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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

This week we're talking with Permira principal Laura O'Donnell on structuring and closing deals in a challenging environment as part of our Expert Voices series.

Why it matters: Permira has historically been conservative with levering deals — a characteristic that's been advantageous in the current strained debt market, Aaron writes.

This interview was lightly edited for length, style and clarity.

How is the firm approaching dealmaking in a difficult environment?

"Permira has always been pretty conservative on a relative basis on debt and is rarely the last dollar or euro taker. We are focused on growth and accelerating growth, and we therefore don't want to constrain investments into the future by having cash flow being too tight.

I've been a part of investments historically where we've had net two times leverage at the outset, in a dynamic where there was a substantial amount of growth and capital investment, and then others where we've historically been well north of that.

Today, however, I would say that even in highly cash-generative businesses, leverage is a turn or so lower than what we would typically put in place, purely based on rates and the burden to cash. It's really tight. It's hard to make the models work, in most cases, much north of that.

Obviously, there are firms out there that have gotten creative in terms of preferred structures that have a payment-in-kind attached to them. Though it's not our baseline approach, Permira has opted to include some PIK flexibility in two recent deals given the environment.

But each firm is going to look at it kind of differently, how they want to create that yield. Historically, the way we've approached the world has been trading a point of equity returns for a prudent capital structure."

How is Permira approaching frothy subsectors like artificial intelligence?

"Permira is constantly thinking toward the horizon around technology-related developments, including AI. At the moment, it's obviously a much bigger focus.

And we're exploring AI both offensively and defensively, including what GPT4 and beyond could offer for our funds' portfolio companies and new deals.

We are establishing AI frameworks by sector, setting up communities of knowledge sharing across the portfolio, and investing deeply in our portfolio team from a talent perspective."

How does your approach change when making investments in Europe versus North America?

There are certainly nuances to the investment approach in Europe versus North America. I would say on average, that we probably encounter more family-owned businesses in Europe, which require a really partnership-oriented and collaborative style.

The other, big macro-structural difference, is the size of deals. On average, they're probably a bit smaller in Europe than what we encounter in the US. There's a pretty deep market of multibillion-dollar deals in North America. And, the offset to that is that competition in the U.S., I would argue, is more substantial, particularly at that size range."

1 big thing: Permira's Laura O'Donnell on closing deals

illustration of Laura O'Donnell of Permira surrounded by health pluses and circles

Illustration: Tiffany Herring/Axios; Photo courtesy of Permira

Digital pharmacy startup Truepill is reportedly slashing its valuation between 60% and 70%, per The Information.

Why it's the BFD: The mail-order pharmacy sector has proved tricky to disrupt, with most people preferring to get their medicines through benefits coverage, Erin writes.

Three large pharmacy benefits managers (PBMs) — owned by CVS Health, Cigna and UnitedHealth — command nearly 80% of the market.

Details: Truepill, which mails medications for companies including Hims and Mark Cuban's Cost Plus Drugs, authorized curbing the price of some of its shares by more than 90%, The Information reported. Also according to The Information:

The company's total valuation could be slashed between 60% and 70% from its last funding round since it is offering shares at different prices.

Y Combinator CEO and Initialized Capital co-founder Garry Tan is planning to step down as Truepill's board director.

Axios reached out to Truepill for comment but did not hear back.

Flashback: Truepill in 2021 boasted a valuation of $1.6 billion.

The startup previously raised roughly $300 million from investors including Y Combinator, Initialized Capital and Oak HC/FT.

Earlier this month, Truepill co-founder Sid Viswanathan posted on LinkedIn that he had stepped down as CEO to "recharge and figure out the next chapter."

Paul Greenall is the company's current CEO.

What they're saying: Three former employees told Axios last fall that Truepill was in the process of off-boarding several clients and renegotiating terms with others after having grown too fast while burning through cash.

All three sources said Truepill was burdened by the high amounts of manual customization required to onboard each new client.

