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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

The divergence of public and private valuations has private investors reevaluating their exit options and strategic playbooks this year.

Why it matters: Whether it’s Tempus, Included Health or Hinge Health, a long list of digital health companies were either rumored or anticipated to IPO in 2022 at hefty valuations. But the math doesn't work now.

The public market climate remains “cold and chilly” for digital health companies, as one veteran health tech VC puts it. 

Digital health issuances are unlikely to emerge until the back half of Q3 or Q4, one industry banker predicts. 

What they're saying: "Some of the highest caliber companies are all private, so it's hard to go public as a growth company when you don't have any good comps,” the banker adds. “It's a hard story to tell the market [you deserve] a higher valuation 'because we're better.'”

By the numbers: As a new Solomon Partners report reveals, 2021’s “New Freshman Class” of 25 publicly traded health tech companies took a beating. The first few weeks of the year haven’t been much better. 

Only Doximity, Science 37, Agilon Health, Privia Health and Definitive Healthcare ended up on the year, with only the first two outpacing the S&P. 

Of the 10 IPOs in 2021, the average post-IPO performance was negative 22%; of the 15 SPACs, stocks on average tumbled 45%.

Yes, but: This comes as firms like Tiger Global, Coatue Management, General Catalyst and Lux Capital fuel mega-rounds into growth-y private companies at staggering valuations. 

2021 produced 108 financing transactions with combined proceeds of $4.5 billion, up 30% and 136%, respectively, over 2020, Solomon's report shows.

As Ryan Stewart, managing director at Solomon, sees it, these are bets on “new category creators” that are taking a five-year-plus view. "They are betting on the future of health care leaders.”

What we’re watching: How those previously gearing up for big splashy IPOs are rethinking their 2022 playbooks. 

There could be more stock-for-stock mergers, private-t0-private consolidation and marrying of VC or PE portfolio companies, sources say. 

Meanwhile, on the PE side, there’s probably a higher potential for a busted sale process in 2022 than ever before. 

Sellers still want yesterday's public market multiple, sources say. 

But, investors flush with dry powder still have to put their money somewhere. That could mean more sponsor-to-sponsor recapitalizations and structured deals, or a flight to perceived safety (ie. stable with cash flow vs. things that are burning money). 

How are you reimagining your investment and exits in the current environment? Write to us. 

1 big thing: Public-private valuation disconnect

Illustration of a doctor's hand and a business hand tearing a hundred dollar bill in half. 

As we said, 2021 was a volatile year for health tech's public market entrants.

25 new public companies raised $13.7 billion collectively, more than doubling the 2020 total, but only Doximity and Science 37 outperformed the S&P 500, Solomon Partners says.

Data: Solomon Partners; Note: Health tech companies include tech-enabled health care services companies; Chart: Kavya Beheraj/Axios

2. Charted: 2021's public market newbies

Change Healthcare has engaged Barclays Capital for financial advice as it explores the potential sale of ClaimsXten, its claims editing and payment integrity software, sources tell Sarah. 

Why it matters: The sale appears to be a concession to regulators as UnitedHealth works to obtain clearance for its controversial $13 billion deal for Change Healthcare.  

By the numbers: ClaimsXten could fetch a valuation of more than $1 billion, Bloomberg initially wrote late Monday.

The unit generates around $130 million of EBITDA, sources tell Sarah. 

Be smart: Change is not going to consider doing a deal with anyone but private equity because it needs to get something signed and done in less than two and a half months. 

UnitedHealth in December pushed back the deadline to complete its acquisition of Change to April 5. 

With 30 days needed for HSR approval, that means Change would need to reach an agreement by around the end of February.

This is not your typical under-managed, run-down divestiture process. ClaimsXten is one of Change's bigger and better-regarded businesses, which means lots of buyer interest is anticipated. 

Flashback: The UnitedHealth-Change deal has been long in the works. 

UnitedHealth said the first week of January 2021 that its Optum subsidiary had agreed to combine with Change.

The Department of Justice began investigating the mega-deal in March when it extended the typical regulatory review waiting period by requesting additional information from the parties.

What (else) we're watching: Change's divestiture process comes as private equity buyers circle Veritas Capital's Cotiviti, a much larger payment integrity company currently up for sale. 

Additional consolidation could follow. Other smaller payment integrity assets worth watching include AMPS, Elap and PayerCompass. 

UnitedHealth, Change and Barclays declined to comment. 

3. The BFD: Change runs fast and hard to unload assets 

Illustration of syringe with dollar signs, almost empty. 

Swiftarc Ventures raised $75m for a telehealth-focused fund. http://axios.link/iNDE

Reimagine Care, a startup that supports oncologists in delivering value-based home cancer care, raised $25m in Series A funding led by Santé Ventures, Martin Ventures and LRVHealth. The CU Healthcare Innovation Fund, City of Hope, and McKesson Ventures also participated in the round. https://www.reimaginecare.com 

Intellect, a Singapore-based mental health services startup, raised $10m in Series A funding. HOF Capital led, and was joined by Headline, East Ventures and others. http://axios.link/2rtk

Intermediate Capital Group bought New Zealand-based cancer care clinics chain Canopy Cancer for more than A$300m, per The Australian. www.canopycancercare.co.nz

WebMD Health acquired SanovaWorks, a medical education company for dermatologists. https://sanovaworks.com/ 

Huma Therapeutics, a maker of a home care platform that combines predictive algorithms and digital biomarkers, acquired U.K.-based iPLATO Healthcare, a maker of a patient messaging program. http://axios.link/O6HM 

4. Today's health tech deals

Aledade, which partners with primary care practices and community health centers to help them participate in value-based care arrangements, named Mandy Cohen executive vice president and chief executive of its new health services unit, Aledade Care Solutions. Cohen was previously secretary of the North Carolina Department of Health and Human Services.

Flagship Pioneering, a Cambridge-based life sciences venture firm, named Tom DiLenge senior partner of global public policy and regulatory and government strategy, a new role for the firm. DiLenge was previously president of the advocacy, law and public policy division of the Biotechnology Innovation Organization (BIO). https://www.flagshippioneering.com/ 

Paige, a digital pathology diagnostics company based in Ireland, named Peter Hamilton chief operating officer. Hamilton was formerly the company’s chief of staff.

Crossover Health, a hybrid primary care company, hired Morgen Paul as vice president of national sales from Thrive Global, where she worked as a senior enterprise account executive.

Progyny, a fertility benefits management company, named Michael Sturmer president. Sturmer was formerly the company’s executive vice president of growth and strategy.

5. It’s Personnel 

🌄 How's it going, health tech readers? Is your deal pipeline robust or are you up all night worrying about competition and exits? Write to us. 

⛷  The ski world is witnessing some drama. The industry has injected millions of dollars into efficient snowmaking systems, raising questions about whether the practice is a wise use of energy and water, AP reports.

Why it matters: Snowpack in the western U.S. has decreased about 20% in the last century, making machine-made snow more vital each year.

Thanks for reading Axios Pro Health Tech! Please ask your ski pals, colleagues and book clubs to sign up.

January 25, 2022

1 big thing: Public-private valuation disconnect