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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Health care automation startup Olive AI intends to sell a significant portion of its products and services to sibling company Rotera, per current and former employees and documents seen by Axios, Erin writes.  

Why it matters: Once considered the darling of health system automation, Olive has had a difficult year amid questions about its software's efficacy and executive departures. The divest to Rotera would effectively eliminate Olive's health systems product line, which represents 15% to 30% of its overall business. 

The assets for sale include Olive's tools for population health management and those for the 340B program, which mandates drug discounts for Medicaid and Medicare.

Yes, and: Ten of Olive's health system customers gave notice in August and September that they would either terminate or not renew their Olive contracts. 

Departing customers include SureScripts, HMS Holdings Corp. and TransUnion, according to the sources and additional documents seen by Axios. 

Per previous Axios reporting, Olive had roughly 80 health system customers in April. (The company has repeatedly told Axios it has 200 customers.)

Details: In documents seen by Axios, Olive outlined plans to sell the assets to Rotera in exchange for a share of its revenue. The share amount could not be learned.

The sale would affect seven of Olive's customers, including Essentia Health, Gundersen Health System, Premier Health and TriHealth, per the documents and sources.

Rotera, a health automation startup built out of Olive Ventures (the company's venture arm), has previously partnered with Olive. Its CEO and founder, Erick McKesson, is a former Olive VP.

Catch up fast: In summer 2021, Olive collected $400 million in Series H funding in a round led by Vista Equity Partners and joined by Intermountain Ventures, Tiger Global, Base10 Partners and other undisclosed investors.

Axios in April published an investigation alleging that Olive — valued at $4 billion — promises to save hospitals millions of dollars with its software but that the tools don't deliver, based on documents and interviews with 16 people.

In July, Olive CEO Sean Lane announced in a company-wide email the company would shift its strategy by narrowing its offerings. The company also laid off 450 people that month.

Last month, Olive abruptly fired its CFO and chief product officer, the company later confirmed to Axios.

What they're saying: An Olive spokesperson told Axios in an email that the customer departures are not surprising given the company's recent strategy shift. They did not respond to questions about the planned asset sale.

"As with any business transformation, we expected to see customer attrition, specifically from customers whose needs no longer align with Olive’s product roadmap," they said.

1 big thing: Olive plans asset sale as clients depart

Illustration of the Olive logo with an emoji sweatdrop

TPG this morning closed its $2.2 billion deal for Change Healthcare's claims-editing business, ClaimsXten, the private equity firm confirmed exclusively with Axios.

Why it's the BFD: The ClaimsXten divestiture was considered a pivotal step in clearing the way for Optum's $13 billion deal for Change Healthcare, which closed Monday — 21 months after the two shook hands, Sarah writes.

Flashback: A federal judge on Sept. 19 denied the Justice Department's efforts to block the deal on antitrust grounds.

What they're saying:  TPG declined to be interviewed, but a spokesperson commented via email that they "look forward to working with the team to grow and expand the newly established company.” 

What's next: Specific plans for the newly independent company are not clear, but per an unsealed court document filed Sept. 7:

TPG within four years plans to more than double ClaimsXten’s most recent annual R&D budget, which was $14 million in FY2022.

TPG concluded, according to the document, that it could accelerate growth and help it deliver better products by investing more in "innovative seeds that the [ClaimsXten] team had planted, but maybe hadn't invested as thoroughly behind as they could have."

Catch up fast: Carolyn Wukitch, who has been leading ClaimsXten since 2000, will serve as CEO post-divestiture, per the document.

Behind the scenes: Barclays was engaged early this year to run a sale process for ClaimsXten, and per court documents approached 20 potential buyers — 14 financial and six strategic. 

Six potential buyers, including Advent International in partnership with New Mountain Capital and TPG, submitted second-round bids.

The bids ranged from $1.7 billion to $2.2 billion, with TPG's winning $2.2 billion bid tying for the highest offer, the document discloses. 

Details: TPG funded the transaction with $1.2 billion in equity and $1 billion in fully committed debt financing.

Four claims-editing products are included in the divestiture package: ClaimCheck, ClaimsXten, ClaimsXten Select and ClaimsXten Cloud.

