1 big thing: Court Square's Jeff Abramoff talks prudent dealmaking

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2. The BFD: Inside the FTC's health data clampdown

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3. Deals o' the day

4. It's Personnel

5. Your daily dose

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Situational awareness: Texas is set to rule on the FDA's approval of abortion medication mifepristone, one of two medications prescribed via telehealth to terminate an early pregnancy.

Editor's note: We corrected the FTC article in Friday's newsletter to note it was written by Ashley Gold, not Erin Brodwin.

❄️ Erin stayed in all weekend to keep the house from getting buried in yet another snowstorm.

🙏🏻 Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends, family and colleagues to sign up.

Health Tech Deals

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1. 🌎 Climate Tech 🌈

2.  🛒 Retail 💰

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3. 📺 Media 🎦

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4. Weekend reading: Worthy of your time

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5. 💸 Fintech 🧑‍💻

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6. 💊 Health Tech 💉

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Postcard from Donner Lake

Happy Weekend! Today's digest comes from editor Claire Rychlewski while George takes a well-deserved beach vacation.

Enjoy the weekend! Thanks to copyeditor Mickey Meece for today's edits.

All Access

All-Access Weekly Digest

1. 🛒 Retail 

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2. 💸 Fintech 

3. 🌎 Climate Tech 

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4. Weekly reading: Worthy of your time

5. 📺 Media 

6. 💊 Health Tech 

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7. Postcard from Miami

Greetings from Chicago! Axios Pro Editor Claire Rychlewski here with your all-access digest. I hope your weekend is great, and as always, let us know what you need.

Thanks for reading Axios Pro Deals this week. We'll be back with more for you next week.

1 big thing: Teal Health debuts for women's virtual cancer screenings

Illustration of a phone wearing a doctor's coat and a stethoscope. 

2. The BFD: Paradigm's $203M Series A 

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3. Spark Advisors gets $15M Series A

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4. Deals o' the day

5. It's Personnel

🙌 Situational awareness: Join us in welcoming our new[sletter] co-author Aaron Weitzman, who joins Axios from PE Hub.

🌤️ Erin spent the weekend in sunny Southern California visiting family and enjoyed the temporary dose of mild weather.

❤️ Thanks for reading, and extra thanks to newsletter editor George Moriarty and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

1 big thing: Ryse Health nets $6.5M Series A for hybrid diabetes care

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State of play: Remote diabetes care

2. State of play: Remote diabetes care

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3. The BFD: Kindbody gets $100M at $1.8B valuation

Illustration of a pregnancy test with a dollar sign appearing on the screen.

6. Your daily dose

Illustration of a weekly pill dispenser box with a newspaper called "daily dose" in each compartment.

🧪 Situational awareness: Genetic testing company Color is laying off roughly 300 employees as it downsizes COVID testing operations.

🌨️ Erin is getting buried in Tahoe's historic snowstorm while the power goes in and out. Fortunately, there's food in the house.

🥳 Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece. Please ask your friends, family and colleagues to sign up.

Retail Deals

Instacart's IPO won't just be a boon for Wall Street and Silicon Valley, but it also will offer a fresh data point on the health of e-commerce.

Why it matters: Rivals will be reading tea leaves.

What they're saying: "The main takeaway from Instacart's S-1 is that e-commerce becomes an exciting business only with advertising," one grocery delivery executive tells Axios.

About 30% of Instacart's revenue last year, or $740 million, came from advertising.

Pepsi, a top advertiser with Instacart, is investing $175 million in a private placement alongside the IPO.

If Instacart wants to surpass a $1 billion revenue threshold, "they only get there by huge joint business plan and upfront deals with Pepsi, Kraft P&G, you name it," says Andy Friedland, chief revenue officer of retail tech company Swiftly.

Yes, but: Major grocers may not take kindly to more ad deals with major CPGs, given the potential to cut into their own sales.

Grocers also are losing control of first-party data and how that's monetized when they work with Instacart, Friedland says.

"Instacart can control a large amount of that data, given that they own the last mile," he adds. "From a competitive perspective, I think the biggest risk is that Instacart can become their own grocery store."

In the weeds: Instacart is all but ensuring itself a successful IPO by floating less than 10% of its shares, and securing cornerstone investors, says one private equity capital markets head.

While not perfectly correlated, a smaller float may, on average, boost an IPO pop, per Nasdaq. 

In 2020, the average float for an IPO was around 20%. 

One portfolio manager notes that two-thirds of Instacart's offering is "being eaten up by pre-subscription" investors — and that the company's prospective $10 billion valuation is partially attributable to that, alongside pent-up demand.

There's also a possibility that pre-subscription investors back out after a 90-day blackout period — leaving retail investors holding the bag, he adds.

The bottom line: Instacart is arming itself with capital to go on the offensive, positioning it to compete in ongoing delivery sector consolidation.

