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Healthcare IT Investment Banking + M&A Advisory Healthcare IT M&A Update: Q4 2017 Review and 2018 Outlook February 26, 2018
Healthcare IT Investment Banking + M&A Advisory
Healthcare IT M&A Update:
Q4 2017 Review and 2018 Outlook February 26, 2018
Table of Contents
Contents M&A Market Brief: Global, U.S., and Healthcare IT M&A Activity, 2017 ............................................................................................. 3
Healthcare IT Global M&A Deal Value — Quarterly Comparison ......................................................................................................... 4
North American M&A, Yearly Comparison .............................................................................................................................................................. 5
Publicly Traded Healthcare IT EV/Revenue and EV/EBITDA Multiples Comparison by Quarter ........................... 6
2018 Healthcare IT M&A Trends & Drivers .............................................................................................................................................................. 7
Publicly Traded Healthcare IT Firms Valuation Table .................................................................................................................................12
M&A Spotlight: Philips acquires VitalHealth ........................................................................................................................................................ 13
M&A Spotlight: Danaher acquires IDBS .................................................................................................................................................................. 14
M&A Spotlight: Welltok acquires Tea Leaves Health ................................................................................................................................. 15
M&A Spotlight: Montagu acquires Servelec Group ...................................................................................................................................... 16
About Solganick & Co. ........................................................................................................................................................................................................... 17
DISCLAIMER
The information contained herein is of a general nature and is not intended to address the circumstances of any particular company,
individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. We perform our own research
and also use third party research. No one should act on such information without appropriate professional advice after a thorough
examination of the particular situation. This is not an offer or recommendation to buy or sell securities nor is it a recommendation
to merge, acquire, sell or exit a specific company or entity. We do not hold any equity or debt position in any of the securities listed
herein as of the date of this report.
Sources for our research and data include: PitchBook, MergerMarket, Wall Street Journal, Company Websites, SEC Filings, Bloomberg, TechCrunch, MergerMarket Corum Group, Rock Health, Mercom Capital, Results International, Healthcare IT News, MobiHealthNews, Health Fidelity, Business Monitor International, HIT Consultant, International Data Corporation, CB Insights
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M&A Market Brief Global, U.S., and Healthcare IT M&A Activity, 2017
Source: Solganick & Co. Analysis, Rock Health 2017 Year End Funding Report, Results International Healthtech 2017 Market Review, Mercom Capital group, Mergermarket’s Monthly M&A Insider January 2018, FactSet, IMAA Institute
Worldwide
Global M&A fell just short ofprevious years, asuncertainty appeared to takeits toll on investments. M&Adipped 3.2% in value to $3.15trillion (18,433 deals) whencompared to $3.26 trillion(18,592 deals) in 2016.
In 2017, there were 6,459cross-border deals worth$1.32 trillion, a 1.3% dropcompared to 2016. However,although cross-border M&Adecreased overall, its shareas a percentage of globalM&A was the second highestpercentage (41.9%) since thefinancial crisis.
Key Global M&A Statistics:-Seven of the top ten dealsannounced were cross-border.
-Of the year's top 10 deals,half were driven by U.S.-based buyers.
-European M&A activitytotaled 29.6% of globalactivity, the highest since2012 with $929.3B in value,the highest figure since 2014.
United States
While the US remained the most targeted area globally by value, following 5,326 deals worth $1.26 trillion, it saw its influence on global M&A reduce due to a resurgent European market. The US accounted for a 40.2% share of global M&A, its lowest since 2012.
Key US M&A Statistics:-In all of North America, the healthcare sector (Pharma, Medical, & Biotech) topped all other sectors with 588 deals, albeit with only one top-10 deal by value.
-U.S. M&A deal activity decreased in December, going down 18.8% with 776 announcements compared to 956 in November. Aggregate M&A spending decreased as well. In December, 15.8% less was spent on deals compared to November.
Healthcare IT
M&A activity in healthcaretechnology decreased in2017 to 119 deals, down 18%from 2016 and 36% from2015. Regardless, venturefunding for the industryreached new heights, as theaverage funding round hitan all-time high of $16.7million. Outcome Healthand Peloton Interactiveraised the largest digitalhealth investments on recordat $500 million and $325million, respectively.
Despite strong publiccompany performances in2017, the number of IPOs inthe last period was zero.
