Health IT & Health
Information Services
Semi-Annual Market Review
July 2018
www.hgp.com
Copyright 2018 Healthcare Growth Partners
Health IT & Health Information Services:
Market Review July 2018
Table of Contents
Health IT Executive Summary
3
Health IT Market Trends
9
HIT M&A (Including Buyout)
12
Health IT Capital Raises (Non-Buyout)
17
Healthcare Capital Markets
18
Macroeconomics
22
Health IT Headlines
24
About Healthcare Growth Partners
27
HGP Transaction Experience
28
Appendix
31
1
2
3
4
5
6
7
8
9
10
Software
Infrastructure
Expanding Care
Continuum
Patient
Empowerment
Personalized
Medicine
Advanced CDS
Genetic Medicine
Drug Discovery
Remote Monitoring
Benefits Mgmt
Patient Engagement
Marketing
Health & Fitness
Care Management
Population Health
Connectivity
Telemed
Infrastructure Tech
Security/Compliance
PM/EMR/HIS
RCM/ERP
Health IT Executive Summary
Revisiting the HGP Health IT Market Evolution
Four years ago, HGP introduced the HGP Health IT Market Evolution. The Health IT Market Evolution
classifies the health IT market across four phases of innovation: Software Infrastructure, Expanding
Care Continuum, Patient Empowerment, and Personalized Medicine. Driven by an expanding
infrastructure of mobility and data and propelled by value-based payment reform, the evolution is
likely to result in a decentralized and personalized care delivery model that will ultimately cater to a
discretionary and informed consumer patient.
Despite the $28.5B of investment in US Health IT since 2014, health IT's broad-based impact on care
delivery, costs, and outcomes is still somewhat muted. We believe the value in health IT for patients
is accruing, with policy and regulation being the key determinants for the timing and force with
which this value will ultimately be unlocked at scale. US Health IT investment in 1H 2018 alone was
$4.8B across 141 transactions, annualizing to a 32% increase over 2017's $7.4B investment.
The following exhibit outlines the phases of the market evolution. Each phase lays the groundwork
for
the next, with care decentralizing as the evolution progresses.
Theoretically,
care
decentralization and patient empowerment are two key elements to reduce cost, while patient and
provider communications and personalized medicine improve the quality of care. Timing investment
along the Health IT Market Evolution is perhaps the most valuable but most difficult consideration
when making investments in health IT, thus the importance of this construct.
Copyright 2018 Healthcare Growth Partners
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Volume-to-Value Reimbursement Transition
Software-Enabled Data Infrastructure
Consumer-Driven Mobile Infrastructure
Decentralization ofCare
Health IT Executive Summary
Revisiting the HGP Health IT Market Evolution
The following outlines the conceptual and actual results within the framework of the Health IT
Market Evolution, with the bottom table reporting M&A and Investment activity for the period 2017
1H 2018. As expected and is true in all industries, Investment activity occurs further along the
innovation path and is a leading indicator of M&A activity.
The graphic on Page 5 outlines
M&A/Buyout and Investment transaction highlights across the evolution during 1H 2018.
Copyright 2018 Healthcare Growth Partners
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1
Deal VolumeHealth IT Market Evolution
M&A
Investment
Innovation
0
50
100
150
200
250
Software Infrastructure
Expanding Care Continuum
Patient Empowerment
Personalized Medicine
Deal Volume (2017 1H 2018)Evolution Phase
M&A
Investment
M&A Trendline
Investment Trendline
Health IT Executive Summary
Revisiting the HGP Health IT Market Evolution
Software
Infrastructure
Expanding Care
Continuum
Patient
Empowerment
Personalized
Medicine
Copyright 2018 Healthcare Growth Partners
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1
Volume-to-Value Reimbursement Transition
Software-Enabled Data Infrastructure
Consumer-Driven Mobile Infrastructure
Decentralization ofCareDecentralization ofCare1H 2018M&A/Buyout Highlights1H 2018Investment HighlightsEnterprise IS
DATAVANT
Health IT Executive Summary
Revisiting the HGP Health IT Market Evolution
Drilling down further, HGP defines the four stages of the Health IT Market Evolution using the same
parameters as 2014, which in itself is indicative of how little the market has shifted in the last four
years despite record-setting investment.
Copyright 2018 Healthcare Growth Partners
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1
Stage
Description
Representative Subsectors
1. Software
Infrastructure
Driven as much by HITECH mandates and
regulatory reform as market forces, software
infrastructure has now penetrated the majority of
the clinical and revenue cycle landscape. As a
proxy, physician and hospital EMR adoption is
estimated to be over 90 percent. However, next
generation and replacement technologies can be
strong opportunities for investors to supplant
obsolete technology. This infrastructure facilitates
the capture and sharing of patient data, setting the
stage for the second phase of the Market Evolution.
Provider: Infrastructure technology
(ERP, compliance, etc), IT-enabled
consulting and outsourced services,
PM/EMR, RCM Tech and Services,
Supply Chain
Payer/Employer: Utilization
Management, Infrastructure
Technology
Life Sciences: Clinical Trial
Management, IT-enabled
consulting, Supply Chain
2. Expanding
Care
Continuum
Motivated in large part by ACA volume-to-value
reimbursement programs and the ability to layer
data and mobility on the newly formed software
infrastructure, the care continuum evolution reflects
the beginning of a prolonged cycle of risk sharing
and decentralizing care, which includes
participation from all major constituents (providers,
payers/employers, and life sciences).
Provider: Analytics, Care
Management, Content, Education,
Integration, Pop Health (Chronic),
Provider Communications, Telemed
Payer/Employer: Analytics, Care
Management, Content, Integration,
Pop Health (Chronic), Telemed
Life Sciences: Analytics
3. Patient
Empowerment
As risk distributes across stakeholders; providers,
payers, and, to some extent, pharmaceutical and
device companies must all engage patients to
manage value-based incentives. The alignment of
interests to engage the patient may result in a
transformational shift of power and responsibility to
the patient. For now, patients are faced with the
conundrum of rising costs, greater choice, and
more responsibility but lack the information
transparency to make informed decisions. As
information democratizes, the empowered
consumer patient will dramatically alter the
healthcare landscape.
Provider: Marketing, Patient
Communications, Population
Health (Well), Care Communities
Payer/Employer: Benefits
Management, Patient
Communications, Marketing,
Population Health (Well), Fitness
Life Sciences: Marketing, Patient
Communications, Care
Communities
4. Personalized
Medicine
As genetic analytics becomes more dynamic and
cost-effective and data-driven clinical decision
support capabilities become more integrated with
the delivery of care, the end-game is for care to be
personalized at both the population and the
individualized level. The vision is a holistic and
longitudinal perspective of a patient, which includes
genetic predispositions, personalized medication
response, diet, lifestyle, environment, and health.
Provider: Decision Support,
Genomics
Payer/Employer: Decision
Support, Genomics
Life Sciences: Decision Support,
Genomics, Drug Discovery
Health IT Executive Summary
Revisiting the HGP Health IT Market Evolution
In our January report, we extrapolated investment data to draw the conclusion that the US health IT
market must grow at a 9.0% to 18.0% annual rate to support the current level of investment. While
the health IT market growth rate suggested by the level of investment in 2017 is high, market
research using a bottoms-up, demand analysis produces similar estimates.
We currently estimate US health IT to be an approximately $115 billion market. With US healthcare
totaling $3.3 trillion, this implies health IT spend is approximately 3.5% of overall healthcare spend.
Our 3.5% spend estimate is consistent with that estimated by Deloitte and in-line with the market
average for multiple industries.
At 3.5% of revenue, IT spend in healthcare is slightly above the average for all industries, but
approximately half that of Banking & Securities, the most commonly cited comparative benchmark.
Assuming the health IT market is growing at a 15% annual rate and healthcare is growing at a 4%
annual rate, it will take approximately 7 years for the health IT market to reach 7.0% of healthcare
revenue. Perhaps this will be a time when healthcare and health IT reach equilibrium and revert to a
market growth rate, however, we believe IT spend could be an even larger share of total healthcare
spend given the significant role health IT can play in health management as outlined in the Health IT
Market Evolution.
As important as the amount of IT budgets is where the budget is allocated. To date, the largest
share of IT budgets at healthcare organizations has been allocated toward Infrastructure
Technology. Hospitals and Physicians still spend the majority of their time switching from EHR
vendor to EHR vendor searching for the basic infrastructure of electronic medical records, billing and
collections, and practice management preventing them from being able to focus on individualizing
care. Given this, it makes sense that M&A and Investment continue to have a strong orientation
toward Infrastructure Technology. Put another way, the amount of IT spend in healthcare is not
inconsistent with other markets, it's the fact that the spend has historically been directed toward
lagging technologies that have a lower impact on the cost and quality of care.