🔮 What we're watching: Now that Change successfully exited ClaimsXten, we expect eyes are shifting to another big industry giant: Zelis Healthcare, which recently bought Payer Compass for roughly $180 million.

Parthenon in 2019 merged two portfolio companies — Zelis Healthcare and RedCard — bringing in Bain Capital as a significant new shareholder. The combination was valued at $5.7 billion at the time, Sarah wrote then. 

The IPO markets remain closed for business, but should they reopen, we suspect Zelis backers will run a dual-track IPO and sale process.

2. The BFD: TPG seals $2.2B deal for ClaimsXten

Illustration of hands shaking over a barchart showing a standard deviation bell curve. 

The FTC is considering all its tools, including law enforcement or market-wide rulemaking, as it scrutinizes the business practices of pharmacy benefit managers, chairwoman Lina Khan said Monday, according to Endpoints News.

What she's saying: "One of the key parts of that revisiting is taking a fresh look at how we approach vertical mergers in particular," Khan told the National Community Pharmacists Association convention, per Endpoints.

3. FTC examining options for PBM regulation

DocSpera, a Sunnyvale, Calif.-based developer of surgical planning and care coordination tools, raised $10m in Series B funding led by Pier 70 Ventures and JJDC Inc. https://axios.link/3SQQWfB

Northwell Holdings, the New York-based, for-profit investment arm of Northwell Health, invested $3m in Hume AI, a New York-based clinical communication research company. https://axios.link/3SKDj1E

Arcascope, a Chantilly, Va.-based health tracking startup, raised $2.85m in seed funding led by Supermoon Capital with support from Inception Health, New Dominion Angels, AIoT Health, Inflect Health, the Accelerate Blue Fund, the Monroe Brown Seed Fund and HealthX Ventures. https://axios.link/3ycozkn

ZenQMS, an Ardmore, Pa.-based electronic quality-management software as a service to the life sciences industry, secured an undisclosed investment from Susquehanna Growth Equity. https://www.zenqms.com/

Levine Leichtman Capital Partners acquired AGDATA, an agribusiness- and animal health-centric provider of workflow and data solutions, from Vista Equity Partners. https://www.agdata.com/

Healthcare Linen Services Group, a St. Charles, Ill.-based health care laundry services provider backed by York Capital, acquired Reino Linen Service, a Gibsonburg, Ohio-based provider of health care linen solutions. https://reinolinen.com/ 

U.S. Foot & Ankle Specialists, an NMS Capital-backed podiatric services company, acquired Indian Valley Podiatry Associates, a Harleysville, Pa.-based podiatry group. https://www.indianvalleypodiatry.com/

Addus HomeCare acquired Apple Healthcare, a Chicago-based provider of acute care home health services. 

4. Deals o' the day

Relevate Health named former Syneos Health Communications global president Tim Pantello CEO.  

TurningPoint Healthcare Solutions named former UnitedHealth Group and Rally Health executive Shawn Mobley chief commercial officer.

Definitive Healthcare named Medidata co-CEO Sastry Chilukuri a board director and the audit committee of the board; Randy Winn, managing director of 22C Capital, stepped down from the board. 

Rightway named former Flatiron Health VP of people operations Annaleah Oxman chief people officer.

UnitedHealthcare Community & State named former Circulo Health research and strategy manager Nageen Mir associate director of strategic solutions for Medicaid.

John Curtius, a Midas List investor who backed more than 250 startups including Databricks and Olive AI, is leaving Tiger Global, where he's been a partner for 5+ years, to launch his own VC firm for B2B software startups. 

He plans to remain with Tiger through next June, after which he'll begin fundraising for the new shop, called Cedar Investment Management.

The news was disclosed in an LP memo from Tiger, which is expected to begin raising its new private market fund later this week.

5. It's Personnel

Situational awareness: If you haven't yet, request your invite to the Axios BFD this month to catch a fireside interview with Mark Cuban on all things pharmacy. 

☀️ Erin enjoyed a sunny bike ride to a riverside cafe and perhaps her last beach day of the season over the weekend.

✅ Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

October 04, 2022

1 big thing: Olive plans asset sale as clients depart