Nonetheless, increasinglysavvy healthcare technologyinvestors have continued todeploy capital into a privatecompany pipeline that seemslikely to deliver some IPOs topublic markets where highgrowth and eventuallyprofitable business modelscan attract strong valuations.
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Healthcare IT Global M&A Deal Value — Quarterly Comparison Global IT deal values over the course of the year reflect a resurgence, especially in Q4 2017
Source: Results International Healthtech Heartbeat Q4 2017 Market Review
170
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140
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90
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Q4 2017 Performance Healthcare IT – Europe
15.1%
Healthcare IT – U.S. (6.1%) Biopharma IT (9.4%) Generalists (1.3%) HealTech (5.1%)
Jan- 17 Feb– 17 Mar-17 Apr – 17 May– 17 Jun– 17 Jul- 17 Aug– 17 Sep– 17 Oct- 17 Nov– 17 Dec -17 LAS
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North American M&A, Yearly Comparison
Source: IMAA Institute
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Publicly Traded Healthcare IT EV/Revenue and EV/EBITDA Multiples Comparison by Quarter The average Healthcare IT public company revenue and EBITDA multiples stayed nearly the same from Q4 2016 to Q4 2017. EV/Revenue and EV/EBITDA multiples averaged 4.0x and 15.9x, respectively.
Source: Results International Healthtech Heartbeat Q4 2017 Market Review
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2018 Healthcare IT M&A Trends & Drivers New Tax Reform Incentivizes Repatriation of Healthcare Profits In a Wall Street Journal analysis, 311 U.S. based companies reportedly have over $2.5 trillion in offshore (non-U.S.) foreign profits at the end of their most recent fiscal years. By sector, healthcare has over $582 billion in cash to bring back to the U.S. This has already proved to be significant for M&A, as we’ve seen a number of sizable deals in early 2018 thus far:
January 7th : “Celgene to buy Impact Biomedicines for up to $7 billion” (Reuters) January 21st: “Sanofi to buy Biogen Hemophilia Spinoff for $11.6 billion” (Bloomberg) January 22nd: “Celgene Is Paying $9 Billion for Juno Therapeutics in Blockbuster Cancer Drug Deal” (Fortune)
Additionally, Johnson & Johnson chief executive Alex Gorsky recently asserted the company’s plans to repatriate $16 billion in cash. These recent events demonstrate the potential for increased deal flow as a product of increased domestic cash stockpiles due to new tax reform. Potential Entrance of Tech Giants Threatens Incumbents Wary of colossal software players like Amazon, Apple and Microsoft preparing to test the waters of healthcare, existing incumbents are bundling their service offerings and consolidating through M&A. In technology, many companies are developing their healthcare strategies by working with federal regulators, filing health patents, and attracting top healthcare executives. Examples of this include Apple’s new FDA approved band for Apple Watch, and Microsoft’s patent for smart glasses aimed at tracking nutrition. Even so, these developments are dwarfed by Amazon’s recent announcement of plans to collaborate with Berkshire Hathaway and JPMorgan Chase to form an independent healthcare company for their employees in the U.S. Altogether, tech penetration of healthcare is on the horizon. Further, as software becomes a point of differentiation in healthcare, tech giants have an advantage with expertise in the area as well as direct relationships with consumers. Cloud Computing: Cutting Costs & Retaining Reliability Although the healthcare sector has displayed its apprehensions regarding the reliability of transitioning to cloud based offerings, IT units are increasingly moving in that direction nonetheless. This is in part due to the availabiliity of common applications such as email, productivity, and commodity applications that steer away from sensitive patient data. CIOs are being forced to weigh the upfront capital costs of onsite IT infrastructure investments against the monthly service fees of cloud subscriptions that may provide more efficient business solutions.