Copyright 2018 Healthcare Growth Partners
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1
Source: Source: Deloitte 2016-17
Global CIO Survey, N=747
3.28%
Avg for all industries
1.51%
1.95%
2.04%
2.50%
3.49%
3.62%
3.73%
4.39%
5.77%
5.82%
7.16%
Construction
Manufacturing
Consumer Business & Retail
Energy & Resources
Healthcare Services
Insurance
Technology & Telecom
Travel, Media and Hospitality
Education and Non-Profits
Business & Professional Services
Banking & Securities
IT Budget as a % of Revenue
Health IT Executive Summary
Revisiting the HGP Health IT Market Evolution
In time, IT budgets will also track along the market evolution path, which will drive up adoption of
technologies that expand the care continuum, empower patients, and personalize care. Of course, this
is already happening to some extent, particularly as regulatory incentives such as MACRA and MIPS
drive adoption, but we remain in the early innings of leveraging infrastructure technology to create
actionable data to engage patients, inform clinicians, improve outcomes, and reduce the cost of care.
EMR penetration inflected only in recent years to include the majority of healthcare providers, and it
will take time to cleanse, connect, and analyze that data into meaningful and actionable intelligence.
Health IT alone is not healthcare, health IT makes healthcare better. Meaningful adoption of health IT
will ultimately dictate the pace at which healthcare travels along the evolution path, and, in today's
environment, regulatory and policy incentives are as much the driver of adoption as market forces.
However, as health information democratizes through the adoption of health IT, regulatory forces will
ultimately succumb to market forces once the patient demands a higher standard of care.
While the last four years demonstrated progress across the landscape of Health IT investment, that
progress has only been realized within certain segments or pockets of healthcare delivery.
As
innovation advances, investments accrue, and adoption inflects along the innovation path, we can only
hope that when we revisit this topic in four years that the returns experienced by investors are equaled
or even surpassed by those experienced by patients.
Copyright 2018 Healthcare Growth Partners
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Health IT Market Trends
HGP Analysis of HIT Sector Valuations
HGP keeps close tabs on M&A valuations to see how the market evolves over time. While we can
only draw data from deals we observe with disclosed multiples, we 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.
We believe it's important to keep dispersion in mind when assessing valuation data, which is why we
include 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, we also see higher risk.
This
becomes especially apparent when we chart the data using a box-and-whisker plot. While
telemedicine, benefits management, and analytics see the highest median revenue multiples, these
sectors also see a large amount of variability and positive skew. For instance, while 25% of the
observed analytics oriented companies received 9.0x revenue or more in sale transactions during the
period, another 25% received less than 2.9x revenue at exit. Companies in these hot spaces cannot
forget that they still need to show strong operating metrics in order to recognize premium valuation
multiples from buyers.
Copyright 2018 Healthcare Growth Partners
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Reported
2013 1H 2018
Deals with
Disclosed
Revenue
Multiples
Deals with
Disclosed
EBITDA
Multiples
Revenue Multiple
EBITDA
Multiple
25th
%-tile
Median
75th
%-tile
Mean
Std.
Deviation
Median
Telemed
7
2
4.0x
5.1x
10.0x
6.6x
4.1x
18.1x
Benefits Mgmt
33
8
3.3x
4.8x
7.0x
7.0x
6.5x
13.4x
Analytics
11
1
2.9x
4.2x
9.0x
6.9x
6.6x
20.0x
Population Health
18
8
3.0x
4.2x
5.0x
5.0x
3.7x
16.2x
Content
14
3
2.8x
4.2x
8.5x
5.4x
3.1x
14.3x
RCM Tech
31
18
1.6x
3.9x
5.1x
3.7x
2.2x
14.0x
Infrastructure Tech
18
15
2.7x
3.4x
5.4x
4.1x
2.2x
16.0x
PM/EMR
25
18
2.5x
3.2x
5.0x
3.7x
1.9x
10.5x
Utilization Mgmt
6
3
0.8x
2.5x
4.5x
3.1x
2.7x
10.0x
Clinical Trial Mgmt
13
11
1.6x
2.3x
3.0x
2.3x
1.0x
9.6x
RCM Services
5
2
1.5x
1.9x
2.7x
2.0x
0.7x
10.0x
Consulting
15
9
1.2x
1.6x
2.1x
1.9x
1.1x
9.8x
Outsourced Services
15
9
1.2x
1.4x
2.6x
1.9x
1.2x
9.3x
Health IT Market Trends
HGP Analysis of HIT Sector Valuations
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 (blue columns) is the 75th Percentile minus the 25th Percentile and serves to
describe the variation in the range of outcomes. 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 Analytics or Benefits Management.
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 is also much more predictable. A company that falls within a sector on the left, however,
cannot have as strong a 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.
The table on page 11 provides additional context on the valuation trends within each sector as well
as a sample of recent transactions within each. While the metrics presented here may be used as a
guidepost for expected outcomes, the end result 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 2018 Healthcare Growth Partners
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Health IT Market Trends
HGP Analysis of HIT Sector Valuations
Copyright 2018 Healthcare Growth Partners
11
2
Sector
Description
Representative Deals
Telemed (7 deals)
Median: 5.1x
Std. Dev.: 4.1x
Contains a mix of pure telemedicine
services and connected device
transactions.
Best Doctors (Teladoc), Healthiest
You (Teladoc), Cardiocom
(Medtronic)
Benefits Management (33 deals)
Median: 4.8x
Std. Dev.: 6.5x
Includes benefits management and
admin software companies serving
payers and employers.
HealthX (JMI), Benaissance (WEX),
bswift (Aetna), Health Advocate
(West), Extend (Towers Watson)
Analytics (11 deals)
Median: 4.2x
Std. Dev.: 6.6x
Primarily represents a mix of life
sciences and provider analytics, and
to a lesser extent, payer analytics.
IMS (Quintiles), Truven (IBM),
MedeAnalytics (Thoma Bravo), DRG
(Piramal), Humedica (Optum)
Population Health Mgmt (18 deals)
Median: 4.2x
Std. Dev.: 3.7x
Comprised of patient engagement,
provider connectivity, and care
management technologies.
Emmi (Wolters Kluwer), Press Ganey
(EQT), Wellcentive (Philips), MedHOK
(Hearst), Phytel (IBM)
Content (14 deals)
Median: 4.2x
Std. Dev.: 3.1x
Transactions are a mix of online
consumer content and provider-
oriented clinical content.
Everyday Health (j2 Global), Milliman
(Hearst), Health Language (Wolters
Kluwer), Healthgrades (Vestar)
RCM Tech (31 deals)
Median: 3.9x
Std. Dev.: 2.2x
Includes tech-oriented RCM vendors
serving hospitals and physicians, and
to a lesser extent, payers.
ABILITY (Inovalon), Zirmed
(Navicure), Brightree (ResMed),
Passport (Experian), MedAssets
(Pamplona), TriZetto (Cognizant)
Infrastructure Tech (18 deals)
Median: 3.4x
Std. Dev.: 2.2x
Compliance and resource
management software generally
serving provider organizations.
Morrisey (HealthStream), CenTrak
(Halma), VendorMate (GHX),
Concerro (API), Lawson (Infor)
PM/EMR (25 deals)
Median: 3.2x
Std. Dev.: 1.9x
Includes ambulatory, acute, post-
acute, alternate site, and
departmental EMR/PM systems.
Mediware (TPG), Netsmart
(Allscripts/GI), Healthland (CPSI),
HealthFusion (QSI), Merge (IBM)
Utilization Mgmt (6 deals)
Median: 2.5x
Std. Dev.: 2.7x
Payer-oriented software and services
vendors focused on traditional
utilization management.
HealthHelp (WNS), Alere (Abbott),
HSM & CDMI (Magellan)
Clinical Trial Mgmt (13 deals)
Median: 2.3x
Std. Dev.: 1.0x
Includes traditional CTMS vendors as
well as other vendors that deliver
value in the clinical trial process.
NOTOCORD (Instem), Phlexglobal
(Bridgepoint), BioClinica (JLL),
eResearch (Genstar)
RCM Services (5 deals)
Median: 1.9x
Std. Dev.: 0.7x
Outsourced revenue cycle
management services generally
serving hospitals and physicians.
Anthelio (Atos), Cardon (MedData),
Equian (New Mountain),
MedSynergies (Unitedhealth)
Consulting (15 deals)
Median: 1.6x
Std. Dev.: 1.1x
Project-based IT consulting and staff
augmentation companies generally
serving provider organizations.
HCI Group (Tech Mahindra),
CynergisTek (Auxilio), Encore
(Quintiles), Vonlay (Huron)
Outsourced Services (15 deals)
Median: 1.4x
Std. Dev.: 1.2x
Includes non-RCM outsourced
services primarily serving payers as
well as providers.
Connextions (TeleTech), Edco
(ExamWorks), Patriot National (Ebix),
HealthPlan Holdings (Wipro)
Health IT M&A (Including Buyout)
Overview
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.
