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Private equity's push-pull with health care IT

May 31, 2024
Illustration of a health plus being squeezed in a vise.

Illustration: Aïda Amer/Axios

Private equity closed a quarter fewer health care IT (HCIT) deals in Q1 than in the same period last year — despite wanting more exposure to the sector, a PitchBook report finds.

Why it matters: The numbers underscore how price-sensitive private equity has become.

Zoom in: PE investors announced or closed 23 HCIT deals in Q1 2024, down 14.8% from Q4 2023.

What they're saying: "Many sponsors are interested in increasing their exposure to health care IT, but significant deal flow has not materialized," writes PitchBook analyst Rebecca Springer.

  • Broadly, sellers are "hanging on so that they can see earnings grow into a valuation they had hoped to get previously," BPOC managing partner Greg Moerschel told Axios previously.

Friction point: Springer cites an "inhospitality to point solutions and challenging sales cycles" across providers, payers and employers as a reason sponsors have stayed on the sidelines in HCIT.

Yes, but: As private equity veers away from investing in health care providers amid increased regulatory and headline risk, quality HCIT assets will likely draw significant PE interest, Springer says.

Between the lines: Most PE-led dealmaking in health care generally has been sponsor-backed platforms making buys, in a bid to grow into the valuations their private equity owners desire.

Catch up quick: KKR's $10.5 billion majority acquisition of payer tech company Cotiviti in February was the largest private equity HCIT deal in Q1.

What we're watching: Several of the top strategic acquirers of HCIT assets PitchBook cites are PE-backed — and may soon be due for a change of hands.

  • Ardian-backed Dedalus took top billing in the report, closing seven HCIT acquisition since 2021. Ardian shelved a 2022 process for the business and acquired an additional 19% in October.
  • Netsmart was in second place with six buys, and its backers GI Partners (invested 2016) and TA Associates (invested 2018) put the company up for sale in January, seeking around $5 billion.
  • Symplr has made four HCIT buys since 2021. Held by Charlesbank (invested 2021) and SkyKnight Capital and Clearlake Capital (invested 2018), Symplr acquired credentialing software company IntelliCentrics for $246 million in February.

The bottom line: Private equity will return to the sector eventually, but we may be in for another slow quarter.

Editor's note: This story has been corrected to note Symplr acquired IntelliCentrics for $246 million in February, not IntelliSoft, which it acquired in 2019.

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