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BFD Expert Voices - Health Tech Deals

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🏥 Situational awareness: The state of Massachusetts will take control of former Steward Health Care-owned St. Elizabeth's Medical Center, with plans to sell four other Steward hospitals in the state to new buyers.

Modernizing Medicine, a Warburg Pincus-backed EHR software company, has its eyes on acquisitions rather than revisiting a sale, CEO Dan Cane tells Axios.

Why it matters: Recent EHR transactions have bolstered growth opportunities for remaining players.

"We've seen a nice acceleration in our bookings as a number of our competitors have been taken into new transactions or taken private," says Cane.

What they're saying: "Right now, it's a good time for companies to be purchasing," Cane says. ModMed, which has only made six acquisitions in its 15-year lifespan, will consider inorganic growth moving forward.

The company has sufficient buying capital but could tap secondary or debt markets as needed, he adds.

"Our specialties today only comprise about 20% of the U.S. private practice health care system," says Cane. "There's still lots more specialties to go after, and we're only about 15% penetrated in the specialties that we already have products in."

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

By the numbers: A recent Forrester study — conducted on behalf of ModMed and based on compiled data of a subset of customers — found ModMed's software saved clients $2.5 million over three years.

ModMed customers saw a 67% reduction in patient intake processing, a 30% improvement in recovered insurance revenue and a 10% increase in patient volume.

The latest: "We're currently not in a sales mode," Cane tells Axios. ModMed has $500 million in recurring revenue.

Warburg MD Amr Kronfol declined to comment on when the firm might exit its stake in the company.

What's next: Cane says as long as public and private valuations remain correlated, "I'd rather stay private than public."

Catch up quick: Warburg tested the waters on a partial sale of its 40% stake back in 2022, but no deal materialized.

State of play: When Warburg reignites efforts to sell part of its stake in ModMed, the sponsor will have a healthy comp environment to reference.

Last year, TPG bought physician practice software provider Nextech from Thomas H. Lee Partners for $1.4 billion, and Thoma Bravo took EHR software company NextGen private for $1.8 billion.

Thoma is one of several PE firms circling Veradigm, the practice management software vendor FKA Allscripts that's currently exploring a sale.

The M&A activity has "been good for us, because they typically will cut costs to be able to either service their debt or increase their bottom line," Cane says.

Warburg's ModMed shopping for growth

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Audax agreed to pay about $650 million to acquire the clinical services business of life science tools company Avantor (NYSE: AVTR).

Why it's the BFD: Post-COVID, sponsors are sprinting to the highly fragmented clinical trials space. 

Zoom in: The deal is expected to close in Q4. Moelis advised Audax, while JPMorgan advised Avantor.

Inside the room: JPM marketed the business to a limited group of buyers with experience executing corporate carveouts, a source familiar with the deal says.

By the numbers: Avantor's clinical services segment has about 800 employees and is expected to generate $200 million in revenue this year.

The transaction is expected to pull in approximately $475 million in cash after taxes and save Avantor about $50 million in capitalized leases.

Last year, Avantor reported a 7.3% decrease in net sales. The company saw a 2.4% decrease in sales in Q2 this year, compared to 2Q23.

What they're saying: "The divestiture enables us to enhance our focus on strategic growth opportunities in our lab and production businesses, while strengthening our balance sheet," Avantor CEO Michael Stubblefield says.

How it works: Avantor's clinical services unit provides trial and post-trial sample storage and archiving, laboratory supply chain management, and packaging and logistics for sample collection.

It serves biotechnology companies, contract research organizations and diagnostic laboratories, with 10 facilities across the U.S., U.K. and Europe.

The clinical services business is part of Avantor's laboratory solutions segment and includes kitting, biorepository and related equipment and ancillaries.

What's next: Audax is vetting add-on buys based in Europe and in emerging markets, the source familiar tells Axios. Audax declined to comment.

Catch up quick: Audax's most recent corporate carveout was its $170 million acquisition of Aspen Surgical from Hillrom (NYSE: HRC) in 2019.

The Boston-based sponsor also made a growth investment in Pyramid Laboratories, a Costa Mesa, Calif., drug product contract development and manufacturing organization, last April.

The bottom line: Life sciences continues to be a segment of growth for private equity.

Audax buying Avantor unit for $650M

Illustration of a hand holding a vial of blood. 

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

• Neptune Medical, a Burlingame, Calif., developer of GI devices and robotics, raised a $97m Series D from Sonder Capital and Olympus Corp. of the Americas. Go deeper

• Teamology, a University Park, Penn.-based youth mental health company, raised $1.2m in a seed round led by VC 414. Go deeper

• Falfurrias Management Partners invested in Jumo Health, an NYC clinical trial solutions company. Go deeper

• Nova Biomedical, a Waltham, Mass., maker of devices for blood testing and analysis, is in talks with PE and strategic buyers for a sale that could fetch more than $2b, per Bloomberg. Go deeper

• Repligen (Nasdaq: RGEN) offered to buy Maravai LifeSciences (Nasdaq: MRVI), a San Diego-based maker of capping reagents with around a $2.6b market cap, per Reuters. Go deeper

Deals o' the day

• Bernhard Sakmann, former senior managing director at Evercore, joined Leerink Partners as SMD and Justin Reed, former managing director at Evercore, joined as MD. Go deeper

• Avineet Punhani, former managing director at PNC Financial Services, joined GoldenTree Asset Management as principal. Go deeper

• Adam Cossman, executive adviser at Falfurrias Capital Partners, joined Jumo Health's board of advisers as chairman. Go deeper

• Ali Hasan, former chief commercial director at Vitality, joined Axa Health as commercial director. Go deeper

• Darcey Nett, principal at HealthX Ventures, and Lisa Strovink, managing partner at AllerFund, were appointed to the board of Amulet. Go deeper

• Sheila Savageau, director of benefits and rewards operations at General Motors, was appointed to the board of IntoValue. Go deeper

It's Personnel

😞 Venture capital is full of distribution deadbeats — Axios

📉 Revenues down and stock battered as MultiPlan faces scrutiny — NYT

💰 The CEO who made a fortune while his hospital chain collapsed — WSJ

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🍕 Claire hopes to avoid DNC-related congestion this week, but loved Axios Chicago's visit guide (and seconds the Middle Brow rec for tavern-style 'za).

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

1 big thing: Warburg's ModMed shopping for growth

2. The BFD: Audax buying Avantor unit for $650M

3. Deals o' the day

4. It's Personnel

5. Your daily dose

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August 19, 2024

1 big thing: Warburg's ModMed shopping for growth