Health IT Revenue Multiples Distribution
Among the many business and market characteristics that drive superior valuations, the following
are core components to healthcare IT businesses that have established themselves as outliers:
SaaS Architecture and Delivery
Single database enabling robust analytics
Delivery model that creates scale on the cost
side, and recurring revenue on the top line
Reform-Centric Value Proposition
Addresses healthcare structural flaws rather
than take advantage of them in an effort to
deliver sustainable change in a policy-based
environment
Pricing Alignment with ROI
Pricing methodology
that
aligns with
customer ROI the vendor wins when the
customer wins
General Considerations
Market leadership (or opportunity to lead) =
favorable supply/demand characteristics at
exit
Large and growing market opportunity with
strong financial characteristics = recurring
revenue and growth, inherent scalability if
not profitability, strong management, and
size
Scalable Distribution Model
Efficient distribution model (eg, customer
acquisition cost < customer value)
Data Rights
Contract structures that contain explicit
rights to data
12
3
1
2
3
5
6
4
Copyright 2018 Healthcare Growth Partners
0%
10%
20%
30%
40%
50%
0-1X
1-2X
2-3X
3-5X
5-7X
7-10X
>10X
Software
Services
Health IT M&A (Including Buyout)
Health IT M&A Activity
The following chart summarizes annual M&A activity since 2013, according to the Healthcare Growth
Partners database.
Health IT M&A activity has continued to grow at a modest rate since 2014, and 2018 has been no
exception to that rule. After 371 transactions in 2017, health IT M&A activity is set to match or
exceed that volume, closing 186 transactions in 1H-2018. Total transaction value tends to be much
more volatile than deal volume since it only takes one or two very large deals to skew the data and
the majority of transactions do not disclose value, thus HGP looks toward transaction volume as a
better indicator of deal activity.
Generally, sub $100 million companies have three valuation inflection points: proof-of-concept,
growth scalability, and mature scalability.
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3
Copyright 2018 Healthcare Growth Partners
0
5
10
15
20
25
30
0
2
4
6
8
10
12
14
16
Stage of Growth Valuation
Proof of Concept
Growth Scalability
Mature Scalability
Revenue <$1mm
Revenue $5-10mm
Revenue >$20mm
Stage of Growth Chart (for Companies <$100mm in Revenue)
$5,093
$35,736
$14,014
$53,916
$22,533
$18,475
$359
$2,520
$1,084
$747
$721
$105
192
274
285
297
301
150
40
47
51
77
70
36
0
50
100
150
200
250
300
350
2013
2014
2015
2016
2017
1H-2018
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
Deal VolumeDeal Value ($mm)Deal Value - US
Deal Value - Non-US
Deal Volume - US
Deal Volume - Non-US
Health IT M&A (Including Buyout)
Health IT M&A Valuation
Proof-of-concept is value created when a company shows that its product can be successfully sold
and deployed in a commercial setting. The proof-of-concept inflection point is generally of more
importance to venture investors than it is to acquirers, as companies at this stage tend to be too
immature to realize significant value through a sale. 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. Mature scalability takes place after a company has matured to a
level where it takes on real infrastructure, and the company begins to show strong profitability after
building out a mature corporate organization.
Although the size of a company at each inflection point can vary significantly based on a company's
product or services and sector, the general rule of thumb in health IT is that proof of concept occurs
at revenue of less than $1 million, growth scalability occurs in the $5 to $10 million revenue range,
and mature scalability occurs starting in the $20 million revenue range.
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Copyright 2018 Healthcare Growth Partners
HIT Software Companies
HIT Services Companies
Revenue
Multiple
EBITDA
Multiple
Transaction
Value
Revenue
Multiple
EBITDA
Multiple
Transaction
Value
All
Transactions
# of Transactions
160
75
162
51
32
51
Median
3.9x
14.0x
$ 110.99
1.8x
9.7x
$ 95.00
Mean
5.0x
15.3x
$ 466.39
2.1x
10.6x
$ 516.81
<$30mm
Transactions
# of Transactions
49
14
44
14
8
14
Median
3.0x
8.3x
$ 9.08
1.2x
9.0x
$ 12.50
Mean
4.8x
10.9x
$ 11.27
1.4x
9.2x
$ 12.57
$30-100mm
Transactions
# of Transactions
33
13
33
12
7
12
Median
3.8x
10.0x
$ 48.00
1.7x
8.0x
$ 66.50
Mean
5.6x
12.5x
$ 52.02
1.8x
7.8x
$ 60.47
$100-500mm
Transactions
# of Transactions
54
27
59
17
11
17
Median
4.4x
15.0x
$ 195.00
2.1x
10.0x
$ 247.30
Mean
5.0x
17.5x
$ 222.98
2.9x
11.0x
$ 297.32
$500mm-$1B
Transactions
# of Transactions
11
9
13
4
2
4
Median
4.7x
16.2x
$ 725.00
1.8x
11.5x
$ 606.60
Mean
5.1x
16.2x
$ 698.31
1.9x
11.5x
$ 619.55
>$1B
Transactions
# of Transactions
13
12
13
4
4
4
Median
3.8x
17.5x
$ 2,428.56
2.5x
17.4x
$ 4,193.29
Mean
4.5x
17.9x
$ 3,931.43
2.6x
16.9x
$ 4,480.73
Health IT M&A (Including Buyout)
Health IT M&A Valuation, continued
Continuing the analysis on the prior page, HGP evaluated the distribution of transaction size by
target enterprise value. HIT Software valuations experience a nice inflection above $30mm in value,
which steadily climbs until approximately the $1B valuation mark. HIT Services multiples experience
a similar inflection at $30mm, and a second inflection at $100mm especially with higher percentile
transactions. The second inflection is in part due to a private equity universe that has expanded
leverage capacity for larger transactions, which in turn drives up valuation multiples.
In the first half of 2018, Healthcare Growth Partners monitored 186 health IT and related services
M&A transactions, compared to 371 transactions in 2017.
In terms of aggregate deal size, $18.5
billion in transaction value has been announced in the first half of 2018, already nearing the $23
billion of total transaction value reported in all of 2017. The $54.6 billion number in 2016 was
skewed by several large transactions, including the $9 billion sale ($4.9 billion equity) of Alere to
Abbot Labs, the $2.6 billion sale of Truven to IBM, and the $13.5 billion ($8.8 billion equity)
acquisition of IMS by Quintiles. The median revenue multiple in the first half of 2018 was 4.9x for
HIT Software, a strong increase from 3.7x in 2017, and 2.0x for Health IT Services, on par for trends
from 2017.
It is worth noting that the half-year of data for 2018 does mean these statistics are
derived from a smaller sample size, thus increasing the uncertainty of these estimates.
Detailed annual trends can be found in the following bar chart.
It should be noted that multiple
trends can be very volatile given the limited availability of data. Refer to Appendices A and B for a
list of notable M&A and Buyout transactions in 1H-2018.
15
3
HIT Software Revenue Multiple Distribution by Target Enterprise Value
Percentile
<$30mm
$30-100mm
$100-500mm
$500mm-$1B
>$1B
90th Percentile
10.5x
12.0x
9.3x
7.5x
8.0x
75th Percentile
4.8x
6.9x
6.4x
7.0x
6.4x
50th Percentile
3.0x
3.8x
4.4x
4.7x
3.8x
25th Percentile
1.9x
2.8x
3.1x
4.0x
3.1x
HIT Services Revenue Multiple Distribution by Target Enterprise Value
Percentile
<$30mm
$30-100mm
$100-500mm
$500mm-$1B
>$1B
90th Percentile
2.4x
2.6x
6.2x
nm
nm
75th Percentile
1.8x
2.5x
3.8x
3.3x
3.1x
50th Percentile
1.2x
1.7x
2.1x
1.8x
2.5x
25th Percentile
0.8x
1.1x
1.6x
0.7x
2.2x
Copyright 2018 Healthcare Growth Partners
Health IT M&A (Including Buyout)
Median M&A Multiples 2010 2018
It is important to note that transaction multiples are based on trailing-twelve-month financial
information, assume the achievement of all contingent consideration, such as earnouts, and most
EBITDA multiples do not include any adjustments for unusual items. It is also important to note that
less than one-third of transactions contain a disclosed multiple, therefore the multiple data
represents only a portion of the overall transaction activity.
HIT M&A Deals by Quarter
16
3
Copyright 2018 Healthcare Growth Partners
1.2X
1.2X
1.2X
1.4X
1.2X
2.1X
1.8X
2.0X
2.0X
9.0X
14.0X
16.0X
9.0X
10.0X
9.0X
10.0X
9.6X
9.6X
0.0X
5.0X
10.0X
15.0X
20.0X
2010
2011
2012
2013
2014
2015
2016
2017
2018
Health IT ServicesRevenue
EBITDA
63
56
55
58
71
97
76
77
91
68
92
85
99
86
104
85
97
89
91
94
82
104
0
20
40
60
80
100
120
Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2
2013
2014
2015
2016
2017
2018
2.1X
2.1X
2.3X
4.7X
3.8X
3.8X
3.8X
3.7X
4.9X
11.0X
12.0X
10.6X
14.0X
14.0X
14.0X
13.0X
14.3X
17.0X
0.0X
5.0X
10.0X
15.0X
20.0X
2010
2011
2012
2013
2014
2015
2016
2017
2018
Health IT Software
Health IT Capital Raises (Non-Buyout)
The chart below summarizes quarterly private-equity and venture capital activity in Health IT and
related services since 2008, according to the Healthcare Growth Partners database. The data below
and in this section do not include buyout private equity activity. In 1H-2018, Healthcare Growth
Partners monitored 418 capital raise transactions, on track to far surpass the 661 investment
transactions in 2017.