Instacart IPO is a big test for e-commerce

an illustration of the wall street bull holding a green shopping basket in its mouth

Initial public offerings (IPO)

Instacart&#x27;s IPO won&#x27;t just be a boon for Wall Street and Silicon Valley, but it also will offer a fresh data point on the health of e-commerce.Why it matters: Rivals will be reading tea leaves.

Dealmakers see a rosier M&A outlook for Q4 and beyond, as corporate buyers prepare to pounce, and as piles of cash burn holes in private equity pockets. 

Driving the news: Fueling these hopes are a surprising number of big-ticket summer deals, improved business confidence and easier bank lending.

What's happening: M&A markets were dead quiet in the first half of the year, but deal activity came to life in the normally quiet summer months, across multiple sectors. Significant deals announced since July 1 include:

Pipeline operator Energy Transfer agreeing to acquire rival Crestwood for $7.1 billion.

Private equity firm GTCR agreeing to buy a 55% stake in fintech Worldpay, which included a $1.25 billion check for Worldpay to pursue more deals.

And last month, fashion conglomerate Tapestry struck a deal to buy competitor Capri Holdings last month for $8.5 billion.

State of play: These stirrings have bankers getting back to work.

 Brian Haufrect, co-head of Goldman Sachs' Americas M&A, says his team has been able to "relaunch processes and dialogue that had previously been put on hold."

The IPO market rebound is also helping to kickstart dual track discussions from sellers, says Dan Grabos, co-head of Barclays' Americas M&A team.

"In virtually every private equity IPO exit situation that we've talked about with clients, they want to evaluate a dual track M&A and IPO," Grabos says.

Meanwhile, Haufrect says he expects to see corporate spin-offs increase as strategics continue to assess their portfolios. 

By the numbers: Through Aug. 31, U.S. M&A was down 26.7% to $981 billion, according to LSEG, the lowest year-t0-date value in a decade, excluding 2020. The number of deals notched up through that date totaled 12,743, an 8.4% drop.

Yes, but: The trend line is ticking up. U.S. M&A value was down 40% as of June 30. 

What they're saying: Haufrect and Grabos both zeroed-in on one sector to watch: energy transition.

"A lot of clients are evaluating the appropriate pace of transition from fossil fuels to a lower carbon business model given the practicalities in the market, and many are looking to investments and M&A to facilitate that transition," Grabos says. 

M&A interest in the energy sector is tracking close to venture capital dollars, as funds are expected to invest more into carbon and emissions-tech startups this year than in 2022.

With significant capital now invested in the sector, Haufrect says he expects M&A to play a larger role.

Yes, but: A stricter antitrust regime and new merger guidelines are casting a shadow over the deals landscape. 

Both Haufrect and Grabos say potential antitrust concerns loom when vetting prospective buyers.

"People are spending more time thinking about regulatory risks and thinking about it up front," Haufrect says. 

The bottom line: Dealmakers are more than ready for an M&A boom — but wishing doesn't make it so. 

U.S. M&A sees uptick as dealmakers eye energy bids, dual-track sales

Dealmakers see a rosier M&A outlook for Q4 and beyond.

Mergers and acquisitions

Dealmakers see a rosier M&amp;A outlook for Q4 and beyond, as corporate buyers prepare to pounce, and as piles of cash burn holes in private equity pockets. Driving the news: Fueling these hopes are a surprising number of big-ticket summer deals, improved business confidence and easier bank lending.

Thoma Bravo is in advanced talks to acquire health records software company NextGen Healthcare (Nasdaq: NXGN), Bloomberg reports.

Why it matters: A successful transaction would imply continued optimism for the state of leveraged buyouts.

What's happening: Thoma could announce a deal this week, Bloomberg reports, citing sources familiar.

A final decision has not been made and talks could fall through, per Bloomberg.

Thoma is one of a handful of buyout firms that were circling Atlanta-based NextGen, which has a market capitalization of nearly $1.4 billion.

Catch up quick: Reuters reported last month that NextGen was working with Morgan Stanley to explore strategic options, including a sale.

NextGen has been a publicly traded company since 1982.

The company provides cloud-based technology services used by providers to manage patients' electronic health records

Of note: NextGen's largest competitor is Cerner, which sold itself to Orcale for $28 billion in 2022.

Thoma Bravo and NextGen did not respond to a request for comment.