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Artificial Intelligence, Machine Learning, and Analytics: The Balance of Insight & Caution As healthcare data has accumulated rapidly due to the implementation of electronic health records, healthcare entities have mountains of new data sets to comb through. New artificial intelligence and machine learning applications allow users to extract unprecedented health insights for patients. While this improvement in healthcare delivery is obvious, the FDA assembled a team earlier this year to oversee the impact such technology has on treatment decisions and ensure that companies conduct due dilliigence of these technological offerrings in order to protect patients. In relation to technology’s entrance into the space, IBM recently acquired private companies Explorys, Phytel and Merge Healthcare, giving it access to millions of patient records and data points for its Watson cloud. The IBM Watson group, which has been expanding its reach through partnerships with hospitals across the world, has also funded private companies including Pathway Genomics. Google acquired startup DeepMind in 2014, and started the DeepMind Health Initiative in 2016, and also partnered with UK’s National Health Service. The Potential for Blockchain In Healthcare The rise of interconnected healthcare and the increasing availability of data has spurred the need for a new model. The full utilization of patients' medical data requires data portability and the interoperability of records between systems. As a result, many healthcare firms are reaching out to blockchain developers to make use of data, and the modern blockchain infrastructure could unlock new channels to improve interoperability across the continuum of care, while increasing security. Applied to healthcare, blockchain enables healthcare professionals to have a single, real-time, verified copy of the patient's medical information, which could serve to increase the accuracy and speed of diagnosis.
Digital Health Interventions and Virtual Care
Health and wellness “wearables” are becoming one of the most sought-after innovations in digital health. The market is quickly diversifying as clinical wearables gain importance and as several renowned organizations integrate with each other. Not only wearables- there are several apps and biosensors that can assist providers with remotely tracking patient health, engage patients, interact with them, and streamline care operations. As technology becomes central to healthcare, 2018 will be the year when these apps and wearables boost the patient-physician interaction.
Source: Healthcare IT News, Health Fidelity, Business Monitor International, HIT Consultant, IDC FutureScape: Worldwide Health Industry 2018 Predictions, CB Insights Digital Health: Trends to Watch in 2018, CNBC, NY Times
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Annual funding of digital health companies sets new record of over $5B 2017 set the record for venture funding of digital health venutures due to significant increase in average deal size
Source: Rock Health
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Digital Health Public Company Performance
TICK Name IPO
Year Q1 2017
Open Q1 2018
Open 2017 High
2017 Return
CRCM Care.com Inc 2014 $8.37 $18.65 $20.88 115.53%
TDOC Teladoc Inc 2015 $16.50 $36.20 $38.40 111.21%
TRHC Tabula Rasa HealthCare Inc 2016 $14.91 $29.25 $38.23 88.13%
IRTC Irhythm Technologies Inc 2016 $29.99 $57.58 $66.20 86.90%
MODN Model N Inc 2013 $8.75 $15.30 $16.75 80.00%
SLP Simulations Plus, Inc. 1990s $9.00 $15.65 $17.45 78.89%
VCRA Vocera Communications Inc 2012 $18.29 $29.96 $32.23 65.23%
INOV Inovalon Holdings Inc 2015 $10.35 $14.45 $17.80 44.93%
OMCL Omnicell, Inc. 2000s $34.40 $49.50 $55.40 40.99%
MB MINDBODY Inc 2015 $21.65 $30.80 $36.25 40.65%
CERN Cerner Corporation 1980s $49.40 $68.57 $73.86 36.42%
VEEV Veeva Systems Inc 2013 $41.35 $55.07 $68.07 33.69%
STRM Streamline Health Solutions Inc. 1990s $1.30 $1.68 $2.82 30.00%
IQV Iqvia Holdings Inc 2014 $76.93 $99.76 $110.67 27.26%
CPSI Computer Programs & Systems, Inc. 2000s $23.90 $29.90 $36.15 25.73%
MDSO Medidata Solutions Inc 2000s $50.87 $64.60 $85.92 24.57%
ATHN athenahealth, Inc 1990s $108.55 $135.90 $158.66 22.56%
NVTA InVitae Corp 2015 $8.75 $9.34 $11.88 3.77%
QSII Quality Systems, Inc. 1980s $13.75 $13.93 $17.74 -1.24%