HIT Investment Activity
HIT Investment Deals by Quarter
Refer to Appendix C for a list of notable non-buyout capital raises in 1H-2018.
17
4
Copyright 2018 Healthcare Growth Partners
68
68
70
78
75
100
116
92
87
122
102
115 107
97
135
154
128
189 186
153
196
219
0
40
80
120
160
200
240
Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2
2013
2014
2015
2016
2017
2018
$2,849
$4,544
$6,173
$5,554
$7,367
$4,846
$254
$870
$1,012
$2,384
$3,187
$3,390
245
311
360
360
406
277
42
73
68
134
255
141
0
50
100
150
200
250
300
350
400
450
2013
2014
2015
2016
2017
1H-2018
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Deal VolumeDeal Value ($mm)Deal Value - US
Deal Value - Non-US
Deal Volume - US
Deal Volume - Non-US
Healthcare Capital Markets
HGP tracks a basket of stock indices within health IT and closely related sectors.
It is important to
consider sectors outside of pure "HIT" because the universe of health IT and related services
encompasses many companies that share similar characteristics to other healthcare sectors. What
classifies a company in the universe of health IT and related services, 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 considered six sectors when
evaluating the performance of publicly traded companies details of the components of these
sectors can be found on page 21.
U.S. stock markets ended 2017 with gains of approximately 20%. Strikingly, the HGP HIT Index,
which gained 25.7% in 2017, picked up another 21.6% in 1H 2018 to lead the HGP Healthcare
Indices. The PBM Index, which has been in the crosshairs of both regulatory and competitive moves,
was the largest decliner falling 7.3% over the period. Other than PBM, all of the HGP Healthcare
Indices outpaced the S&P 500, which showed paltry gains of 1.7% during the period. The chart and
the table on the following page summarize the performance of the HGP health IT and services
indices in 1H 2018.
HIT & Related Index Performance 1H 2018
18
Copyright 2018 Healthcare Growth Partners
Jan. 30 Amazon, Berkshire, JPM
Partnership announced
Feb. 15 Roche announces $2.1B
Flatiron acquisition
Mar. 8 Cigna announces Express
Scripts acquisition
May 14 Trump targets Medicare,
PBMs in plan to lower drug prices
Jun. 8 Trump Administration
says it won't defend key provisions
of the ACA
Jun. 28 Amazon buys PillPak,
online pharmacy, for nearly $1B
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
12/31/2017
1/31/2018
2/28/2018
3/31/2018
4/30/2018
5/31/2018
6/30/2018
Health IT
HIT & Payer Services
PBM
Healthcare Services
Payers
CRO
S&P 500
5
HIT Index Performance Detail 1H 2018
Company
Share Price
% Change
EV/
Rev
EV/
EBITDA
Company
Share Price
% Change
EV/
Rev
EV/
EBITDA
Allscripts
-17.5%
1.7X
8.7X
iRhythm Technologies
44.7%
13.9X
NMF
Athenahealth
19.6%
4.8X
17.5X
Medidata Solutions
27.1%
7.2X
29.8X
Benefitfocus
24.4%
4.4X
NMF
MINDBODY
26.8%
6.5X
NMF
Care.com
15.7%
3.1X
18.6X
Model N
18.1%
3.7X
NMF
Castlight Health
13.3%
3.3X
NMF
NantHealth
8.5%
5.3X
NMF
Cerner
-11.3%
3.6X
11.9X
NRC Health
0.3%
6.9X
20.7X
Computer Programs &
Systems
9.5%
2.1X
11.5X
Omnicell
8.1%
2.8X
17.7X
Connecture
115.6%
NA
NA
Oneview Healthcare
-18.7%
4.3X
NMF
Cotiviti
37.0%
6.2X
15.3X
Orion Health Group
-11.1%
1.0X
NMF
ehealth
27.2%
1.7X
15.7X
Premier
24.6%
2.7X
8.2X
Evolent Health
71.1%
2.7X
NMF
Quality Systems
43.6%
2.3X
14.6X
Fitbit
14.4%
0.6X
NMF
Roper Technologies
6.5%
6.5X
19.0X
Health Insurance
Innovations
29.7%
1.8X
9.4X
Simulations Plus
38.2%
13.4X
NA
HealthEquity
61.0%
15.5X
NMF
Streamline Health
Solutions
-16.6%
1.2X
15.4X
HealthStream
17.9%
3.0X
17.5X
Tabula Rasa Healthcare
127.6%
6.6X
NMF
Hms Holdings
27.6%
3.4X
14.4X
Teladoc
66.6%
9.8X
NMF
Inovalon Holdings
-33.8%
2.3X
8.1X
Veeva Systems
39.0%
12.2X
NMF
Invitae
-19.1%
3.8X
NMF
Vocera Communications
-1.1%
4.5X
NMF
IQVIA
2.0%
2.9X
13.7X
Healthcare Capital Markets
19
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Copyright 2018 Healthcare Growth Partners
1H 2018 Index Performance
S&P 500
1.7%
Payers
11.8%
NASDAQ
8.8%
PBM
-7.3%
CRO
6.6%
Healthcare Services
12.0%
HIT
21.6%
HIT & Payer Services
10.3%
20
Revenue Multiples
EBITDA Multiples
Sector
2018E
2019E
2018E
2019E
Health IT
4.9x
4.2x
15.3x
13.5x
CRO
2.8x
2.6x
13.7x
12.7x
Payers
0.7x
0.7x
10.7x
9.6x
PBM
0.6x
0.5x
7.9x
7.4x
Healthcare Services
1.3x
1.3x
9.1x
9.0x
HIT & Payer Services
1.5x
1.4x
10.8x
9.7x
Healthcare Capital Markets
The Health IT IPO market has all but dried up in the last two years. Following nine IPOs in 2014
(Care.com, IMS, Castlight, Everyday Health, Medical Transcription Billing, Imprivata, HealthEquity,
Connecture, Orion), eight IPOs in 2015 (Inovalon, Press Ganey, Teladoc, Evolent, Invitae, Fitbit,
Mindbody, Adherium) and five IPOs in 2016 (Tabula Rosa, Oneview, Cotiviti, NantHealth, iRhythm),
not a single health IT IPO issued in 2017 and 2018.
Valuation multiples across the healthcare sector remain strong. The HIT and CRO sectors receive the
most significant valuation premiums over the rest of the market.
5
Copyright 2018 Healthcare Growth Partners
0
2
4
6
8
10
2013
2014
2015
2016
2017
IPOs
Healthcare Capital Markets
As discussed previously, HGP tracks six indices across the health IT and services sectors.
The
components of each index are listed below. Each index is based on an equal-weighted portfolio.
