There has been a noticeable upward trend in the number of investments made by private equity firms in healthcare. But is this a good thing? Leaders of several Health IT companies say it is.
Last year, there were two high profile private equity deals: Envision Healthcare’s $9.9 billion acquisition by investment firm KKR and athenahealth’s $5.7 billion sale to Veritas Capital and Elliot Management Corporation’s Evergreen Coast Capital. There have also been several recent deals including:
- New Mountain Capital’s involvement in Signify Health’s acquisition of Health IT company, TAVHealth
- Clearlake Capital backing of symplr’s acquisition of API Healthcare
- Aldrich Capital Partners’ $41M investment in eHealth Technologies, a provider of medical record retrieval, organization services and image-enabled HIEs
According to PwC’s Health Research Institute, the number of healthcare deals involving private equity is set to reach record levels in 2019.
So is all this private equity investment a good thing for healthcare? I honestly didn’t know, so I asked several prominent Health IT business leaders for their opinion. Here is what they said.
Paul Black, Chief Executive Officer, Allscripts
This is a natural evolution of Healthcare IT as an industry unto itself. It wasn’t that long ago that you had a whole bunch of mom and pop companies making point solutions for hospitals. Fast forward to 2019, now everyone has an Electronic Medical Record (EMR) in place and customers are now looking to surround that asset with other solutions for precision medicine, social-determinants of health, and interoperability, for example.
However, it still takes a lot of time, energy and effort to make all these systems work together which means you need a lot of capital. So when you are a small company and you don’t have a lot of scale, that becomes a barrier. Over time some of these companies have gone out of business, while many others have been bought. Whenever you have acquisitions taking place, that’s a sign of opportunity for private equity firms.
What they are ideally looking for is a company with solid financials, a good team and solution that has both depth and breadth. This becomes a platform that they can then lever into other acquisitions to make a bigger whole. This is what we are seeing with the GE acquisition, for example.
What you need to be careful of is the impact on the install base. People don’t like to move to something new, especially when they have no say in the matter. I think that some private equity firms that wander into this landscape and think that they can buy a bunch of companies and tell customers “here is your new platform”, will find that this is much harder to do in healthcare than in other industries. There have even been some recent reports that say that switching EMRs is not worth it.
Erkan Akyuz, President & CEO, Rhapsody
The continued interest from private equity firms shows that there is expected growth in this sector. Improving the quality of care with technology has always been the key. Layer on top of this, the wave of consumerism that is enveloping healthcare – something that PE firms understand well – and you have an environment for investment. They wouldn’t be investing if there wasn’t an expectation of growth. That’s good news for Health IT.
Chris Gervais, CTO and CSO, Kyruus
The increase in private equity in healthcare proves that Health IT matters. It’s always exciting when there is an opportunity to take multiple things, put them together and force multiply the value. The only concern I have is how much new product development is being put on the shelf. In a pure consolidation play, there isn’t as much focus on product innovation. It would be nice to see more dollars flowing into healthcare to fund the next generation of products. There are some exciting technologies that work at a small scale that need capital investment to turn them into an enterprise-class solution that can be more widely adopted.
Eric Rosow, CEO, Diameter Health
If you really want to make an impact in healthcare, you really need the right strategic capital partner. They can help you accelerate your vision and bring in the right talent to move things quickly. Anytime you can put good money to good use is a good thing for healthcare.
Ken Comée, Chief Executive Officer, CareCloud
We see this infusion of capital as a signal that the Health IT market is maturing and evolving into one with fewer, but stronger, competitors. It’s also a signal that the market is ripe for a new era of innovation. This “smart money,” as it’s sometimes described, is typically conservative and therefore likes to see clear paths to high returns – their growing involvement in this space is evidence of the opportunity they see and the growth ahead. We expect to see the part of the market serving small-to-midsize medical groups consolidate into a much smaller set of companies.
At the end of the day, a market with 10-20 strong competitors at scale is going to be better able to invest in the large, long-term projects needed to bring healthcare to the 21st century than the current highly fragmented group of 700+ EHR vendors.