Meanwhile, alongside competition from market-dominating incumbents, digital pharmacy startups including Truepill have faced legal challenges — like recent federal probes regarding improperly or illegally dispensed medications.

Last December, the DEA alleged that Truepill had wrongly filled Adderall prescriptions on behalf of ADHD-focused digital pharmacy Cerebral.

Truepill in turn said it would halt prescriptions for Adderall and other controlled substances.

The bottom line: "The marketplace [Truepill is] trying to disrupt is mail-order, and in the mail-order business, the big PBMs are king," says Antonio Ciaccia, a pharmacy sector analyst and the CEO of research firm 46brooklyn.

2. The BFD: Truepill reportedly slashing valuation 70%

Illustration of a pen crossing out the "X" in the prescription symbol.

Looking for a deal story? Search the Axios Pro Deals Tracker beta.

• Nursa, a Salt Lake City, Utah-based provider of health care staffing tools, raised $80m in Series B funding led by Drive Capital and joined by insiders Pelion and Kickstart. https://nursa.com/

• Gympass, a New York-based corporate employee wellness platform, raised $85m in Series F funding at a $2.4b valuation. EQT Growth led, and was joined by General Atlantic and Moore Strategic Ventures. www.gympass.com

• Mosh, an LA-based maker of brain health-focused nutritional products, raised $3m in Series A funding. Main Street Advisors led, and was joined by Joyance Ventures, The Lab Capital Advisors, Verso Capital and Entrepreneur Ventures. https://axios.link/3P8kd6v

• Vesey Street Capital Partners exited QualityMetric, a Johnston, R.I.-based health survey provider. https://www.vscpllc.com/

• Backpack Healthcare, an Elkridge, Maryland-based provider of mental health services for youth, acquired Hurdle Health, a Washington, D.C.-based provider of mental health services focused on people of color. https://hellobackpack.com/

• Bimini Health Tech, a Plano, Texas-based developer of plastic surgery and regenerative medicine tools, acquired the assets of defunct Ideal Implant, a Dallas-based developer of breast implants. www.biminihealthtech.com

3. Deals o' the day

• At Nursa, Amanda Duke became chief revenue officer, Melissa Matross became chief product officer, and Brad Taylor became chief technology officer. www.nursa.com

• Bryan Hanson left a role as CEO of Zimmer Biomet to become CEO of 3M's Health Care Business Group, effective Sept. 1, per MedTech Dive. https://axios.link/3sj3yUV 

• Marvin Richardson joined the advisory board at Simplify Healthcare. www.simplifyhealthcare.com

• Eamon McCormick left a post as an analyst at Stifel to become a PE associate at Consonance Capital. www.consonancecapital.com

• Michael Thomas has been promoted from vice president of commercial services to executive vice president of Carenet Health's Shared Services. www.carenethealthcare.com

• Benjamin Wu left a post as CEO of Brex Asset Management to become managing director and head of East Coast, growth capital at ORIX USA. www.orix.com

• Mark Tapping joined the advisory board at VC firm Vive Collective. www.vivecollective.com

• At Nectar Life Sciences, Shyam Joshi, became the company's first chief scientific officer, and Tania Elliott, was named as chief medical officer. www.nectarlifesciences.com

4. It's Personnel

💸 Bright, Friday could cost other payers $1B — Fierce Healthcare

🙃 The booming business of American anxiety — WSJ

👩🏻 The next frontier for corporate benefits: menopause — NYT

5. Your daily dose

Illustration of a prescription with a handwritten note saying "daily dose."

🐪 You made it to Wednesday, Health Tech readers.

☔ Amid yesterday's rain showers, Erin put 20+ miles on the Peloton as part of a series of classes with favorite instructor Tunde Oyeneyin. 

🫶🏻 Thanks for reading, and extra thanks to copy editor Mickey Meece. Please ask your colleagues, friends, and family to sign up.

August 23, 2023

1 big thing: Permira's Laura O'Donnell on closing deals