21
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Copyright 2018 Healthcare Growth Partners
Sector Components
Health IT (HIT)
Allscripts - NAS:MDRX
Athenahealth - NAS:ATHN
Benefitfocus - NAS:BNFT
Care.com - NYS:CRCM
Castlight Health - NYS:CSLT
Cerner - NAS:CERN
Computer Programs & Systems - NAS:CPSI
Connecture - PINX:CNXR [Private as of May 4, 2018]
Cotiviti - NYS:COTV
ehealth - NAS:EHTH
Evolent Health - NYS:EVH
Fitbit - NYS:FIT
Health Insurance Innovations - NAS:HIIQ
HealthEquity - NAS:HQY
HealthStream - NAS:HSTM
Hms Holdings - NAS:HMSY
Inovalon Holdings - NAS:INOV
Invitae - NYS:NVTA
IQVIA - NYS:IQV
iRhythm Technologies - NAS:IRTC
Medidata Solutions - NAS:MDSO
MINDBODY - NAS:MB
Model N - NYS:MODN
NantHealth - NAS:NH
NRC Health - NAS:NRC
Omnicell - NAS:OMCL
Oneview Healthcare - ASX:ONE
Orion Health Group - NZE:OHE
Premier - NAS:PINC
Quality Systems - NAS:QSII
Roper Technologies - NYS:ROP
Simulations Plus - NAS:SLP
Streamline Health Solutions - NAS:STRM
Tabula Rasa Healthcare - NAS:TRHC
Teladoc - NYS:TDOC
Veeva Systems - NYS:VEEV
Vocera Communications - NYS:VCRA
Payers - Constituents
Aetna - NYS:AET
Anthem - NYS:ANTM
Centene - NYS:CNC
Cigna - NYS:CI
Humana - NYS:HUM
Molina Healthcare - NYS:MOH
UnitedHealth Group - NYS:UNH
WellCare - NYS:WCG
HIT & Payer Services
DXC Technology - NYS:DXC
Conduent - NYS:CNDT
Huron Consulting Group - NAS:HURN
CBIZ - NYS:CBZ
DST Systems - NYS:DST [Private as of April 24, 2018]
Kforce - NAS:KFRC
Navigant Consulting - NYS:NCI
Accenture - NYS:ACN
CACI International - NYS:CACI
Corvel - NAS:CRVL
Tivity Health - NAS:TVTY
Magellan Health - NAS:MGLN
WageWorks - NYS:WAGE
PBMs - Constituents
BioScrip - NAS:BIOS
CVS Health - NYS:CVS
Express Scripts Holding - NAS:ESRX
Rite Aid - NYS:RAD
Walgreens Boots Alliance - NAS:WBA
Healthcare Services - Constituents
Amedisys - NAS:AMED
Brookdale Senior Living - NYS:BKD
Civitas Solutions - NYS:CIVI
Community Health Systems - NYS:CYH
Encompass Health Corp - NYS:EHC
Envision Healthcare - NYS:EVHC
HCA Management Services - NYS:HCA
Kindred Healthcare - NYS:KND
Laboratory Corporation of America Holdings - NYS:LH
LifePoint Health - NAS:LPNT
Mednax - NYS:MD
Quest Diagnostics - NYS:DGX
Select Medical Holdings - NYS:SEM
Tenet Healthcare - NYS:THC
Universal Health Services - NYS:UHS
CROs - Constituents
Charles River Laboratories International - NYS:CRL
Icon - NAS:ICLR
IQVIA - NYS:IQV
PRA Health Sciences - NAS:PRAH
Syneos Health - NAS:SYNH
22
Macroeconomics
2018 Macroeconomic and Market Summary
The booming stock market of 2017 faced a rough first half in 2018, with the Dow Jones shedding
more than 1,000 points (4.1%) in the final three weeks of 1H. The index has been increasingly
vulnerable to volatility as the US continuously threatens China with tariffs and restrictions,
accentuating the global trade conflict and heightening the probability and fear of a full-blown trade
war. These fears were confirmed July 6, 2018 as the Trump Administration imposed tariffs on $34
billion worth of Chinese products which were quickly met by similar tariffs from China on US goods.
The energy sector rose 5% in the first half of 2018, while broader healthcare rose only 4%, a
slowdown from 15% of the prior year. Investors will continue to anxiously await the outcome of talks
between the US, Canada, and Mexico regarding NAFTA in hopes of avoiding further trade barriers
imposed on these US allies. Driven by expectations that the Federal Reserve will raise rates quickly
this year, the dollar continues its rally, rising 5.1% in the second quarter per the WSJ Dollar Index and
standing near its highest level in a year. For Q2 2018, out of 109 S&P 500 companies, 62 have issued
negative EPS (Earnings per Share) guidance, and 47 have issued positive EPS guidance, according to
the data provider FactSet. Companies issuing negative guidance account for 57%, which is well
below the 5-year average of 72%.
The US economy started the year with modest GDP growth of 2.2%. Economists attribute the initial
subdued growth to weak consumer spending at a 1.1% rate which may have been a result of a slow
reaction to the $1.5 trillion tax cuts. GDP growth picked up in Q2 with a forecasted rate of 3.8% or
higher after a quarter marked by strong gains in personal income and consumer spending. The first
half of 2018 witnessed the lowest unemployment rate since 1969 of 3.8% in May with a slight
bounce back up to 4% by the end of June. Economists attribute this record low rate to record high
job openings and believe the rate has room to dip even further. An average of 207,000 jobs a month
have been added in 2018, the majority being in healthcare and construction. In line with market
expectations, the Federal Reserve has raised the target range of the federal fund from 1.75% to
2.00% in June.
6
Copyright 2018 Healthcare Growth Partners
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
12/29/2017
1/29/2018
2/28/2018
3/31/2018
4/30/2018
5/31/2018
6/30/2018
DJIA
S&P 500
Nasdaq
23
Macroeconomics
2018 Macroeconomic and Market Summary, cont'd
The beginning of 2018 saw a drastic correction in the cryptocurrency market, ending the parabolic
growth of 2017. Though cryptocurrencies lost up to 95% of their value, the ICO market has
continued to surge as investors continue to pour money into them. Initial coin offerings raised $11.8
billion this year, more than double the total raised in 2017. In response to regulatory scrutiny,
startups have turned to the private market, limiting offerings to accredited investors.
In line with the ICO market's success, the US IPO market has experienced a surge of new companies
coming to market with 105 IPOs raising $28.6 billion dollars. Dropbox and Spotify's IPOs signal a
new trend of large private tech companies finally coming to market, which is indicative of another
strong half for 2018. Small-cap healthcare companies, primarily biotech, account for 40% of all IPOs.
An interesting player in the IPO market was Spotify with its huge success in an untraditional direct
listing in April, though it is still uncertain whether this success could be repeated by other
companies.
Investors deployed $57.5 billion to 3,997 venture-backed companies in 1H, exceeding the full-year
total for six of the past ten years, according to the PitchBook-NVCA Venture Monitor. The first half
of 2018 was characterized by what appears to be the new normal, where capitalization is
concentrated into fewer, larger deals. 2Q of 2018 was the 5th consecutive quarter with 10+ venture-
backed IPOs, proving the continued strength of the venture-backed IPO market fueled by biotech
companies. Looking to the second half of the year, VCs and startups face two significant public
policy issues: 1) immigration, specifically the Department of Homeland Security's decision on
whether to rescind the International Entrepreneur Rule (IER); and 2) the Trump Administration's
continuous scrutiny on foreign investment in the US. Despite these political challenges, the venture
ecosystem appears to be on track to set another record high for the 2nd half of 2018.
Propelled by technological disruption, an increasingly robust economy, low interest rates, record
high stock prices, and a paramount court decision, global M&A volume reached its highest levels
since 1H 2007, with total deal volume of $2.35 trillion, up 57% from 1H 2017. Of the 17,611 deals in
1H, 25 mergers were valued at $10 billion or more, beating 2007's prior record of 20. The US alone
saw a 74% increase in volume compared to 1H 2017, with $1.06 trillion via 4,425 US-targeted
transactions. A continuation of this pace globally would mean deal volume reaching a record high of
$4.8 trillion by the end of 2018, surpassing the prior record of $4.3 trillion in 2007.
A considerable driver for this impressive activity is the growing threat from Amazon.com Inc., Netflix
Inc., and other Silicon Valley giants that continue to disrupt industries. As industries ranging from
media to healthcare feel the competitive heat, companies are rushing to seek strategic combinations
to maintain relevance amidst the furor of disruptors. Further, the court ruling allowing AT&T Inc. to
proceed with the $80 billion purchase of Time Warner Inc. has given the green light to companies
considering similar mega deals. Amazon's announcement of its partnership with J.P. Morgan and
Warren Buffet to reduce healthcare costs has similarly been a catalyst for deal making in the
healthcare industry. Noteworthy deals in healthcare include Cigna Corp's $54.8 billion acquisition of
Express Scripts Holding Co., Japans' Takeda Pharmaceutical agreement to buy London-listed Shire
for $63.1 billion, and Amazon's purchase of PillPak, an online pharmacy, for just under $1 billion.
These factors, combined with the clearer understanding of the new tax code, point to an equally
busy, if not more, second half of 2018. However, the M&A market faces a new onset of threats in the
second half including market volatility, elevated stock prices making transactions more expensive,
political instability, and uncertainty on how the trade war will affect the market.
6
Copyright 2018 Healthcare Growth Partners
Health IT Headlines
Overview
Notable headlines from 2018 are outlined in the following pages on a quarterly basis. The
headlines in 2018 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
CMS unveils new voluntary bundled payment program
The Bundled Payments for Care Improvement (BPCI) Advanced model is the first advanced payment model
launched by the Centers for Medicare & Medicaid Services under the Trump administration, and includes 32
clinical care episodes for participating providers to choose from, according to an announcement from CMS.
Twenty-nine of the care episodes included in the model are inpatient, while the remaining three are outpatient,
according to CMS. Care episodes in the model include major joint replacement, spinal fusion and both inpatient
and outpatient percutaneous coronary intervention.
MedPAC Sinks MIPS, Recommends Alternative Program
The Medicare Payment Advisory Commission (MedPAC) voted 14-2 to in favor of killing the Merit-based Incentive
Payment System (MIPS) and replacing it with an alternative model of reimbursement. While the numbers appear
to signal a strong consensus for the proposed recommendations, a handful of members who voted to nix the
program expressed hesitation.
