What makes this an appealing space for investors?
Lewis: For one thing, the records retrieval sector is large and growing: $5 billion to $6 billion in annual revenue and growing between 7% and 9% per year.1 It’s also cycle-agnostic. Litigation isn’t impacted by economic cycles, and the volume of claims filed each year is fairly steady. At the same time, case complexity and the number of records required per claim are growing, making these services more important.
Basmajian: The sector is also highly fragmented. There are many small, local and regional businesses providing individual, single-location services. As carriers look to reduce their third-party providers, there is an increasing opportunity for buyers to create large, multi-service operators with regional or national footprints, which is appealing to larger customers.
Walker: Another thing that investors like about records retrieval and electronic records exchange is the opportunity it holds for tech enablement. These services are largely manual and labor-intensive. Companies that can introduce efficient, secure, reliable tech-based solutions are winning share from the more antiquated, manual business models.
Lewis: There’s also the ongoing trend toward outsourcing. Law firms, insurance carriers and self-insured corporations increasingly recognize the value of outsourcing a wide range of legal and insurance services. They’re looking for lower costs, faster turnaround time, improved data security, higher quality and increased bandwidth to focus on core activities.
What made Ontellus particularly appealing to investors?
Basmajian: Ontellus is one of the largest national providers of records retrieval services with an end-to-end technology-enabled suite of services. Its solutions exemplify what technology can do in this industry. Its ChartSwap product, for example, allows record requestors to digitally request, track, pay for and download records from healthcare providers.
Walker: Along the same lines, Ontellus has developed a partnership with Guidewire, one of the leading software providers for the property and casualty insurance market, embedding record ordering capabilities within Guidewire’s ClaimCenter solution. This degree of integration simplifies the process of requesting records and enables adjusters to work through claims more efficiently.
Lewis: Ontellus also has a proprietary database of data providers and requestors, key partnerships, and extensive knowledge of local, state and federal regulations, all of which enable it to effectively retrieve records in all 50 states. Just as important, the company’s products are fully compliant with the Health Insurance Portability and Accountability Act (HIPAA) and System and Organization Controls (SOC 2) requirements—the latter in particular is a major differentiator for the company.
What advice do you have for other investors interested in the space?
Lewis: Look for companies with strong management teams, scalable technology platforms and a solid track record of organic growth. Companies that have consistently grown their business with their existing customers are the ones that have proven that their value proposition goes beyond just providing a record at the lowest cost.