Thoma Bravo nears deal for NextGen Healthcare

Thoma could announce a deal for NextGen Healthcare this week

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Health tech deals

Thoma Bravo is in advanced talks to acquire health records software company NextGen Healthcare (Nasdaq: NXGN), <a class="gtmContentClick" data-vars-link-text="Bloomberg reports" data-vars-click-url="https://www.bloomberg.com/news/articles/2023-09-05/thoma-bravo-said-to-near-deal-for-nextgen-healthcare?srnd=deals" data-vars-content-id="5a636e77-be1c-4acf-a8d4-8fcb0c5f787f" data-vars-headline="Thoma Bravo nears deal for NextGen Healthcare" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.bloomberg.com/news/articles/2023-09-05/thoma-bravo-said-to-near-deal-for-nextgen-healthcare?srnd=deals" target="_blank">Bloomberg reports</a>.Why it matters: A successful transaction would imply continued optimism for the state of leveraged buyouts.

As the credit markets rebound, health care dealmakers are betting on life sciences and pharmaceutical services investments.

Why it matters: As drug pricing negotiations continue at the federal level, pharmaceutical executives and investors are shifting strategy — buoying demand for outsourced service providers.

What they're saying: "We'll continue to focus on the pharmaceutical supply chain and development pipeline," says THL partner Josh Nelson.

With industry changes like the Biden administration's Inflation Reduction Act, which would let Medicare negotiate drug prices, "pharma companies will need partners and vendors who can help them become even more efficient," he adds.

"At the start of 2023, pharmaceutical services was one of the few sub-sectors that maintained deal activity amidst the M&A downturn," says BPOC partner Troy Phillips.

"I think the life sciences space will be very active," says West Monroe partner Nathan Ray. "If this is any indication, [the JPMorgan Health Care] conference was, in my rough estimate, 60% life sciences."

Zoom in: Ray sees a bright future for wearables, new diagnostics, as well as pharmacy, clinical trial and lab technology.

Be smart: Both THL's Nelson and Great Point Partners founder Jeffrey Jay note the regulatory uncertainty surrounding the IRA and drug prices could also slow M&A in some segments.

The big picture: Health care deal activity dipped 36% year over year, Refinitiv data show.

Private equity has largely stayed on the sidelines given the expense of debt — a dynamic that's shifting now.

What's happening: After a slow start, the pharma and life sciences services industry saw some deal pickup in early summer.

In May, Advent International and Warburg Pincus teamed up to agree to buy Baxter International's contract manufacturing unit for $4.25 billion.

In July, Thermo Fisher Scientific agreed to acquire clinical registry data company CorEvitas from Audax for $913 million

"For the first time in a long time, it is possible to secure financing for larger-scale LBOs," says Nelson.

Yes, but: Financing is still pricey and terms are less attractive, Nelson says.

"Even with that post-Labor Day pickup, we expect 2023 to continue as it has — with a trickle of deals rather than a rush," adds Aon managing director Vipul Patel. "We aren't seeing a return to robust M&A markets just yet."

The intrigue: As data breaches of health systems have become increasingly common, cybersecurity and compliance are being highlighted as areas long overdue for technological innovation.

Considered "mission critical within health care right now," Silversmith Capital general partner Brian Peterson says he expects cybersecurity and compliance to see "significant momentum and increased deal activity in the near and medium term."

The bottom line is the bottom line — and amid regulatory macro-economic uncertainty, ensuring return on investment matters more than ever.

"Payer, provider and life science organizations are now, more than any time in recent history, focused on ROI when considering the purchase of technology solutions," Peterson says.

Life sciences, pharma services to dominate health care M&A

As drug pricing negotiations continue, executives and investors are shifting strategy.

Illustration of a grid consisting of colorful rectangles, the back of a one hundred dollar bill, and photographs of a prescription pill bottle, a microscope, and a hand holding a molecular genetics testing tray.

As the credit markets rebound, health care dealmakers are betting on life sciences and pharmaceutical services investments.Why it matters: As <a class="gtmContentClick" data-vars-link-text="drug pricing negotiations " data-vars-click-url="https://www.axios.com/2023/08/16/ira-drug-price-negotiations-anniversary" data-vars-content-id="5ce36e5e-e76d-4706-97dd-8f2b0f1d9070" data-vars-headline="Life sciences, pharma services to dominate health care M&amp;A" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/08/16/ira-drug-price-negotiations-anniversary" target="_self">drug pricing negotiations </a>continue at the federal level, pharmaceutical executives and investors are<a class="gtmContentClick" data-vars-link-text=" shifting strategy" data-vars-click-url="https://www.axios.com/2023/08/29/drugmakers-investors-ira" data-vars-content-id="5ce36e5e-e76d-4706-97dd-8f2b0f1d9070" data-vars-headline="Life sciences, pharma services to dominate health care M&amp;A" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/08/29/drugmakers-investors-ira" target="_self"> shifting strategy</a> — buoying demand for outsourced service providers.

As Welsh, Carson, Anderson & Stowe prepares its response to the FTC's suit filed Thursday, expect a two-pronged defense.

Why it matters: The FT op-ed from Lina Khan that immediately followed the disclosure indicates if this suit is successful, private equity needs to be prepared to defend rollups of every kind. 