HSTM HealthStream, Inc. 2000s $25.56 $23.56 $31.53 -9.39%
BNFT Benefitfocus Inc 2013 $30.00 $26.75 $37.10 -10.00%
EVH Evolent Health Inc 2015 $14.90 $12.80 $27.50 -17.45%
CSLT Castlight Health Inc 2014 $4.95 $3.80 $4.75 -24.24%
FIT Fitbit Inc 2015 $7.94 $6.01 $7.32 -28.09%
NH NantHealth Inc 2016 $9.83 $3.22 $8.50 -68.97%
CNXR Connecture Inc 2014 $1.71 $0.17 $2.44 -90.64% Source: Rock Health Digital Health Public Company Index
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Notable M&A Transactions, Q4 2017
Deal Date Seller Acquirer Description of Target
Deal Size
(mm)
EV/ Revenue
EV/ EBITDA
Dec 11, 2017
Population health management software - - -
Dec 5, 2017
Healthcare data aggregation and management platform
- - -
Dec 4, 2017
Dental practice and treatment management software
- - -
Dec 5, 2017
Medical system and information interoperability software
- - -
Nov 23, 2017
Various healthcare software offerings as well as automation software for other industries
296.48 3.6x 10.7x
Nov 24, 2017
Radiology workflow improvement software
- - -
Oct 30, 2017
R&D data management platform for life sciences - - -
Oct 11, 2017
Analytics and marketing software for patient engagement
- - -
Source: Results International HealthTech Heartbeat, 2017 Market Review
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Publicly Traded Healthcare IT Firms Valuation Table
Ticker Name Market
Cap EV/Revenue EV/EBITDA Stock Price*
MDRX Allscripts 2.75B 2.41 23.77 15.20
ATH Athene Holding 10.37B 0.62 - 51.89
BNFT Benefitfocus 788.08M 3.42 - 25.20
CRCM Care.com 566.17M 2.79 43.44 18.82
CSLT Castlight Health 521.57M 3.65 - 3.90
CE Celanese 14.93B 3.07 15.46 110.10
EVH Evolent Health 1.14B 2.24 - 14.80
FIT Fitbit 1.30B 0.41 - 5.49
HMSY HMS Holdings 1.47B 3.26 17.03 17.54
IQV IQVIA Holdings 21.53B 3.87 17.48 103.50
MCK McKesson 36.40B 0.21 10.8 174.58
MDSO Medidata Solutions 4.07B 6.95 44.74 69.61
MB Mindbody 1.59B 8.15 - 34.10
NH NantHealth 391.46M 5.19 - 3.66
OMCL Omnicell 1.94B 3.10 52.17 51.05
RWS RWS Holdings 1.20B 6.27 24.66 438.00
TRHC Tabula Rasa Healthcare 678.46M 5.39 218.87 35.37
TDOC Teladoc 2.13B 10.66 - 34.90
VEEV Veeva Systems 8.37B 11.47 45.92 59.21
VCRA Vocera Communications 766.65M 4.54 - 26.24
Average 4.4x 46.8x *Stock Price as of 1/24/2018 Source: Solganick & Co. Analysis, Pitchbook
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M&A Spotlight Philips acquires VitalHealth to bolster population health portfolio December 11, 2017 - Royal Philips has acquired VitalHealth for its cloud-based population health management technology.
Founded in 2006 by Mayo Clinic and the Netherlands-based Noaber Foundation, VitalHealth develops tools — for outcome measurement, patient engagement, care coordination and analytics — to help manage chronic disease. Its products are deployed at more 100 healthcare networks in the US and abroad.
Philips has been broadening its pop health business in recent years. It acquired Wellcentive in 2016, giving it an informatics platform to help organizations better aggregate and analyze clinical, claims and financial data across hospital and health systems.
VitalHealth has portfolio of telehealth applications for patient engagement, as well as a care coordination platform to help care providers better integrate data from across care settings.
Officials said it will complement Philips Wellcentive’s solution to help improve patient outcomes, as the combined portfolios will enable healthcare providers to better identify and manage high-risk, high-cost patient populations.
Carla Kriwet, chief business leader of the Connected Care & Health Informatics Businesses at Royal Philips, agreed that the VitalHealth technologies will help Philips serve hospitals and payers were they transition to value-based care.
Deal terms were undisclosed.
Source: http://www.mobihealthnews.com/content/Philips-acquires-VitalHealth-bolster-population-health-portfolio
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IDBS and Danaher accelerate innovation
October 30th, 2017 – IDBS, a leader in enterprise scientific informatics platforms, today announced it has been acquired by the life sciences platform of Danaher Corporation (NYSE: DHR).
IDBS is a leader in enterprise scientific informatics platforms. The IDBS E-WorkBook Cloud is the backbone for many organizations’ R&D efforts by enabling them to capture, manage and report on critical research data.
