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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Stitch, a professional employer organization (PEO) for independent medical practices, snagged an $8.75 million seed, CEO Rajesh Voddiraju tells Axios exclusively.

Why it matters: Independent medical practices have been squeezed by surging overhead costs, forcing many to close or sell to corporate giants.

Zoom in: Redesign Health built the startup.

Funds will go toward building Stitch's operations and go-to-market teams.

Voddiraju says Stitch will think about raising a next round focused on scaling nationally in the second half of 2025.

How it works: The San Francisco-based PEO acts as a co-employer to small-and medium-sized health care practices and provides HR and employee benefits services including recruiting, hiring, onboarding and benefits administration.

Other services include payroll, workers' compensation, training and compliance.

Partners include Independent Physicians and Providers of Illinois, Dermatology Specialists of Illinois and senior living facility Regency Palms Oxnard.

Stitch charges a per-employee, per-month fee for its services.

Driving the news: Economic pressures from the pandemic, alongside rising overhead costs and a 25% decline in Medicare reimbursement rates over the past 20 years, have led to closures or sales of many independent medical practices.

What they're saying: "Knowing the [health care] segment very well and knowing the hiring and managing challenges, we can do something without the onerous control of an MSO or a full-on acquisition by a health system or private equity," says Voddiraju.

"Practitioners want to practice medicine and they want autonomy, not the red tape they experience in large health care systems," Voddiraju adds.

The big picture: While digital health enablement startups — which help with administrative tasks like scheduling, payments and compliance — have drawn venture dollars in recent years, the HR-focused PEO sector has seen less entry by startups.

State of play: Major generalist PEO players include Insperity (NYSE: NSP), ADP (Nasdaq: ADP), Justworks (which withdrew its IPO effort in 2022 after six months), and Papaya Global (which raised a $250 million Series D in 2021).

1 big thing: Stitch PEO sews $9M for HR services

Illustration of knitting needles making a red health plus.

Home care giant Addus HomeCare (Nasdaq: ADUS) will acquire the personal care operations of private equity-backed hospice company Gentiva for approximately $350 million, Axios' Claire Rychlewski writes.

Why it's the BFD: Gentiva is the largest provider of personal care services in Texas, giving Addus a strong foothold in the state.

Zoom in: Clayton, Dubilier & Rice-backed Gentiva's personal care operations have annualized revenues of about $280 million, Addus CEO Dirk Allison said in a statement.

Headquartered in Atlanta, its personal care business houses divisions including Girling Personal Care, The Home Option and Victorian Home Care, providing services that help patients with daily life.

"After funding this acquisition, Addus will still maintain a leverage ratio of less than three times," Allison said in a statement.

Catch up quick: Both parties have been active dealmakers.

In early 2023, Gentiva acquired hospice and home care assets from ProMedica for $710 million. (It's unclear if any portion of that business is a part of this deal and Addus did not immediately respond to a request for comment.)

Addus has been vocal about seeking personal care-specific acquisitions, most recently acquiring personal care services company Tennessee Quality Care for $106 million last June.

"We also believe this acquisition strategy will continue to strengthen our ability to participate in value-based contracts with our payers and to adapt to potential reimbursement changes," Allison said during the company's Q1 earnings call.

State of play: A growing aging population is fueling the home health, home care and hospice sector, with major health players trying to figure out their strategy.

UnitedHealth is attempting to acquire Amedisys for $3.3 billion, which would give the insurer access to the company's nearly 500,000 patients, but the deal is under antitrust review with the Department of Justice.

CVS bought home care enabler Signify last year for $8 billion in a bid to penetrate the home health market.

Meanwhile, other publicly traded home health and home care players like Chemed, The Pennant Group and BrightSpring Health (which completed its IPO in January) have all indicated they're preparing to make acquisitions.

2. The BFD: Addus HomeCare buying Gentiva's personal care biz for $350M

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Want more health tech deals? Check out the Axios Pro Deals Tracker.

• Anterior (FKA Co:Helm), an NYC health tech automation startup, raised a $20m Series A at a $95m valuation led by NEA and joined by insiders Neo and Sequoia Capital. axios.link/4aTytYG

• UnitedHealthcare (NYSE: UNH) invested $1.5m in Hazel Health, an SF school-based telemental health startup. axios.link/3yR7bop

• Tenex Capital Management acquired Behavioral Innovations, an operator of 77 child autism therapy centers, from Shore Capital Partners. behavioral-innovations.com

• Cinven is looking to sell National Seating & Mobility, a Franklin, Tenn., maker of mobility and home medical equipment, per PE Hub. axios.link/4bU3pJu

• FFL Partners invested in California ambulatory infusion provider Apex Infusion. axios.link/3KCdDSI

• Health Catalyst (Nasdaq: HCAT), a Salt Lake City provider of health care data and analytics services, acquired Carevive, a Boston cancer symptom tracking startup. axios.link/4bRjBLn

• Karl Storz of Germany agreed to buy Asensus Surgical (ASX: ASXC), a Durham, N.C.-based laparoscopic robotics company, for around $95m, or $0.35 per share. axios.link/4cfkvRZ

• New Ruipeng Pet Group, a Chinese operator of ~1,900 veterinary hospitals, withdrew plans to go public on the Nasdaq. Backers include Hillhouse Capital. axios.link/3VtOjES

• Walgreens Boots Alliance (Nasdaq: WBA) is no longer prepping an IPO for Boots, its British drugstore chain, per Bloomberg. axios.link/4egJeao

• SCI Ventures, a venture philanthropy vehicle focused on spinal cord injury treatment, launched its first fund with $27m. Its EoY goal is $40m. axios.link/3VBOG0e

3. Deals o' the day

• Charles Divita III, former EVP of commercial at GuideWell, joined Teladoc as CEO. axios.link/3yVwEgm

• Joel Haugen, former SVP of value care solutions at Signify Health, joined DaVita Kidney Care as chief product officer. davita.com

• Jaclyn Satchel, former clinical project manager at Moment for Parents, joined Motivo Health as senior manager of community engagement. motivohealth.com

• Sam Hendler, former managing director at Thomas H. Lee Partners, rejoined Harris Williams as managing director. harriswilliams.com

4. It's Personnel

💨 FDA rescinds Juul marketing ban — Axios

🧪 Docs couldn't help, so they turned to shadowy DIY medical tests — WaPo

5. Your daily dose

Illustration of a hand holding an eyedropper that has spelled out "daily dose" in liquid.

🪴 Claire helped a friend garden this weekend (while trying to avoid the cicada swarm currently overtaking Chicago).

🚰 Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Egan Millard. Please ask your colleagues, friends and family to sign up.

June 10, 2024

1 big thing: Stitch PEO sews $9M for HR services