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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Technical Safety Services, which keeps lab environments compliant and working properly, is entering the second round of its sale process, three sources tell Sarah.

What's happening: The Berkeley, California-based company, backed by The Edgewater Funds (majority, per PitchBook) and JZ Capital Partners, fielded first-round bids last week, sources say.

Houlihan Lokey and Harris Williams are advising the sellers on what sources call a fast-moving process. 

Final bids are due in two to three weeks, one source adds.

By the numbers: The company is marketing $32 million of forward 2022 EBITDA, sources say. 

A 25x multiple was required to advance into the second round, one source says. (Which, if the $32m is applied, suggests an $800m-plus price tag.)

One party that bid $600 million did not make it into the second round, a second source adds.

How it works: TSS deploys technicians that test, certify, maintain and calibrate a broad range of lab equipment for life science customers. 

That includes critical medical equipment across cleanrooms and controlled environments, cold storage to ensure vaccine integrity, gas and water systems, lab preparation equipment and instrumentation. 

The goal is to keep its life sciences customers and their workforces compliant, productive and safe. 

Between the lines: Growth comes from the end-market. 

More labs are being built after years of record biotech funding (although Q1 was the slowest quarter in three years), translating to white space for market penetration and M&A. 

TSS has a recurring revenue model and sticky customer base, one source notes.  

Catch up fast: Under the backing of Chicago-based Edgewater, TSS has been an aggressive consolidator of the market.

In January it bought Sunnyvale, California's AL-TAR, after snapping up three companies in 2021. 

AL-TAR pushed its employee count to a combined 530, and the combination created one of the largest independent lab equipment service providers in the U.S., TSS said. 

TSS, Edgewater, JZ Capital and Harris Williams did not return requests for comment. Houlihan declined to comment. 

1 big thing: Technical Safety Services in play

Illustration of a gloved hand with tweezers holding a $100 bill.

Humana's CenterWell Senior Primary Care and Welsh, Carson, Anderson & Stowe formed a second joint venture to invest $1.2 billion behind 100 new primary care clinics for older adults. 

Why it's the BFD: The deal is a validation of the unmet need for access and attention to value-based primary care, even as public comps — all of a different flavor — witness massive volatility. 

It's also a testament to investors' long-term confidence around the category, and the role that the payors will play in delivering care. 

The build-from-scratch playbook reflects the scarcity of opportunity to invest in existing scale players in the space, or rather, rationally deploy capital. (Heritage Provider Network a notable exception.)

Details: The $1.2 billion earmarked for new clinics follows a previous JV between the parties, which is currently putting to work as much as $800 million to open 67 clinics by early 2023 — amounting to a combined $2 billion commitment. 

The clinics will operate under the CenterWell brand, receiving performance-based incentives. 

WCAS will have majority ownership of the JV, with Humana taking a minority stake. 

Humana has the option to buy out WCAS's stake in the JV starting in 2028, whereas WCAS may require Humana to buy its interest in the JV beginning in 2030. 

Be smart: This is a clever way for Humana to double down on primary care for Medicare patients, without eating the losses, while being in a position to control the assets once profitable.

The reality? It takes a long time for new clinics to reach profitability, and WCAS essentially provides a way to fund and scale the capital investment in this business. "The capital intensity of these businesses is not to be taken lightly," as one source puts it. 

If Humana, for example, were to try and buy an existing player like Oak Street, it would have to eat major operating losses — and the public market is sensitive to that. 

State of play: The COVID-fueled evolution towards hybrid in-person and virtual care models means physician networks can manage bigger populations.

Importantly, the JV isn't creating Humana-only clinics. CenterWell partners with multiple payors, such that all insurers benefit from its full capitation model.

By the numbers:  The JV with the new capital commitment aims to develop the 100 new clinics between 2023 and 2025 — and operate them to profitability.  

Humana's primary care organization encompassed 214 senior-focused primary care clinics as of the end of March  — 37 of which are affiliated with the JV.

It expects to add 30 to 50 clinics annually, reaching 250 by year-end.

Humana's 214 clinics today (including both its CenterWell and Conviva Care Solutions brands) serve approximately 180,000 patients in Medicare value-based arrangements, and 58,000 under IPA arrangements via Conviva.

The bottom line: The market can support thousands of value-based clinics, and Humana-WCAS may have found a way to achieve scale.

2. The BFD: $1.2B clinic-building deal

Illustration of a door mat that says "Welcome," but the L is a cane.

