Trade Commission is scrutinizing Amazon's Prime business model and has
also reviewed the tech giant's other potential deals, such as the acquisition of Metro-Goldwyn-Mayer
Studios and a new deal with autonomous vacuum maker iRobot, for antitrust violations.
Walmart teams with UnitedHealth Group, Optum on patient experience
September 8: Walmart and UnitedHealth Group, along with UHG subsidiary Optum, are beginning a
10-year collaboration the companies describe as "wide-ranging," and intend to leverage their
combined expertise to improve health outcomes and the patient experience.
Optum and Change Healthcare Complete Combination
October 3: Optum, a diversified health services company, announced it has completed its
combination with Change Healthcare. The combined businesses share a vision for achieving a simpler,
more intelligent and adaptive health system for patients, payers and care providers. The combination
will connect and simplify the core clinical, administrative and payment processes health care
providers and payers depend on to serve patients. Increasing efficiency and reducing friction will
benefit the entire health system, resulting in lower costs and a better experience for all stakeholders.
Copyright© 2023 Healthcare Growth Partners
Q4 HEADLINES
HEALTH IT HEADLINES
32
7
Telehealth unicorn Cerebral lays off 20% of staff for ‘operational efficiencies’
October 24: Cerebral is laying off 20% of its staff, citing an ongoing push for efficiency at the digital
health unicorn. According to the WSJ, which first reported the news, and Insider, some 400 people
will lose their jobs, primarily clinical staff and care counselors.
VA Awards Oracle Cerner $956M in EHR Modernization Task Orders
October 26: Oracle’s Cerner subsidiary has secured a pair of task orders worth $956 million combined
to continue to the deployment of an electronic health record system to Department of Veterans
Affairs-run facilities, FedHealth IT reported Thursday.
CVS and Walgreens agree to pay $10 billion to settle opioid claims
November 2: CVS Health and Walgreens Boots Alliance have announced an agreement to pay $10
billion to substantially resolve all opioid lawsuits and claims against the companies. The payments will
be made over 10-15 years, with neither company admitting wrongdoing.
RSV surge is overwhelming some hospitals and pediatric care capacity
November 7: The Centers for Disease Control and Prevention is warning of a surge in flu; Respiratory
Syncytial Virus, or RSV; and other viral infections this season, especially among children and older
adults. CDC says it is seeing the highest influenza hospitalization rates going back a decade.
Johnson & Johnson to acquire Abiomed
November 8: Johnson & Johnson on Tuesday announced its plans to acquire Abiomed, which
develops technologies for heart, lung and kidney support, in a deal worth more than $16 billion.
As athenahealth CEO teases a second IPO, new customer board announced
December 1: In a recent local interview, athenahealth CEO Bob Segert said the transformed company
has created a significant amount of value and could go public, again, after going private in 2019.
New HIPAA rule from CMS would streamline transactions with attachments, e-signatures
December 19: The Centers for Medicare and Medicaid Services on Monday put forth a new proposed
rule that would modify HIPAA to better support both claims and prior authorization transactions –
providing standards for electronic signatures to be used in conjunction with healthcare attachments
transactions.
ATA applauds 2-year extension of telehealth flexibilities in Congressional Omnibus
December 22: The American Telemedicine Association this week cheered the bipartisan omnibus
appropriations bill from both houses of Congress for including a two-year extension for Medicare
telehealth flexibilities that have been in place since the COVID-19 public health emergency was
declared in 2020.
Copyright© 2023 Healthcare Growth Partners
33
ABOUT HEALTHCARE GROWTH PARTNERS
8
Healthcare Growth Partners (HGP) is an exceptionally experienced Investment Banking & Strategic
Advisory firm exclusively focused on the transformational Health IT. We unlock value for our clients
through our Sell-Side Advisory, Buy-Side Advisory, Capital Advisory, and Pre-Transaction Growth
Strategy services, functioning as the exclusive investment banking advisor to over 130 health IT
transactions representing over $4 billion in value since 2007.
Our passion for healthcare inspires us to not only create value for our clients, but to also generate
broad, overarching improvements to the functionality and sustainability of health. With our focus, we
deliver knowledgeable, honest and customized guidance to select clients looking to execute high
value health IT, health information services, and digital health transactions. For more information,
please visit www.hgp.com.
Securities offered through HGP Securities, LLC, member FINRA & SIPC, broker-dealer affiliate of
Healthcare Growth Partners, LLC.
Sources of Information:
Company press releases, company SEC filings, Healthcare Growth Partners database, Cooley,
Dealogic, Deloitte, EY, Fierce Healthcare, Forbes, Fortune, Guardian, Healthcare IT News, HIStalk, NBC
News, NVCA, Pershing Square Capital, PitchBook, PwC, Refinitiv, Rock Health, Sequoia Capital, The
New York Times, The Wall Street Journal, and The Washington Post.
These statistics are presented for informational purposes only. While the information presented has
been obtained from sources deemed to be reliable, no representation or warranty, express or implied,
is made as to the accuracy or completeness of such information.
Copyright© 2023 Healthcare Growth Partners
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9
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