Catch up quick: The FTC alleges WCAS and its portfolio company U.S. Anesthesia Partners were involved in a "multi-year anticompetitive scheme" that hurt patient pocketbooks for the sake of profits.

Specifically, it claims that WCAS and USAP bought up "nearly every large anesthesia practice in Texas" to form a dominant provider and then forged price-setting agreements with providers that had remained independent.

The FTC also accuses the defendants of "striking a deal" to keep a major competitor out of Texas.

WCAS said in an emailed statement that the case is "unwarranted" and that the complaint will "harm clinicians and patients."

What's next: Regulators will argue that WCAS is a valid defendant because it exerted significant control over USAP despite its minority equity position, including devising the very rollup "scheme" to which it objects. 

The FTC also believes that the Clayton Act allows it to challenge transactions in the aggregate.

The other side: Expect WCAS, which has retained separate counsel from USAP, to argue that FTC has no right to sue WCAS, given the firm has long been a minority equity owner since 2014.

If WCAS loses on standing, it will argue that FTC hasn't pointed to a specific transaction that tipped USAP into monopoly territory — and that USAP's prices haven't increased faster than broader rates of medical services inflation.

Reality check: WCAS will have a tough time eschewing responsibility, given how private equity has proudly — and publicly — touted roll-ups as a primary driver of growth for physician business investments. 

Of note: The FTC doesn't allege wrongdoing by WCAS or USAP in markets outside Texas. 

Yes, but: USAP's other strongholds include Colorado — where an investigation from the Washington Post found USAP continued to raise prices for its services. 

Context: WCAS announced the formation of U.S. Anesthesia Partners in 2012. 

Today, after acquiring at least 21 groups, USAP-Texas (Gulf Coast) reports that its providers perform more than 200,000 anesthetics annually in more than 30 medical facilities in the greater Houston area.

Between the lines: Under the No Surprises Act, which went into effect last year, anesthesiologists can't bill patients the difference between the insurer and the provider's rate.

"So much of the industry's profitability was coming from these out-of-network balance bills that they submit to patients," one industry banker tells Axios.

Investors have been increasingly disinterested in the sector as a result, with just four anesthesiology deals completed last year — which only buoys the power of providers like USAP.

The big picture: Pre-COVID, physician practice management investments — across specialties like dermatology, gastroenterology, and others — dominated health care dealmaking.

Investors focused their rollup strategy on strengthening geographical concentration, having learned hard lessons from the physician investment boom-bust of the 1990s.

That period was characterized by sponsors buying practices across the country and growing them at breakneck speed to take them public — only to see their valuations sink as integration proved challenging. 

💭 Our thought bubble: Despite increased writing on the wall that both the Biden administration and regulators have private equity in their crosshairs, investors have remained largely untroubled. 

The bottom line: If sponsors aren't rethinking their roll-up strategies, they may want to start. 

Private equity watching Welsh Carson's defense strategy vs. FTC

The abundance of rollups means many could be next.

As Welsh, Carson, Anderson &amp; Stowe prepares its response to the <a class="gtmContentClick" data-vars-link-text="FTC&#x27;s suit filed Thursday" data-vars-click-url="https://www.axios.com/2023/09/21/ftc-sues-welsh-carson-anesthesiology-texas" data-vars-content-id="bc787c62-a36d-428e-a883-ced84f60da4c" data-vars-headline="Private equity watching Welsh Carson&#x27;s defense strategy vs. FTC" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/09/21/ftc-sues-welsh-carson-anesthesiology-texas" target="_self">FTC&#x27;s suit filed Thursday</a>, expect a two-pronged defense.Why it matters: The <a class="gtmContentClick" data-vars-link-text="FT op-ed from Lina Khan" data-vars-click-url="https://www.ft.com/content/93103af9-768a-4545-9166-20389c254edc" data-vars-content-id="bc787c62-a36d-428e-a883-ced84f60da4c" data-vars-headline="Private equity watching Welsh Carson&#x27;s defense strategy vs. FTC" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.ft.com/content/93103af9-768a-4545-9166-20389c254edc" target="_blank">FT op-ed from Lina Khan</a> that immediately followed the disclosure indicates if this suit is successful, private equity needs to be prepared to defend rollups of every kind.

Claire Rychlewski

Stories

Private equity watching Welsh Carson's defense strategy vs. FTC

Instacart IPO is a big test for e-commerce

U.S. M&A sees uptick as dealmakers eye energy bids, dual-track sales

Life sciences, pharma services to dominate health care M&A

Thoma Bravo nears deal for NextGen Healthcare

Newsletter editions

Pro Deals: Weekend reading

Pro Deals: 📖 Weekend reading

Health Tech: Inside the FTC crackdown

Health Tech: Another fertility unicorn

Health Tech: A $15M Spark