Reproduced from Rock Health; Chart: Axios Visuals

Long portrayed as a kind of easy button for health care, digital health tools are still failing to reach many of the 57 million U.S. residents in rural areas, a new Rock Health report finds.

Driving the news: Virtual care companies looking to serve rural zip codes recognize they face a Sisyphean task, as Erin has previously reported. Why?

Most rural residents have little to no broadband access, and there are no state or federal policies that mandate it.

Providers must contend with unclear reimbursement and licensing requirements.

Flashback: The Biden administration last summer announced $19 million in grants for rural telehealth programs that will go toward helping local clinics overhaul their tech stack, train more providers in telemedicine, and help health systems better reach patients in rural areas.

Details: Compared with people in suburban and urban areas, respondents in rural areas reported lower rates of ...

Ownership of wearable tools such as rings and fitness bands.

Digital tracking of health metrics such as activity, weight, blood pressure and mood.

Between the lines: Trust influences these disparities.

Rural respondents were more likely to trust health info provided by a clinician, and a greater percentage of rural residents said they trust health data from a doctor than from a digital health tool. 

By the numbers: While 20% of U.S. residents live in rural areas, only 11% of clinicians do.

State of play: Despite the challenges, some telehealth companies and hybrid care startups are crafting creative solutions to serve rural areas.

New York-based telemedicine giant Teladoc partnered with a health system and school district to kickstart a school-based telehealth program on laptops at school nursing offices.

Oakland-based medical device company Eko works with rural providers to equip nurses and medical assistants with AI-powered stethoscopes that let nonspecialist caregivers video conference with specialist providers while they examine patients.

San Francisco-based Homeward Health built a virtual care platform that uses cellular networks instead of broadband. It also dispatches in-person mobile care teams to people's homes.

What they're saying: Rural health care providers play a critical role in establishing and maintaining trust among patients, but there are not nearly enough of them.

"Rural clinicians are linchpins of community health, though their numbers are historically limited," Rock Health researchers Jasmine DeSilva, Gabrielle Dell'Aquilo and Adriana Krasniansky write.

“The fee-for-service model can’t stay alive in rural (markets). There are not enough specialists," Homeward CEO Jennifer Schneider previously told Sarah.

This is part of a series of data breakouts based on Rock Health's latest report. Check back tomorrow for more!

⛵ 3. Health tech's tide doesn't lift all boats

• Inflection AI, a Silicon Valley-based machine learning company led by DeepMind co-founder Mustafa Suleyman and LinkedIn co-founder Reid Hoffman, raised $225m in equity financing from undisclosed sources. http://axios.link/dZqN

• CarePoint, a telemedicine and micro-clinic operator in Africa, raised $10m from Delle, Breyer Capital, Beyond Capital Ventures, M3, Asia Pacific Land/ Natural World and Sixth Street CEO Alan Waxman. http://axios.link/KFNq

• evolvedMD, an Arizona-based provider of psychiatric collaborative care management services, raised a $5.4m Series A round led by Waterline Ventures and Conductive Ventures. https://www.evolvedmd.com

• Gulf Islamic Investments invested $530m for a majority stake in Almeswak, a Saudi provider of dental and dermatology care. http://axios.link/WQuG

• Frontline Healthcare Partners made a growth investment in JoyBridge Kids, a Mt. Juliet, Tennessee-based ABA therapy provider. https://joybridgekids.com/ 

• Alliance Pharma, a U.S.-based bioanalytical CRO, agreed to acquire DDS (Drug Development Solutions), the U.K.-based bioanalytical unit of LGC.  KKR will become an equal shareholder in the combined business alongside Ampersand Capital Partners, Alliance's current investor. https://dds.lgcgroup.com/

• National Medical Billing Services, a revenue cycle management company for the surgical market, acquired Medi-Corp, an RCM business specializing in anesthesia, ASCs and pain management. National Medical is a portfolio company of Aquiline Capital Partners. https://medi-corp.com/

4. Deals o' the day

• Highmark Health named Joshua Elder SVP of virtual health practice and medical director from the U.S. Army, where he was a combat engineer brigade surgeon.

• Waltz Health named Yi Gu SVP of consumer engagement from MDLive, where she was VP of product development.

5. It's Personnel

Situational awareness: Erin and Sarah are headed to D.C. this week for an Axios retreat! Tell us what fun local spots we should hit up in town.

🇮🇸 Sarah is road tripping in Iceland in two weeks. Send her a hot tips!

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May 17, 2022

1 big thing: Technical Safety Services in play