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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Labor pressures rankling sponsor-backed health care providers could cut private equity-backed deal flow volume this year, according to a new report from Bain & Company.

Why it matters: The dynamic is likely to depress valuations and lengthen hold times, prompting more intense competition for tier-A assets. 

By the numbers: Provider-based businesses represent about 20% to 30% of health care private equity buyouts, Bain's report says.

Wage inflation rose about 5% in the U.S. and roughly 4% in Europe.

Salaries and wages represent roughly 50% of operating expenses for hospitals and other sites of care.

That number is even higher in more labor-intensive provider businesses like home health, personal care services and hospice.

Simultaneously, while costs are high, reimbursement has grown only modestly, with rates often set on a multiyear basis with payors, or changed yearly by governments.  

Yes, but: Specialty health care providers with a payor mix that tends toward more cash or private pay, attractive consumer dynamics and less reliance on patient financing will be more insulated, the report says.

Veterinary, dental, oral surgery and vision have historically been more insulated from economic downturns.

The current environment has boosted investor interest in cash-and-carry businesses, like plastic surgery and medical spas, according to Chris George, a senior managing director at FTI Consulting.

Additionally, specialties like cardiology and orthopedics employing value-based care playbooks will remain attractive.

Be smart: A looming recession has not yet chilled discretionary spending in health care, but it's only a matter of time. 

Meanwhile, Bain predicts augmented investor appetite for technology that improves provider workflows.

In 2022, private equity was hungry for revenue cycle management, remote care solutions, clinical data solutions and claims management software — interest that's expected to persist into 2023.

Zoom out: While the second half of last year brought a slowdown in sponsor-led health care deal flow, health care-focused funds raised almost record levels of capital.

Per Preqin data, firms raised more than 300 health care private equity-focused funds in 2022 for the second year in a row.

Total assets under management for 2022 vintage funds also approached near-record highs. 

Despite all the macro-pressures, 2022 was still the second-biggest year on record for health care private equity M&A. 

Editor's note: This story has been corrected to show the report came from Bain & Company, not Bain Capital.

1 big thing: Labor pressures cut PE health care deal flow

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

Aegis Ventures and Northwell Health are unveiling their second partnership, a national virtual care joint venture called Caire, at this week's JPM conference, sources tell Claire exclusively.

Why it's the BFD: Drawing on the clinical expertise of Northwell Health's physicians, Caire aims to be a differentiator amid a noisy virtual care market. 

What's happening: Caire will start with a focus on women's health via Upliv, a virtual menopause care company Northwell and Aegis announced in November.

Using Upliv as a launchpad, Caire is creating a full suite of women's health-focused virtual care companies, aiming to launch two or three more companies this year, the sources say. 

Beyond women's health, Caire will look at building companies in respiratory health and metabolic health, or specialty care like musculoskeletal injuries and autoimmune diseases, sources tell Axios.

Details: Caire will launch with Northwell Health first, with plans to roll out to additional health systems, the sources say. 

As self-insured employers, the health systems will be both stakeholders in and customers of Caire.

Catch up fast: In April 2022, Aegis announced a $100 million commitment in funding for partnerships with Northwell.

The first partnership, Ascertain, is a joint company creation platform to launch health care artificial intelligence companies.

Between the lines: Virtual care has ballooned in the wake of COVID, but most players (think Hinge Health and Omada) either serve only a small and specific patient population or offer a wide array of medical services without a depth of clinical knowledge (think Teladoc).

Leveraging the 12,000 physicians and 18,000 nurses within Northwell's network, Caire aims to be a virtual care company that goes deep and wide.

2. The BFD: Aegis and Northwell launch virtual care partnership 

Illustration of a handshake with shapes and zoomed in photos of dollar bills. 

Monogram Health, a TPG Capital-backed in-home chronic care provider based in Brentwood, Tenn., has raised $375 million from CVS Health, Cigna Ventures, Humana, Memorial Hermann Health System and SCAN. https://axios.link/3GRZccn 

Paytient, a Columbia, Mo.-based health payments company, has raised a $40.5 million Series B led by Mercato Partners Traverse Fund, with participation from Bertelsmann Investments. https://www.paytient.com 

Array Behavioral Care, a Mount Laurel, N.J.-based virtual psychiatry and therapy practice, has received $25m in funding from backers including CVS Health. https://axios.link/3vMoDWn  

Qritive, a Bengaluru, India-based AI startup focused on digital cancer imaging, has raised $7.5m led by MassMutual Ventures with support from Seeds Capital and Exfinity Venture Partners. https://www.qritive.com 

WeDoctor, a Chinese digital hospital, plans to file for a U.S. and Hong Kong IPO by the end of April, per Bloomberg. Backers include Sequoia China, CIC Capital, AIA Group and Tencent. https://axios.link/3XhFUm0

3. Deals o' the day

Herself Health has named former Livio Health senior medical director Kavita Nair executive medical director. 

Manatt Health has promoted former director Jared Augenstein to managing director. 

Amazon Pharmacy has promoted former senior program design manager Carissa Hall to business developer, partner services. 

DotCom Therapy has named former BetterUp head of commercial strategy Omar Dawood CEO.

4. It's Personnel

🤝 Situational awareness: Erin has boots on the ground in SF this week and is moderating two panels today: a lunch event with Cityblock Health’s Toyin Ajayi and Town Hall Ventures’ Andy Slavitt, and an evening JPM session with leaders from Biofourmis, DispatchHealth and Instacart.

🌭 Claire took some out-of-town friends for a Chicago-style hotdog this weekend (no ketchup!). 

💚 Thanks for reading, and extra thanks to newsletter editor George Moriarty and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

January 09, 2023

1 big thing: Labor pressures cut PE health care deal flow