SVB: Health tech M&A could spike after bubble-burst
M&A volume in the technology sector peaked in the 24-month period after the dot-com bubble-burst in 2000, and a recent SVB Securities report suggests this phenomenon "could be mirrored in the health tech space."
Driving the news: Premier Inc. is among the four companies SVB identifies as having the characteristics that indicate it ripe for "strategic alternatives optionality" — validating an Axios report yesterday saying that Premier engaged sell-side banks earlier this year to evaluate options, including a sale.
- Separately, One Medical is considering its options after fielding takeover interest from CVS Health, Bloomberg reported this week.
- SVB's three other picks: Talkspace, Allscripts, and Nextgen Healthcare.
Zoom in: SVB screens for four key factors that it suggests would give a company flexibility for strategic alternatives. (In other words, takeout potential.)
- Older IPO vintage... because IPO valuation discounts become less relevant.
- Data-centric asset
- Fewer ownership structure overhangs—founder CEOs, concentrated ownership and PE/VC ownership can either spur or hinder a transaction, it notes.
- Approaching valuation trough
Yes, and: Premier fits the first three.
- The company, which went public in 2013, recently cleaned up its complex corporate ownership structure and its professional services division is home to various data capabilities.
State of play: Health tech's bubble burst is in the early days, and so far, few take-privates of health tech companies have gotten done.
- The big question everyone is asking, a source who worked on a recent take-private tells Sarah: "How does one put in perspective a premium to the current price, relative to the 52-week-high?"
- The few public-to-privates we've seen this year include "boomerang" deals — CD&R (alongside TPG) buying back Covetrus and TPG buying back Convey Health — as well as SOC Telemed's take-private by Patient Square Capital and Tivity Health's take-private by Stone Point Capital.
The bottom line: Public company takeout candidates still need to trade around current valuation levels for a while. Once they stray from those 52-week-highs, we're likely to see more assets in the strike zone for private equity, as boards become more receptive to options.
- Of course... keep tabs on the big payers, drug-store chains and other strategics as buyers, too.