Axios Pro: Health Tech Deals

January 25, 2022

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1 big thing: Public-private valuation disconnect

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

Illustration: Aïda Amer/Axios

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.

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