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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Modernizing Medicine and its largest investor, Warburg Pincus, are evaluating a partial-stake sale of the specialty electronic health records giant, sources familiar with the matter tell Sarah. 

Why it matters: ModMed, along with Blackstone's HealthEdge Software, will represent a good test case for the new valuation reality in health tech investing if a deal gets done. It's been several months since we've seen scaled, growth-oriented SaaS companies test the market.  

What's happening: The Boca Raton, Florida-based company formally hit the market in October, with first-round bids from sponsors due around mid-November, sources say.

Evercore is providing financial advice to Warburg and ModMed.  

Sources caution that Warburg and the company may choose not to transact, depending on where interest levels and valuation appetite land. 

By the numbers: ModMed, which has been investing heavily in R&D to fuel future growth, generates around $400 million of ARR, sources say.

Warburg's current stake lies at roughly 40%, sources say.

Other small minority investors that invested early in ModMed's evolution include Pentland Group, Summit Partners and Sands Capital.

Flashback: A year ago, sources pegged ModMed as a likely IPO candidate, but that was a much different market. 

How it works: ModMed designs cloud-based and data-driven EHR software products tailored to a vast range of medical specialties, including dermatology, gastroenterology, plastic surgery and orthopedics.

Warburg invested an initial $231 million into the company in 2017. 

The bottom line: ModMed is a bellwether for other growth-focused SaaS investors, who will be watching closely to see if the company overcomes market woes to attract a 2021-like valuation — or lands something much more conservative. 

Warburg declined to comment. ModMed did not immediately respond to a request for comment. 

1 big thing: Warburg's ModMed mulls stake sale

Illustrated collage of a computer with a hundred dollar bill in the middle surrounded by various shape

OS Acquisition, a health tech SPAC led by OS Fund's Jeff Klunzinger, on Wednesday withdrew registration for a $150 million IPO.

Why it's the BFD: The withdrawal is yet another reflection of the 180-degree turn in the market that once had a spate of exuberant digital health companies file to go public and is now racked with cancellations and delistings, Erin writes.

Catch up quick: OS Acquisition filed in March 2021 to raise $150 million by offering 15 million units at $10, with each unit containing one share of common stock and one-third of a warrant.

The Park Ridge, Illinois-based company planned to list on the Nasdaq under the symbol OSAAU with Citi as sole bookrunner and to acquire a health tech company, per Renaissance Capital.

In addition to Klunzinger, the business would be led by CFO and OS Fund partner Mark Ghobrial.

Zoom in: Health tech founder Bryan Johnson created OS Fund in 2014 with $100 million of his own investment funds, and a host of Klunzinger-backed startups that met the investment thesis that biology is a programmable form of technology, much like other operating systems. 

Its portfolio companies span genomics, synthetic biology, therapeutics, materials and diagnostics.

That includes Bill Gates-backed Ginkgo Bioworks, which SPAC'ed its way to the public markets last year with a total market cap of more than $17 billion, and Synthego, a Peter Thiel-backed developer of plug-and-play Crispr kits for researchers.

Johnson is also the founder of brain machine interface developer Kernel. 

Of note: The SPAC market took another recent hit in the form of a 1% excise tax on stock buybacks, as introduced by the Inflation Reduction Act.

SPAC liquidations are where the tax could be felt most acutely. With too many blank-check companies chasing too few targets, we're likely to see liquidations — and withdrawals — continue. 

2. The BFD: OS Acquisition pulls out

Illustration of a health plus with darts all around it, as if they've missed the target. 

Elemental Machines, a Cambridge, Mass.-based developer of a lab intelligence platform, raised $41m in Series B funding. Sageview Capital and Omega Venture Partners co-led and were joined by Gutbrain Ventures and Digitalis Ventures. www.elementalmachines.com

MySimplePetLab, a Minneapolis-based provider of home-based pet diagnostic tests, announced an undisclosed Series A funding led by Mars Companion Fund, joined by founding investors Jeff Cowan and Jeremy Friese. https://mysimplepetlab.com 

3. Deals o' the day

LRVHealth named former CVS Health EVP Josh Flum managing partner.

4. It's Personnel

Axios Pro editor Claire here with a recap of this short week.

On Monday, Sarah and Claire reported on Walgreens-owned VillageMD's $8.9 billion deal for Summit Health-CityMD. 

Read Monday's full Health Tech Deals newsletter.

Monday's Pro Rata led with Dan covering Peloton founder John Foley's next big idea like a rug. 

On Tuesday, Sarah wrote about tech-enabled ambulatory infusion center Local Infusion, which emerged from stealth with a $4 million seed. 

Read Tuesdays full Health Tech Deals newsletter.

Tuesday's Pro Rata took a trek back to Twitter-land and Elon's exceptionalism. 

Wednesday's news included an exclusive on CSNI and Kepro's merger.

Read Wednesday's full Health Tech Deals newsletter.

Wednesday's Pro Rata covered the mess at FTX, and what might be next, until more shoes drop ... and they did. 

5. 🗞 Catch up quick

🇺🇸 Programming note: Axios will be taking Veterans Day off to show our appreciation for those who served. 

Some personal news: 👋 Hey, Sarah here. Today’s my last on the Axios Health Tech Deals beat. It’s been an awesome ride, but I’m off to try something new. Thanks for reading, and a special thanks to all my talented colleagues. Stay in touch!

🚨 Claire Rychlewski, our savvy editor, will be stepping in. Send her your tips and say hello! 

👩‍🍳 Sarah this week baked this delicious vegan banana bread recipe, started (and is obsessed with) "White Lotus 2" and hiked the rocky, 5-mile trail around Watson Lake in Prescott, Ariz. 

🙏🏻 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.  

November 10, 2022

1 big thing: Warburg's ModMed mulls stake sale