Trump signs stopgap funding bill with CHIP funding, tax delays
A short-term spending bill funding the federal government through Feb. 8 was signed into law by President
Donald Trump on January 22nd, ending a three-day shutdown. The measure, approved by the Senate and House
earlier Monday, will also extend funding for the Children's Health Insurance Program for six years, suspend the
medical device and health insurance taxes through 2019, and delay the tax on high-cost health plans through
2021.
Rising medical care, drug costs drive growth in health care spending
A report from the Health Care Cost Institute found health care spending for people with employer-sponsored
health insurance rose 4.6% from 2015 to 2016, even though utilization has remained steady or fallen. Spending on
brand-name prescription medications increased 110% between 2012 and 2016, but utilization fell 38%, while the
average price for surgical admissions rose 30% even as utilization dropped 16%, the report shows.
Partnership aims to disrupt health care
Amazon, Berkshire Hathaway and JPMorgan Chase & Co. are partnering on a new venture designed to cut
spending on health care while improving services for their US workforces. The independent venture will initially
focus on technology designed to simplify and improve the transparency and quality of health care, the companies
said.
Roche to acquire Flatiron Health for $2.1 billion
Flatiron's conceit has been that large amounts of data could be used to speed up and, in some cases, replace the
arduous process of conducting clinical trials where patients are randomly assigned to one treatment or another,
allowing them to be compared. The data space has heated up as the Food and Drug Administration, spurred by
pressure from Congress, has expressed interest in using such "real-world data" in the drug approval process. The
FDA itself has been one of Flatiron's collaborators.
24
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Copyright 2018 Healthcare Growth Partners
Health IT Headlines
Q1 Headlines, cont'd
Medtronic Moves to a New Health-Care Model: Pay Only if It Works
Medtronic, the world's largest medical-device maker, specializing in such products as implantable cardiac devices
and insulin pumps, is increasingly signing supply contracts with customers that adjust prices based on how well the
products work in patients, rather than simply having the customer pay a fixed per-unit cost regardless of a device's
performance in individual patients.
Fed initiative to put patients in control of their health data
The Centers for Medicare and Medicaid Services announced on March 6 at the HIMSS18 conference in Las Vegas
the launch of the MyHealthEData initiative, which CMS Administrator Seema Verma claimed is the first time any
administration has set in motion a coordinated initiative to truly make patients the focus of the healthcare system
by using the federal government's full authority to ensure providers and insurers give patients control of their
medical records.
Cigna Is Buying Express Scripts in a $54 Billion Health Industry Deal
Cigna agreed to buy Express Scripts Holding for $54 billion in cash and stock, another move toward consolidation
between U.S. health insurers and the companies that oversee patients' drug benefits. The acquisition is a shakeup
for the industry that runs prescription drug programs for insurers and employers, negotiating prices with
drugmakers and sometimes delivering treatments directly to patients. Express Scripts, which manages plans
covering more than 100 million people, and its rivals are becoming more aggressive with tactics to control costs,
increasingly denying coverage of some drugs or requiring high co-payments for expensive treatments.
Walmart talking with Humana on closer ties; acquisition possible: sources
Should the talks lead to a tieup, it would be the latest deal to bring together a retail chain and a health insurer in
the last few months, following CVS Health Corp's $69 billion deal to acquire Aetna Inc and Cigna Corp's $54 billion
deal to buy Express Scripts Holding Co. Walmart approached Humana earlier this month and the deliberations are
preliminary, two of the sources said. While the conversations have focused on new partnerships, an acquisition of
Humana by Walmart is also something being discussed, the sources added.
Q2 Headlines
Trump administration eases ACA essential health benefit requirements
The Centers for Medicare and Medicaid Services (CMS) released proposed payment policies for fiscal year 2018
that aim to "reduce burdens for hospitals so they can focus on providing high quality care for patients," CMS
Administrator Seema Verma said. The proposed rule would result in 2.9% higher inpatient operating prospective
payments, reduce payments to long-term hospitals by nearly 3.75%, and relax clinical quality measure reporting
standards for hospitals with an electronic health record system.
CMS proposes new payment model for skilled nursing facilities
The CMS has proposed a value-based payment model for skilled nursing facilities that would increase Medicare
payments to participating providers, link reimbursement to health outcomes, ease regulatory burdens and develop
new transparency requirements. The agency also proposed updates to rates and payment policies for inpatient
rehabilitation facilities, inpatient psychiatric facilities and hospice care.
25
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Copyright 2018 Healthcare Growth Partners
Health IT Headlines
Q2 Headlines, cont'd
Trump targets Medicare, PBMs in plan to lower drug prices
The Medicare program could soon see major policy changes by the Trump administration in its quest for lower
drug prices, and not everyone is happy. The administration's long-promised blueprint to lower drug prices was
not short on proposals to the federal program. Among the many provisions listed include value-based
arrangements for drug pricing, more transparency on prescription drug prices, and possible changes for pharmacy
benefit managers. HHS Secretary Alex Azar said the administration is looking at allowing private payers to
negotiate reimbursement for Medicare Part B drugs used in hospitals and doctor's offices. "More broadly, the
president has called for me to merge Medicare Part B drug payments into Part D, where negotiation has been so
successful," he said.
Trump administration says it won't defend key provisions of ACA
Legislation that repealed the penalty associated with the requirement that most Americans enroll in health
coverage has made the mandate unconstitutional, the Justice Department wrote in a brief filed at a Texas court
June 7th. The tax law passed last year also nullifies the Affordable Care Act's provisions that prevent coverage
denials for people with pre-existing conditions and block insurers from charging people in the same community
different rates depending on their health status, age, gender and other factors.
White House announces plan to reorganize HHS, other federal agencies
The White House Office of Management and Budget has proposed integrating the Supplemental Nutrition
Assistance Program into HHS and renaming the agency the Department of Health and Public Welfare as part of a
sweeping plan to reorganize the federal government unveiled June 21. The proposal, which faces tough odds of
obtaining approval in Congress, also calls for the creation of the Council on Public Assistance, which would
supervise food stamps, Medicaid and other programs and have the authority to impose uniform work provisions in
those programs.
Amazon buys PillPack, an online pharmacy, for just under $1B
A week after appointing a CEO for its healthcare joint venture with Berkshire Hathaway and JPMorgan, Amazon
announced an acquisition that underscores how it also hopes to have a more direct and more commercial
role in the world of healthcare in the coming years. The company has purchased PillPack, an online pharmacy the
lets users buy medications in pre-made doses. The Boston-based startup PillPack primarily caters to customers
who take multiple medications. PillPack streamlines delivery of prescription and over-the-counter medications by
pre-sorting them into handy dose packets sent directly to customers' doors nationwide in monthly supplies. The
company boasts that it works with doctors and insurance companies to manage refills and cost coverage on
customer's behalf. To do so, it holds pharmacy licenses in all 50 states, developed proprietary pharmaceutical
software, and is an in-network pharmacy with most pharmacy benefit managers, including Medicare Part D plans
features that were likely eye-catchers for Amazon. News of the deal rattled drug retailers, who have long feared
Amazon's entry into their realm. Shares of Walgreens, CVS, and Rite Aid plunged the day of the announcement,
collectively losing $12.8 billion, according to CNBC.
26
7
Copyright 2018 Healthcare Growth Partners
About Healthcare Growth Partners
Healthcare Growth Partners (HGP) is an exceptionally experienced Investment Banking &
Strategic Advisory firm exclusively focused on the transformational Health IT market. 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 100 health IT transactions representing over $2 billion
in value since 2007.
Our passion for healthcare inspires us to not only create value for our clients, but to also
generate broad, overarching improvements to the functionality and sustainability of health.
With our focus, we deliver knowledgeable, honest and customized guidance to select
clients looking to execute high value health IT, health information services, and digital
health transactions.
Contact Information
Christopher McCord
Managing Director
chris@hgp.com
2001 Kirby Drive, Suite 814
Houston, TX 77019
(713) 955-7935
www.hgp.com
Securities offered through HGP Securities, LLC, member FINRA & SIPC, broker-dealer affiliate of Healthcare
Growth Partners, LLC.
Sources of Information:
Bureau of Economic Analysis, Bureau of Labor Statistics, S&P Capital IQ, CMS, Company press releases,
Company SEC filings, Health Data Management, Healthcare Growth Partners database, HealthLeaders Media,
HIStalk, Mercom Capital Group, Modern Healthcare, The New York Times, Mergermarket, MarketsandMarkets
Research, Allied Market Research, FierceHealthcare, StartUp Health, Rock Health, Pitchbook, Thomson-Reuters,
Renaissance Capital IPO Intelligence, Dealogic, and The Wall Street Journal.
These statistics are presented for informational purposes only. While the information presented has been obtained
from sources deemed to be reliable, no representation or warranty, express or implied, is made as to the accuracy
or completeness of such information.
