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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

A sale process for Heritage Provider Network, the risk-taking physician organization focused on Southern California, has finally begun, multiple sources tell Sarah. 

Why it matters: The market has been waiting years for HPN to sell itself, and a deal could be worth more than $7 billion.

CEO and founder Richard Merkin, in his 70s, owns and has controlled every aspect of the Marina del Rey-based company for 40-plus years. 

The big question is if today's uncertain deal environment will give him cold feet about calling it quits. 

Driving the news: A JPMorgan sale process has kicked off, with materials marketing the business distributed to a select group of large buyout firms.

Some suitors have already held fireside chats with management, sources say. First-round bid timing isn't set but is generally expected to be in June.

Targeted funds include those with track records in at-risk/ value-based care, and Medicare and Medicaid experience, one source notes. 

By the numbers: HPN produced $633 million of 2021 pro forma adjusted EBITDA but non-adjusted 2021 EBITDA was $490 million; estimated pro forma 2022 EBITDA is $765 million, Axios has learned.

2022 estimated revenue is about $4.4 billion, about 86% of which stems from California, followed by smaller footprints in New York and Arizona, sources say.

Bloomberg wrote in October that HPN was working with an undisclosed bank to explore a potential $9 billion-plus sale, although a process hadn't begun.

Some sources say they now expect bids to come in around the $7 billion to $7.5 billion zip code, but one source adds, "I've had debates around 'can this get north of $10 billion?'" Another comments, "They'll want $9.5 billion."

The company encompasses 3,700-plus primary care physicians, 10,000-plus specialists and about 1,700 affiliated facilities.

Between the lines: HPN is a well-performing business with density in Southern California, but everything looks a lot different today than it did last fall. 

Merkin has held so many of the keys for so long, which sources say indicates a buyer would need to install a management team and do a fair amount of corporatization.

Plus, HPN is complex. It's considered by some the genesis of value-based care and has been disciplined about growing profitably. But it hasn't been proven if its model works outside of California.

What to watch: HPN could serve as a value-based acquisition platform, potentially as an acquirer of companies like Cano Health, P3, CareMax, ChenMed, etc. 

It also could attract strategic investors alongside of PE. Humana, for example, would like at-risk primary care for its Medicare Advantage members, and HPN would give it entry into California. 

UnitedHealth and CVS also could make cases for involvement, though the latter would face regulatory hurdles, sources say.

Heritage didn't return requests for comment. JPM declined to comment.

1 big thing: Heritage starts long-awaited sale process

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Water Street Healthcare Partners and JLL Partners closed a joint single-asset deal for Eversana, with nearly $1.75 billion total equity commitments, as first reported by Buyouts and confirmed by Sarah.

Why it’s the BFD: Chicago's Eversana is one of the largest players in life sciences commercialization and is an active consolidator. Now that its investors have more time and money, expect M&A to follow.

With the continuation vehicle, there is specific capital set aside for acquisitions, one source tells Sarah. 

The pair of investors formed "Pegasus" to raise more capital to advance Eversana's strategic expansion, the firms tell Sarah. 

State of play: While a flurry of pharma commercialization companies has attracted PE capital in the last year, Eversana's big differentiator is its digital skillset.

Eversana is one of the “go-to firms” for creating a digital presence during product launches, one source notes. (The other would be Klick Health.)

Other deals brewing include Amulet Capital's Open Health and RevHealth, both of which are working with Houlihan Lokey on processes, as we previously reported.

The backstory: The continuation fund closed in March, Buyouts says, coming on the heels of its InTouch Group acquisition.

The continuation vehicle helped to fund its deal for the pharma marketing agency, one source says. The deal was valued close to $1 billion, Sarah reported in October. 

Eversana’s investors worked with Evercore as a secondary adviser on the process.

2. The BFD: Eversana gets more time and money

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Reproduced from PitchBook; Chart: Axios Visuals

Women's digital health companies saw an explosion of interest last year, driven mostly by VC investment and public market exits.

Why it matters: This highlights a big transformation for the sector, as dozens of new startups collected fresh capital and several companies matured enough to IPO, such as Owlet and Femasys.

2021 also saw some major acquisitions: Ro purchased Modern Fertility in May and Everly Health bought Natalist in Oct. 2021.

Context: Although the sector was once dominated by companies offering solutions focused on birth control and skin care, the following startups have expanded and diversified the category in recent years:

Tia Clinic for primary care and general health.

Noula and Awesome Woman for at-home testing. 

Future Family and Gaia for fertility financing.

Yes, and: Although funding skyrocketed in 2021 with a total of more than $4 billion, getting there wasn't a steady climb.

Financing plummeted in 2016 from 2015 levels and fell again in 2019 from 2018 levels.

Also, venture backers weren't always the sector's leading investors: In 2015 and 2018, M&A targets accounted for the majority of the vertical's financing.

3. Entries and exits transform women's funding

Kriya Therapeutics, a gene therapy company, raised $270m in Series C financing led by Patient Square Capital, bringing total funding to $450m. Bluebird Ventures, CAM Capital, Dexcel Pharma, Foresite Capital, JDRF T1D Fund, Lightswitch Capital, Narya Capital, QVT, Transhuman Capital, and other undisclosed investors participated in the round.

Apollo agreed to take a minority equity investment in Sofinnova Partners, a European venture capital firm specializing in life sciences. Apollo will commit up to €1b of managed capital to its investment funds. http://axios.link/WzIX

Pharos Capital Group made a significant investment in Sanderling Renal Services, a Nashville-based provider of dialysis and renal telemedicine services for underserved communities. https://srs-usa.com/

Genesis Research, a real-world evidence and health economics and outcomes research firm, agreed to acquire Market Access Transformation, a payer insights platform. GHO Capital owns Genesis Research. https://www.marketaccesstransformation.com/

Monument, a New York-based teletherapy company focused on alcohol use, acquired Tempest, a New York-based, alcohol-focused digital recovery program. https://joinmonument.com 

4. Deals o' the day

Stifel named Alena Antigua managing director, where she will co-run the bank's health tech franchise, from Jefferies, where she was SVP of health care IT investment banking.

Walmart promoted Evan Shore to senior director of product, health and wellness from director of product.

Legacy named John Fly VP of engineering from Spec, where he was CTO.

5. It's Personnel

🧘 Erin took being sick as an opportunity to curb the chaos of her kitchen, closets and bathroom. Drawer organizers #ftw.

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May 16, 2022

1 big thing: Heritage starts long-awaited sale process