IDBS has joined Danaher’s Life Sciences platform, which includes such businesses as SCIEX, Phenomenex, Beckman Coulter Life Sciences, Pall, Leica Microsystems and Molecular Devices. IDBS will help provide the foundation for a portfolio of life sciences informatics and knowledge management solutions that will accelerate the speed of discovering, developing and producing new drugs and therapies.
Danaher is a global science and technology innovator and shares our purpose of helping customers solve complex challenges and improving quality of life around the world. Their trusted brands hold unparalleled leadership positions in diagnostics, life sciences, dental, environmental and applied solutions. By linking the IDBS knowledge management platform with their comprehensive instrument coverage it will create a “data spine” that connects instruments, creating opportunities for new information-based services and the realization of the digital lab of the future. We have found what I believe to be the right home for our business, and it is incredibly exciting to know that IDBS will form the foundation of Danaher’s new life science informatics business.” said Neil Kipling, Founder and CEO at IDBS.
Deal terms were undisclosed.
Source: https://www.idbs.com/news-events/press-releases/2017/10/IDBS-and-Danaher-accelerate-innovation-in-drug-development/
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Welltok acquires Tea Leaves Health, bolstering analytics suite October 11, 2017 - Welltok, best known for its CafeWell Health Optimization Platform, announced on Wednesday that it has acquired Tea Leaves Health.
Tea Leaves Health provides SaaS-based analytics and a marketing technology platform used by hospital systems to target consumers and physicians with coordinated engagement campaigns.
Welltok said its platform organizes and integrates a growing trove of health information to give personalized guidance and support to health plans, employers and their members. Its customer base includes about 30 percent of the nation’s top health systems and more than 400 hospitals. Welltok exes say Tea Leaves Health will boost Welltok’s growth within the hospital market and make it possible for the company to serve all types of population health managers.
Welltok’s growth by acquisition is a similar tack to telehealth company Avizia, which on Tuesday announced the acquisition of Carena. That deal means Avizia strengthened its platform and now offers software, mobile applications, virtual care devices and a provider network.
As part of Welltok, Tea Leaves Health, founded in 2011, will have access to additional capital and technology resources to accelerate product development. The company’s core products, Patientology for customer relationship management and Physicianology for physician relationship management, provide clients advanced business intelligence and technology to leverage proprietary data analytics.
Deal terms were undisclosed.
Source: http://www.healthcareitnews.com/news/Welltok-acquires-tea-leaves-health-bolstering-analytics-suite
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Montagu completes acquisition of Servelec Group January 15, 2018* - Montagu Private Equity (“Montagu”), a leading pan-European private equity firm, announced the acquisition of Servelec Group plc (“Servelec”) has become effective.
Servelec, a UK-headquartered technology group that provides software, hardware and services globally to the healthcare, social care and education, oil and gas, energy and utilities sectors, is now wholly and privately owned by Montagu.
Founded in 1977, Servelec has significant intellectual property with a strong technology and engineering heritage. The business was listed on the London Stock Exchange in December 2013. Since then, the Group has pursued a combined organic and inorganic growth strategy, completing acquisitions funded by internally generated cash and bank debt. Today, Servelec employs a highly skilled and knowledgeable workforce of approximately 600 people, operating internationally
Deal terms were $296.48 million in cash, representing 3.6x EV/Revenues and 10.7x EV/EBITDA multiples, respectively.
*Initially announced November 23rd, 2017
Source: https://www.Montagu.com/news/Montagu-completes-acquisition-of-Servelec-group-plc
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About Solganick & Co. Solganick & Co., Inc. is an independent investment banking and M&A advisory firm focused exclusively on the global technology and digital media industry sectors, including an active practice within healthcare IT. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with entrepreneurs, companies and leading private equity firms within the sectors we cover. Please contact us for information regarding this report or to inquire about an M&A transaction.
Los Angeles: 811 W 7th St., 12th Floor Los Angeles, CA 90017 San Francisco: 650 California St. San Francisco, CA 94108 +1 (310) 684-3130 www.solganickco.com Aaron Solganick, CEO Alexander Khoras, Director of Business Development [email protected] [email protected] Frank Grant, Managing Director Sam Sheedban, Associate [email protected] [email protected] Sergio Rivera Vazquez, Managing Director Rachael Fang, Vice President [email protected] [email protected] John Mascarenas, Managing Director Dominic Collins, Analyst [email protected] [email protected] Austin Longerbeam, Analyst [email protected] Follow Us on Twitter: @Solganickco