27
8
Copyright 2018 Healthcare Growth Partners
28
HGP Transaction Experience
9
Copyright 2018 Healthcare Growth Partners
Copyright 2018 Healthcare Growth Partners
29
HGP Transaction Experience
9
30
HGP Transaction Experience
9
Copyright 2018 Healthcare Growth Partners
Appendix A
Strategic M&A Highlights
31
Quarter
Acquiror
Seller
Deal Size ($mm)
Q1
Allscripts Healthcare Solutions
Practice Fusion
$100
Q1
Elsevier
Via Oncology
na
Q1
AXA Group
Maestro Healthcare Technology
$155
Q1
Grifols
MedKeeper
$200
Q1
StateServ Medical
Network Medical (dba HospiceLink)
na
Q1
Press Ganey Associates
Patient Experience Business of HealthStream
$65.5
Q1
WebPT
BMS Practice Solutions
na
Q1
Roche Holding AG
Flatiron Health
$2,100
Q1
Hyland Software
Allscripts OneContent
$235
Q1
R1
Intermedix
$460
Q1
Inovalon Holdings
ABILITY Network
$1,200
Q1
Cognizant Technology Solutions
Corporation
Bolder Healthcare Solutions
na
Q1
Centene
RxAdvance Corporation
na
Q2
Netsmart Technologies
Change Healthcare (Home Care and
Hospice Solutions)
na
Q2
AMN Healthcare Services
MedPartners
$195
Q2
Health Catalyst
Medicity
na
Q2
Allscripts Healthcare Solutions
HealthGrid
$110
Q2
MTBC
Orion HealthCorp
na
Q2
IQVIA
Advanced Health Media
$127.5
Q2
ResMed
HEALTHCAREfirst
na
Q2
Sun Life Financial
Maxwell Health
na
Q2
WebMD Health Corp.
Jobson Healthcare Information
na
Q2
Alight Solutions
Compass Professional Health Services
na
Q2
Medidata Solutions
Shyft Analytics
$195
Q2
Quest Analytics
BetterDoctor
na
Q2
Verscend Technologies, Inc.
Cotiviti
$4,900
Q2
Amazon
PillPack
$1,000
Q2
Exlservice Holdings
SCIO Health Analytics)
$240
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Copyright 2018 Healthcare Growth Partners
Appendix B
Financial Sponsor Buyout Highlights
32
Quarter
Acquiror
Seller
Deal Size ($mm)
Q1
Elliott Management Corporation
athenahealth
$6,500
Q1
Undisclosed
Caring.com
na
Q1
NovaQuest Capital Management, RTI
International
Clinical Ink
na
Q1
Francisco Partners Management
Connecture
$111.9
Q1
Pamplona Capital Management
GetWellNetwork
na
Q1
HGCapital
MediFox
na
Q1
Clayton, Dubilier & Rice
NaviHealth
na
Q1
HGCapital
Orion Health Group
$255
Q1
K1 Capital
PerfectServe
na
Q1
Marlin Equity Partners
Virgin Pulse, RedBrick Health
na
Q1
Accel-KKR
I-Med S.A.
na
Q1
VSS
Caravan Health
na
Q1
Clearlake Capital Group
ProVation Medical
$180
Q1
Renovus Capital Partners
Continuing Education Alliance, LLC and
Practicing Clinicians Exchange
na
Q1
Stone Point Capital
Genex Services
na
Q1
Water Street Healthcare Partners, JLL
Partners
Dohmen Life Science Services
na
Q1
Parthenon Capital Partners
RedCard Systems
na
Q1
Parthenon Capital Partners
Trinity Partners
na
Q1
Rothschild & Co, TA Associates
Datix
na
Q2
LLR Partners
Medbridge Education
na
Q2
Great Hill Partners
Vatica Health
na
Q2
Main Capital Partners
RVC Medical IT
na
Q2
Water Street Healthcare Partners, JLL
Partners
Triplefin
na
Q2
Waud Capital Partners
Pharmacy Partners Holdings
na
Q2
Vista Equity Partners
Allocate Software
na
Q2
Stone Point Capital
Mitchell International
na
Q2
Tianjin Dazhen Asset Management, East
Ocean Ventures
RADLogics
na
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Copyright 2018 Healthcare Growth Partners
Appendix B
Financial Sponsor Buyout Highlights, cont'd
33
Quarter
Acquiror
Seller
Deal Size ($mm)
Q2
Montagu Private Equity
Maincare Solutions
na
Q2
Aquiline Capital Partners
Aspirion Health Resources
na
Q2
New Capital Partners
Collect Rx
na
Q2
Nautic Partners
PPS Analytics
na
Q2
Norwest Venture Partners
Target PharmaSolutions
$60
Q2
Mainsail Partners
FairWarning
na
Q2
GPB Capital Holdings
Health Prime International
na
Q2
Veritas Capital
GE Healthcare (Information Technology
Division)
$1,050
Q2
Pamlico Capital
Connexin (dba Office Practicum)
na
Q2
Altaris Capital Partners
Clearwater Compliance
na
Q2
Insight Venture Partners
CentralReach
na
Q2
General Atlantic
Landmark Health
na
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Copyright 2018 Healthcare Growth Partners
Appendix C
Private Equity Highlights (non-buyout)
34
Quarter
Investor
Target
Raise ($mm)
Q1
MidCap Financial, Claremont Creek
Ventures, Foresite Capital Management,
Microsoft, TPG Biotech, WuXi NextCODE,
GV
DNAnexus
$58
Q1
Temasek Holdings, EDB Investments,
Arboretum Ventures, 5AM Venture
Management, Jazz Venture Partners, Bridge
Builders Collaborative
Pear Therapeutics
$50
Q1
Westview Capital Partners
Jopari Solutions
Q1
GV, Oak HC/FT Partners, F-Prime Capital
Partners, Deerfield Management Company,
Polaris Partners
Quartet Health
$40
Q1
Bristol-Myers Squibb, New Enterprise
Associates, Inova Strategic Investments, Co-
win Healthcare Fund, Helsinn Investment
Fund, Windham Venture Partners, Maryland
Venture Fund, Undisclosed
Personal Genome Diagnostics
$75
Q1
Allianz X
American Well Corporation
$59.2
Q1
Susquehanna Growth Equity
eVive Health
$43
Q1
Five Arrows Principal Investments
CBA Informatique
$61.2
Q1
StartUp Health, Wanxiang Healthcare
Investments, Prolog Ventures, Digitalis
Ventures, 7wire Ventures, AI Life Sciences
Investments
CareDox
$16
Q1
Mainsail Partners
Bio-Optronics
$30
Q1
SoftBank Capital, SBI Investment Co.
Ping An Healthcare Management
$1,000
Q1
Elevate Ventures, Mosaic Health Solutions,
HealthQuest Capital, Echo Health Ventures,
Cambia Health Solutions, Lewis & Clark
Venture Capital
Springbuk
$20
Q1
Zaffre Investments, Mayfield, Seventure
Partners
Zipongo
$35
Q1
Intermountain Healthcare
R1 RCM
$20
Q1
Ping An Ventures, OurCrowd
Tyto Care
$25
Q1
Seventure Partners, Gilde Healthcare
Partners, GIMV NV, Lightstone Ventures,
Medtronic, New Enterprise Associates
Foundry Innovation & Research 1 (FIRE1)
$49.6
Q1
NWS Holdings
Medopad
$28
Q1
Breyer Capital
PAIGE.AI
$25
Q1
Battery Ventures
Curve Dental
na
Q1
Advanced Power Electronics Corporation,
SB China Venture Capital
Codoon
$20
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Copyright 2018 Healthcare Growth Partners
Appendix C
Private Equity Highlights (non-buyout), cont'd
35
Quarter
Investor
Target
Raise ($mm)
Q1
BlockVC Fund, Blockchain Labo,
Blockchaininvest Hedge Fund, Dfund,
Preangel, Synco
Medicalchain
$20
Q1
Clal Insurance Enterprises Holdings Ltd.
(TASE: CLIS), Meitav DASH Investments Ltd
(TASE: MTDS)
OrCam
$30.4
Q1
Lemhi Ventures, Ascension Ventures
Bind Benefits
$60
Q1
Sun Life Financial, New Enterprise
Associates, Mubadala Investment Company,
Maverick Capital, The Founders Fund, GV,
Health Velocity Capital, Blue Cross and Blue
Shield Association, Sandbox Industries,
Noro-Moseley Partners
CollectiveHealth
$110
Q1
Dragoneer Investment Group
PointClickCare
$146
Q1
Illumina, Kleiner Perkins Caufield & Byers,
Mayo Clinic, Sutter Hill Ventures, Warburg
Pincus, DFJ Growth
Helix
$200
Q1
IVP, Redpoint Ventures
Hims
$40
Q1
aMoon Partners, Horizons Ventures Limited
Medial EarlySign
$30
Q1
Accomplice, The Durant Company, Mousse
Partners, National Football League Players
Association, NextView Ventures, Promus
Ventures, Thursday Ventures, Two Sigma
Ventures, UAE71 Capital
Whoop
$25
Q1
Draper Fisher Jurvetson, Y Combinator,
Tencent Holdings, Khosla Ventures, Dolby
Family Ventures, Data Collective, Baidu
Venture, B Capital Group, Monsanto Growth
Ventures
Atomwise
$45
Q1
Chartered Investment Managers Pte Ltd
ContinUse Biometrics
$20
Q1
Hudson Bay Capital Management
BewellConnect
$30
Q1
Alphabet, Johnson & Johnson
Verb Surgical
$500
Q1
Rand Capital, F-Prime Capital Partners, Bain
Capital
Centivo
$31
Q1
Venrock, The Founders Fund, Scifi VC,
Caffeinated Capital, Ev Williams Obvious
Ventures, Creandum, Playground Global
Virta Health
$45
Q1
Sequoia Capital, Xianghe Capital, Qiming
Weichuang Venture Capital, Genesis Capital
Advisors, Advantech Capital
Infervision
$47.4
Q1
Kinship Trust Company, New Enterprise
Associates, Revolution Growth, T. Rowe
Price
Tempus Labs
$80
Q1
New Enterprise Associates
Care Zone Inc.
