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Health care PE auctions stayed stuck

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Jul 18, 2023
Illustration of a hand holding an auction paddle with a "no" symbol.

Illustration: Gabriella Turrisi/Axios

Dealmakers predicted a deal deluge for 2023, but the market had other ideas in the first six months.

Driving the news: Of the 47 health care auctions Axios reported coming to market in 2022, one-third still have yet to result in a deal.

What's happening: After tight debt markets throttled the LBO market in the first half of 2023, private equity partners say they're now seeing lenders offering more generous financing terms.

Yes, but: The bid-ask spread still needs to narrow, says HarbourVest Partners managing director Amanda Outerbridge.

  • Buyers are "maintaining a high bar despite having a lot of dry powder," says Rajat Duggal, partner at FFL Partners.
  • "There has been a wide range in the quality of companies out in the market," he adds.
  • Plus, macro pressures including labor cost inflation and interest rates continue to stress the industry, Duggal says.

Zoom in: Entering the third quarter of the year, Outerbridge and Duggal see green shoots in life sciences optimization and pharma services technology.

  • Myriad drugmakers are approaching patent cliffs, strengthening their need for drug discovery tools, Outerbridge says.
  • "Life sciences is one of the biggest profit pools in healthcare, making it a ripe market to sell into," she adds.
  • This month saw one successful exit of a sponsor-held pharma services platform, with Audax selling business CorEvitas to Thermo Fisher for $913 million.

What we're watching: Thomas H. Lee Partners recently took second-round bids for its physician practice software provider, Nextech, Axios reported.

  • A deal could value the business at around $1.5 billion.

Plus, Option Care may be on the lookout for a takeout candidate after losing Amedisys to UnitedHealth.

  • If the company sticks to its infusion knitting, Peak Rock Capital-backed Paragon Health or privately held Senderra could make optimal targets.

The bottom line: "As it relates to a broader resurgence in LBO activity and platform trades, this most likely will return when credit market conditions stabilize," says Outerbridge.

Catch up fast: Below, we have broken out the deals that have sold and those still in market. Hear any chatter? Write to us.

Sold

For sale

  • Warburg Pincus-backed specialty electronic health records company Modernizing Medicine, launched in October 2022 but hit the pause button late last year, Axios reported. Warburg declined to comment.
  • Blackstone's HealthEdge, a health insurance SaaS platform was exploring a sale through BAML and Barclays, but went pencils-down over discord on valuation, Axios reported. Blackstone declined to comment.
  • Partners Group-backed vet care platform Blue River launched an auction last fall after hiring William Blair, but paused, Axios reported in December. Partners did not respond to a request for comment.
  • Founder-owned physician organization Heritage Provider Network was being pursued by Carlyle in November 2022. Heritage did not respond to a request for comment.
  • Founder-led compounding pharmacy Empower Pharmacy hired Cantor Fitzgerald to run a process last fall, Axios reported. Empower did not respond to a request for comment.
  • Silver Oak-backed dental services organization Smile Partners USA launched a Piper Sandler-run auction in September 2022. Silver Oak did not respond to a request for comment.
  • BC Partners-backed dental products company Zest Dental launched an auction after Labor Day 2022, with SVB Securities and UBS leading a sponsor-focused process. BC Partners declined to comment.
  • Founder-run men's health clinic Wasatch Medical Clinic launched a Macquarie Capital-led process in August 2022. Wasatch did not respond to a request for comment.
  • Linden Capital Partners-backed addiction treatment provider Pinnacle Treatment Centers, which kicked off a Lincoln International-led process in the summer of 2022. Linden declined to comment.
  • Lee Equity-backed IVF provider Inception Fertility took first-round bids in a Moelis-run process in July 2022. Lee Equity did not respond to a request for comment.
  • Morgan Stanley Capital Partners-backed Clarity Software Solutions was reported to be on the block through TripleTree in July 2022. Morgan Stanley declined to comment.
  • Questa Capital Management-backed clinical trial technology company Medrio was set to launch an auction in May 2022 via William Blair. Questa did not respond to a request for comment.
  • THL-backed physical therapy franchise ProPT was working with Jefferies on an auction last summer. THL declined to comment.
  • Summit and DW Healthcare-backed preventive care technology company EHE Health took first-round bids for a Houlihan Lokey-run process in the spring. Summit and DW did not respond to requests for comment.
  • 3M was working with Goldman Sachs to carve out its Health Information Systems, Axios reported in April. 3M did not respond to a request for comment.
    • The company subsequently announced plans to spin off its Health Care Unit in whole, and in January said that process could be complete by end of 2023 or early 2024.
  • Madison Dearborn Partners-backed sports rehab product company Performance Health was working with UBS on a process, Axios reported in March. Madison Dearborn declined to comment.
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