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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

A sale process is underway for Peloton Equity-backed Arcadia, a data orchestration platform helping health care organizations succeed in value-based care, multiple sources tell Sarah. 

What's happening: A strategic-heavy process recently entered its second round, with a deal likely to be signed by mid-September, some of the sources say.

Details: The Burlington, Mass.-based company produces around $80 million of ARR, and is approaching breakeven, they say. 

Deutsche Bank is providing sell-side financial advice on the process, sources add. 

What they're saying: Strategics the likes of Parthenon- and Bain-backed Zelis, GTCR's Cedar Gate, H&F- and Bain-backed athenahealth, and Veritas' Cotiviti could make logical buyers, sources suggested.  

Looking to feed more growth, strategics "want more wallet share with customers; they want to extend their product suites," one source comments, pointing to Zelis' recent deal for Payer Compass as a good example. "Consolidation in the market just has to happen."

How it works: Arcadia extracts and aggregates disparate clinical and claims-based data from the EHR, providing insights and analytics for multiple use cases.

That includes helping organizations transition to value-based care by, for example, finding and closing gaps in care and managing medical costs for specific populations.

Other applications include improving risk-adjustment accuracy or payment integrity, as well as real-world data to support clinical research.  

Its customers span health systems, providers, payors, ACOs and life science companies. 

Catch up quick: Arcadia last raised $29.5 million in December 2021, led by Cigna Ventures and other new and existing investors.

Peloton Equity has been a significant investor in Arcadia since 2014 when it led a $13 million growth capital funding into the company. 

State of play: Arcadia's closest competitor is Innovaccer, which, in a vastly different environment, raised $150 million in Series E funding last December. Mubadala Capital led the round that put a $3.2 billion valuation on the company and was joined by several new and existing investors including Tiger Global. 

Other relevant players include Clarify Health, which in April reached a $1.4 billion valuation amid a $160 million Series D financing led by SoftBank Vision Fund 2. 

Arcadia declined to comment, while Peloton did not return a request for comment. 

1 big thing: Peloton Equity-backed Arcadia seeks buyer

raffle tickets with dollar signs in form of red cross

GI Alliance's physician owners are buying back the minority equity stake held by Waud Capital Partners as part of an Apollo-backed physician buyout that values the gastroenterology organization at $2.2 billion, Sarah writes. 

Why it's the BFD: While private equity has long flocked to (and put significant capital to work in) physician specialties like GI, this deal underscores physicians' strong desire to maintain greater independence and control. 

Details: The investment amount wasn't publicly disclosed, but Apollo tells Sarah the firm is making a $785 million non-control preferred and common equity investment through its Hybrid Value strategy.

The Hybrid strategy gives Apollo a unique advantage in this instance, and broadly, adds Jason Scheir, partner and head of U.S. Hybrid Value: "There's nowhere near the amount of capital to do these types of deals as there are interesting opportunities." 

The strategy often invests in companies that want equity-like capital and advice, but don’t want to sell control — something that resonates with many health care provider groups. Plus, the structured solutions offer more operational flexibility than restrictive debt.

Apollo's Scheir and Anton Finucane-Courreges will join the GI Alliance board of directors. 

Advisers: Houlihan Lokey advised Apollo, Jefferies advised GI Alliance and its shareholders, and Greenhill & Co. advised management and physician owners of GI alliance. 

Blackstone and Ally are leading committed debt financing for the transaction. 

Zoom in: GI Alliance physicians previously had a 70% economic stake in the company, but they did not have governance control. 

In buying out Waud, GI Alliance's doctor-owners regain governance control while inheriting the benefits that come with having a financing partner via Apollo — access to capital and strategic guidance to propel growth. 

What they're saying: GI Alliance CEO James Weber tells Sarah the deal presents the "best of both worlds" in gaining "the backing of all the resources that Apollo has to offer but allowing us to run the business."

As a physician-led organization, Weber believes the company will have more optionality in how it wants to grow and can present a much more appealing partnership opportunity to practices traditionally "on the fence" when it comes to PE ownership. 

In fact, in buying out Waud, GI Alliance physicians are expanding on their already 70% economic stake.

Context: The GI Alliance deal looks a lot like that which Apollo Hybrid supported in February 2021 for U.S. Acute Care Solutions, a physician-owned emergency medicine, hospitalist and observation services organization.

Apollo invested up to $470 million of preferred equity in USACS, allowing it to remain majority-controlled by its physician owners while providing an exit for minority shareholder Welsh, Carson, Anderson & Stowe. 

Of note: A USACS physician sits on the board of GI Alliance.

Catch up quick: Waud Capital in 2018 invested in what was then known as Texas Digestive Disease Consultants, forming GI Alliance and representing one of private equity's first forays in the physician specialty (alongside Audax's recap of Gastro Health).  

GI Alliance's network has grown to 688 independent gastroenterologists in 15 states, from 158 physicians at the time of Waud's investment. 

Behind the scenes: The deal with Apollo concludes what was about a yearlong process in which GI Alliance evaluated various types of transactions, Weber says. 

That included conversations with strategics and mega-cap funds interested in a more traditional deal structure.  

The bottom line: As physician alignment and autonomy remain a leading issue when it comes to private equity's involvement, more GI Alliance-like models could start to shake up the typical investor playbook. 

2. The BFD: GI Alliance deal details

Think Bioscience, a Boulder, Color.-based synthetic biology startup, has raised $17m in a seed round led by Innovation Endeavors and Xora Innovation with participation from AV8 Ventures, Buff Gold Ventures and LiquidMetal Ventures, and insiders Xora, Wireframe Ventures and Axial VC. thinkbioscience.com 

Upfront, a Chicago-based patient engagement platform, acquired  PatientBond, a Salt Lake City, Utah-based consumer health behavior engineering and marketing company. upfronthealthcare.com 

Life Extension Ventures raised $100m for its inaugural venture fund focused on health and planet science. lifex.vc

3. Deals o' the day

Innovation Endeavors named former Tempus Labs chief scientific officer Joel Dudley partner.

MedZed named current Social Innovation Ventures managing partner Andrey Ostrovsky to its board.

Gaia named former Busuu content marketing manager Annie Maddison content lead, former Trint software engineer Lopè Ariyo software engineer, and current Ministry of Digital Transformation of Ukraine personal assistant Viktoriia Khomutska executive assistant.

Humanity Health named former Artis BioMedica managing director of executive search Elizabeth McCabe to the same position.

4. It's Personnel

It's officially Friday, Health Tech readers.

📱 Situational awareness: The NIH's National Cancer Institute will give $23m to four academic centers over five years to study the role telehealth plays in delivering cancer-related care, a practice that surged during the pandemic.

🧠 Erin watched the season finale of the Apple TV+ show "Severance" last night and can't stop thinking about how much it applies to...everything.

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August 19, 2022

1 big thing: Peloton Equity-backed Arcadia seeks buyer