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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

It's Monday, health techies. Let's talk growth equity and Zelis. 

FTV Capital partner Alex Mason sees reasons for optimism in the growth equity market in 2024.

Why it matters: As sponsors are stuck in neutral by bid-ask spreads and interest rates, growth equity is more insulated from macro factors.

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

Can you describe the dealmaking landscape in the world of growth equity?

"We are cautiously optimistic, as certainly year-over-year comparisons in terms of deals are pretty favorable and in terms of just activity, we were at a total dearth of activity in 2023 so it's definitely up in a lot of ways.

In some ways, growth equities may be more immune to other conditions than the private equity guys, as they depend on how much leverage is used. We are still fundamentally really focused on revenue and profit growth.

Those businesses that are still growing are getting a lot of attention and so there's sort of too much money on the sideline to not have an active year in 2024."

How is operational change impacting efficiency in health care ? 

"Health care is resistant to operational change. Asking someone to change how they conduct their day-to-day in order to adopt technology is not a winning formula. So you think about these incremental ways in which I can slightly readjust what you're doing, but it's not a huge ask from the CIO or CTO from a budget perspective.

It's not a huge ask for the physician to change this. And you think about those gains and then it just starts to compound. And if you think about that and just multiply by sort of TAM along those things, it's really compelling. It doesn't make it the most sexy headline, because you take an operational thing and make a little bit better. I think that is really how those great health care businesses scale over time."

What are the biggest challenges to being a health care investor today?

"It's related to what is described as a challenge as an operator, which is the rate of adoption, I'd say, particularly on the provider side. The velocity of decisions and the inverse of that, though, is when these decisions are made, there are incredibly sticky and retentive businesses. You sort of cemented how these workflows happen inside an ambulatory setting or an inpatient setting or acute setting. So you've always got to remind yourself that there's the upside to the slow adoption to do it.

Regulation is another one and motivating factors around adoption of a company or being involved with a product or service. What I mean by that is I think you've always got to be aware around a highly regulated environment — that there is good reason for some slowness at times. You've got to take your head up from it and think about the longer-term picture and a longer-term arc."

🎣 Fun fact: Mason went deep sea fishing on his last vacation in British Columbia.

FTV's Alex Mason talks growth equity and investor challenges

Photo illustration of Alex Mason surrounded by abstract shapes. 

Photo illustration: Axios Visuals. Photo: Courtesy of FTV Capital

Zelis, the health care payer behemoth that has been weighing all avenues of a sale, is now leaning toward selling a 20–25% stake for roughly $17 billion, Bloomberg reports. 

Why it's the BFD: Zelis is one of the few A-plus assets out there, and this deal could break the dam for exits in private equity. 

Catch up quick: Bain and Parthenon merged Zelis Healthcare and RedCard Systems in 2019 in a deal valuing the combined business at $5.7 billion, and the company has completed a spate of acquisitions since.

CEO Amanda Eisel told Axios in 2022 that the company planned to position itself for a dual-track process.

It was reported in January that the Boston-based company started to weigh strategic options. 

Bain and Parthenon are being advised by Goldman Sachs Group Inc. and JPMorgan.

What's next: The private equity firm owners are considering selling a 20% to 25% stake in Zelis, and have received preliminary interest from health insurers, a payments company, buyout firms and sovereign wealth funds, Bloomberg says. 

💭 Aaron's thought bubble: Zelis continues to grow and Bain and Parthenon obviously want to take advantage of that. The fact that this deal has been in the works all year speaks volumes about the current landscape, as in other years it likely would have been done already. 

The bottom line: While it might be too late to open the floodgates for dealmaking this year (especially with the election around the corner), a successful transaction could change moods ahead of 2025.

Bain and Parthenon did not respond to requests for comment.

Zelis owners leaning toward selling stake for $17B

Illustration of a giant health plus on top of a pile of cash, the ground underneath is cracking.

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

• Hello Inside, a Vienna metabolic health company for women, raised a €1.65m seed led by Verge Fund, along with DocMorris and Kapa Ventures. Go deeper

• EQT agreed to buy a control stake in GeBBS Healthcare Solutions, a LA-based provider of revenue cycle management and risk adjustment solutions to hospitals and payers, from ChrysCapital. Go deeper

• OceanSound Partners acquired PAR Excellence Systems, a Cincinnati provider of automated supply chain management systems and support to health care organizations, from Northlane Capital Partners. Go deeper

• Castik Capital, a German PE firm, raised €2b for its third fund. Go deeper

• Schroders raised €400m for its third European buyouts fund. Go deeper

Deals o' the day

• Michael Keaveney, former partner at Capstone Partners, joined Amulet Capital Partners as a partner and head of IR. Go deeper

• Rochelle Walensky, formerly director of the CDC, joined Madryn Asset Management as senior adviser. Go deeper

• Daniel J. Ferhat, former partner at White and Williams, joined Saxton & Stump as a shareholder attorney. Go deeper

It's Personnel

👍 Biden aims to boost mental health coverage — Axios

💻 Medicare data breach bared info of nearly 1M people — Axios

Your daily dose

Illustration of a Axios brand medicine bottle that says "your daily dose" next to a spoon.

🐬 Aaron is happy the NFL is back and glad his Miami Dolphins won, despite a bad performance. 

🏆 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: FTV's Alex Mason talks growth equity and investor challenges

2.  The BFD: Zelis owners leaning toward selling stake for $17B

3. Deals o' the day

4. It's Personnel

5. Your daily dose

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September 09, 2024

1 big thing: FTV's Alex Mason talks growth equity and investor challenges