$50
Q1
Arboretum Ventures, HealthQuest Capital
Jentryx (dba BioIQ)
$26.5
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Copyright 2018 Healthcare Growth Partners
Appendix C
Private Equity Highlights (non-buyout), cont'd
36
Quarter
Investor
Target
Raise ($mm)
Q1
Verily Life Sciences, CapitalG, Eight Partners,
Fidelity Investments, The Founders Fund,
General Catalyst Partners, Khosla Ventures,
Thrive Capital
Oscar Insurance Corporation
$165
Q1
Andreessen Horowitz, McKesson, Madrona
Venture Group, Carrick Capital Partners,
Cross Creek Advisors
Accolade
$50
Q2
Tencent Holdings, Sequoia Capital, Qiming
Venture Partners
Miaoshou Doctor
$79
Q2
New Enterprise Associates, ITOCHU
Technology Ventures, Georgian Partners,
Flare Capital Partners, Everyday Health,
Emergence Capital Partners, Bessemer
Venture Partners, Australia Venture Fund,
Ziff Davis Publishing Holdings
WellTok
$75
Q2
Undisclosed
DXY.cn
$100
Q2
Portag3 Ventures, Partech Ventures, CNP
Assurances, Xavier Niel, Index Ventures
Alan
$28.3
Q2
Flare Capital Partners, Lakestar Advisors,
New Enterprise Associates, Oxeon Partners,
Amgen Ventures
Aetion
$36.4
Q2
Merck & Co., Microsoft, Sapphire Ventures,
Zaffre Investments, 7wire Ventures,
Investment AB Kinnevik, General Catalyst
Partners, DFJ, Kleiner Perkins Caufield &
Byers
Livongo Health
$105
Q2
Draper Fisher Jurvetson, Section 32, Mayo
Clinic, Canaan Partners, Casdin Capital,
LifeForce Capital
Vineti Technology
$33.5
Q2
Woodford Investment Management
BenevolentAI
$115
Q2
Health Velocity Capital, Blue Cross and Blue
Shield Association, Sandbox Industries,
Noro-Moseley Partners
Contessa Health
na
Q2
Elephant
RealSelf
$40
Q2
Blue Ivy Ventures, Centene Corp., HLM
Venture Partners, Optum Ventures
RubiconMD
$13.8
Q2
Yadong Xingchen
Yishengzhan
$23.9
Q2
Shasta Ventures, Tenaya Capital, Venrock,
Princeville Global, Goldman Sachs
Doctor on Demand
$74
Q2
Angel Investors, Roivant Sciences
Datavant
$40.5
Q2
American Medical Association
Health2047
$27.2
Q2
Venrock, Angel Investors, Social Capital,
First Round Capital
Suki (fka Robin AI)
$20
Q2
Undisclosed
Century Kaige (dba Kaige Health)
$31.4
Q2
The Riverside Company
Soothe
$31
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Copyright 2018 Healthcare Growth Partners
Appendix C
Private Equity Highlights (non-buyout), cont'd
37
Quarter
Investor
Target
Raise ($mm)
Q2
Crown Ventures, Providence Ventures,
Venrock, Casdin Capital, Glynn Capital
Management, Tenaya Capital, Greylock
Partners
Lyra Health
$45
Q2
Undisclosed
Innovaccer
$25
Q2
Blueprint Health, Health Enterprise Partners
Intraprise Health
na
Q2
Pelion Venture Partners, Trilogy Equity
Partners, Enfield Ventures, Eclipse Ventures,
Broadway Angels
Owlet Baby Care
$24
Q2
M Ventures, Temasek Holdings, Jazz
Venture Partners, Canepa Advanced
Healthcare Fund, Brooklands Capital
Strategies, Amgen Ventures
Akili Interactive Labs
$55
Q2
AIA Company, NWS Holdings
Guahao.com (WeDoctor)
$500
Q2
The San Francisco 49ers, WndrCo, Angel
Investors, Lerer Hippeau Ventures, Blue Pool
Capital, Greycroft Partners, Canvas Venture
Fund, IVP, Female Founders Fund, Advancit
Capital
Thrive Global
$43
Q2
Arboretum Ventures, Baird Capital,
Deerfield Management Company, Merck &
Co., Pfizer Venture Investments, Renaissance
Venture Capital Fund
Strata Oncology
$26
Q2
JMI Equity
CipherHealth
na
Q2
Norwest Venture Partners, Mayfield Fund,
New York Presbyterian Fund, Bessemer
Venture Partners
Qventus
$30
Q2
Kleiner Perkins Caufield & Byers
Beam Technologies (Beam Dental)
$22.5
Q2
Polaris Partners, .406 Ventures, Flare Capital
Partners, F-Prime Capital Partners, GE
Ventures, Humana, Khosla Ventures,
Temasek Holdings
Iora Health
$99.7
Q2
Bascom Ventures, Trans-Pacific Technology
Fund, RLJ Equity Partners, Angel Investors,
IRA Capital, Inflection Capital, Fidelity
Investments
Get Heal, Inc. (dba Heal)
$20
Q2
Thrive Capital, Andreessen Horowitz,
Naspers Ventures
Honor
$50
Q2
Polaris Partners, General Catalyst Partners,
7wire Ventures
OM1
$21
Q2
L Catterton, BrandProject
Vitamin Packs
na
Q2
btov Partners, Global Sources, Polytech
Ecosystem Ventures, Zurcher Kantonalbank,
SVC, Swisscom, BlueOcean Ventures
AvaWomen
$30
Q2
Social Capital, McKesson, Safeguard
Scientifics, Hikma Ventures, 3M Ventures, SR
One, Aptar Pharma
Propeller Health
$20
10
Copyright 2018 Healthcare Growth Partners
Appendix C
Private Equity Highlights (non-buyout), cont'd
38
Quarter
Investor
Target
Raise ($mm)
Q2
The Kraft Group, Andreessen Horowitz,
Polaris Partners
CAMP4 Therapeutics
$30
Q2
Aurum Ventures, Intermountain Healthcare,
Dolby Family Ventures, aMoon Partners,
OurCrowd, NVIDIA GPU Ventures, Khosla
Ventures, Johnson & Johnson Innovation -
JJDC
Zebra Medical Vision
$30
Q2
FirstMark Capital, F-Prime Capital Partners,
Goldman Sachs, Volition Capital
TraceLink
$60
Q2
Norgine Ventures, Surgical Intelligence
caresyntax
$31.9
Q2
Index Ventures, Creandum, Accel Partners,
Project A Ventures
KRY
$66
Q2
Angel Investors
Medici
$22
Q2
McKesson, Sealed Air, The Emerson Group,
CPG Company RB
Pharmapacks
$32.5
Q2
SPDB International, Gaocheng Capital, ICBC
International
Shanghai Yitu Network Technology
$200
Q2
Benchmark Capital, F-Prime Capital
Partners, Fidelity Investments, Thrive Capital
Benchling
$14.5
Q2
Insight Venture Partners, Millennium
Technology Value Partners, 14W
Aaptiv
$22
Q2
Insight Venture Partners, Sound Ventures
Calm.com
$27
Q2
Hangzhou Lianchuan Investment
Management, SenseTime, Wanxiang
Healthcare Investments
Helian Health
$75
Q2
Data Collective, Dolby Family Ventures, The
Founders Fund, Future Shape, Lux Capital
Management
Vium
$24
Q2
The Founders Fund, Thrive Capital, Lakestar
Advisors, Sound Ventures, Angel Investors,
Investment AB Kinnevik
Cedar, Inc.
$36
Q2
Tritium Partners
DCS Global
na
Q2
Bpifrance, Johnson & Johnson, MAIF, Angel
Investors
Dreem
$36.7
Q2
Shareholder Value Management,
Undisclosed
Nuvo Group
$30
Q2
UnitedHealth Group, Lemhi Ventures
Bind Benefits
$70
Q2
Undisclosed
American Well Corporation
$290.6
10
Copyright 2018 Healthcare Growth Partners