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PE to pick up pace on HCIT deals, analysts say

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Illustration: Sarah Grillo/Axios

Though private equity health care IT deals slumped in Q423, PitchBook analysts expect an acceleration in 2024.

The big picture: The investor class is moving away from provider investment amid increasing headline risk and better exit prospects for large HCIT assets.

Driving the news: HCIT bankers tell Axios they're closely watching the potential launch of Parthenon Capital Partners-backed health payment giant Zelis as a bellwether of future deal activity.

By the numbers: PE-led HCIT deal activity decreased 24% year-over-year in 2023.

  • PE investors announced or closed 24 HCIT deals in Q4 2023, down 22.6% from Q3 but roughly flat with the average pace of deal activity throughout 2023.
  • Other than the close of Thoma Bravo's $1.8 billion take-private of NextGen Healthcare, there were no large PE deals or exits in Q4 2023.
  • There were 50 venture capital-led deals valued at $811 million in Q423, representing a 12.7% decline in deal value and a 21.9% decrease in deal count quarter-over-quarter.

Yes, but: PitchBook analyst Rebecca Springer says they expect to see a moderate boost in PE health care IT deal activity this year "as sponsors are likely to reactivate in technology before they do in providers."

Follow the money: Clinical decision support is gaining steam as one of many AI health care use-cases.

  • Springer says a promising approach is "to pair LLMs with referenced ontologies and knowledge graphs based on medical literature."
  • Companies pursuing this approach include Evidium, Glass Health, Kahun and Xyla.
  • Questions around quality data remain.

Between the lines: Though hold times are generally extending, any company held by PE for at least three years should be considering an exit, dealmakers told Aaron at McDermott Will & Emery's Healthcare Private Equity Conference last month.

State of play: Several long-held sponsor-backed HCIT assets could be due for a trade, including:

  • Risk adjustment software provider AdvantMed, which has been backed by Bison Capital since 2016.
  • Medication management software company DrFirst has been backed by Sixth Street since 2020.
  • Diagnostic technology provider Sapphiros has been backed by KKR since 2021.
  • There's also TPG-backed Convey Health, an analytics software company for health plans. TPG acquired it in 2019, took it public in 2021, and then took the company private again in 2022.

💭 Our thought bubble: Dealmaking gears are slow to turn, partly due to fears of broken processes and a continuing gap in the bid-ask spread.

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