Software solutions designed to improve clinical and administrative processes have been widely adopted by healthcare services providers. Yet there’s still plenty of innovation happening around these technologies, with several specific sectors standing out as interesting investment opportunities.
This was one of the key messages that Harris Williams professionals Sam Hendler, Dan Linsalata, and Nick Owens took away from the annual HIMSS Global Conference & Exhibition, which explored how to transform health through information and technology. Here, the trio share their insights on the current landscape of healthcare technology solutions and vendors, as well as the opportunities this market presents for strategic buyers and private equity investors.
Five Segments Offering Attractive Opportunities
The overall healthcare IT space continues to be incredibly attractive to strategic buyers and private equity investors, with both pure technology players as well as healthcare services specialists seeking greater exposure to enabling technologies. That’s true not only because healthcare is inherently non-cyclical, but also because all constituents of the healthcare ecosystem have accelerated their adoption of technology that enables them to deliver higher quality care at lower cost.
Within the broader healthcare IT market, five segments offer compelling opportunities for buyers and private equity investors, and are seeing robust M&A activity.
1. Healthcare operations. These solutions help providers streamline various non-patient-facing areas such as supply chain, vendor management, organizational policy management, regulatory and standards compliance, and cost planning and control.
“These have become key to helping provider organizations run more efficiently and cost effectively, an increasingly critical challenge as networks take on a greater share of financial risk for the patients they treat,” observes Linsalata, a director in the Harris Williams Technology, Media & Telecom Group.
2. Inpatient technology. Attractive emerging solutions in this area include clinical decision support, quality measurement, and patient-safety monitoring tools, as well as technologies that help providers deliver value-based care.
“These point solutions complement the Electronic Medical Records (EMR) systems that are already in a hospital by generating deeper insight into what’s happening both with an individual patient and across a broader population,” notes Owens, a director in the Harris Williams Healthcare & Life Sciences Group. “They can really help a hospital to both improve outcomes and manage costs.”
3. Specialty EMR systems. These purpose-built solutions deliver clinical and practice management content to a specific care setting, such as behavioral health, physical therapy or gastroenterology.
“Highly specialized EMRs that target care settings outside the four walls of the hospital are particularly sought after given the continued push to treat patients in the lowest cost environment and the need to have a holistic view of the patient across the continuum of care,” said Hendler, a managing director in the Harris Williams Technology, Media & Telecom Group.
4. “Retail-focused care” solutions. These include technologies for such providers as ophthalmologists, physical therapists and for-profit autism treatment centers.
“Patients typically pay a good portion of the fees for these services out of pocket,” says Linsalata. “When a vendor of one of these solutions can include a payment module in its software, they can monetize those credit card swipes.”
5. Revenue cycle management software. “The reimbursement environment within healthcare continues to become more complex, not less, with payment for services now coming from multiple parties, not just insurers,” Hendler observes. “There’s a real need for next-generation software tools to help manage that process.”
Additionally, according to Owens, getting paid quickly is critical in healthcare: “When you look at the ability to collect payment, if a provider doesn’t collect within three or four months, the probability of ever fully collecting falls dramatically.”
However, while all of these segments are experiencing considerable demand, within each there’s only room for a handful of winning vendors. Thus, buyers and private equity investors have to determine which vendors are clearly capturing the most market share and growing faster than the overall market, while ensuring there’s sufficient addressable market opportunity to continue that growth rate.
Building Platforms and End-to-End Solutions
Given the preceding, what’s the state of M&A in the healthcare IT market? Several key trends have emerged from Harris Williams’ work on roughly two dozen recent deals in the space.
For one thing, fragmentation lends itself to building platforms, says Hendler. “There may be one or two leading vendors in a sector and then a long tail of smaller vendors that may only have a few million dollars of revenue, but some attractive functionality or customer base that buyers and private equity investors want to roll into the broader platform,” he notes.
According to Owens, many players are looking to buy the leading vendors in each segment to create a healthcare IT category killer. “That’s particularly true within the specialty EMR space, as well as data and analytics for pharmaceutical manufacturers,” Owens observes. “There’s definitely a pervasive strategy around acquiring a number of point solutions and taking a portfolio approach to the market.”
In some cases, vendors themselves are purchasing suppliers of different types of tools to build an end-to-end solution across the continuum of care. “Instead of trying to take one solution and apply it to a different care setting—which is really difficult to do because workflows and clinical content are so care-setting specific—we’re seeing large vendors buying specialty solutions across a number of care settings,” says Linsalata. “They may be integrating some of the back-end infrastructure, but the front-end workflows continue to be very different.”
With healthcare always in demand among consumers, the industry will continue to offer attractive opportunities for buyers and private equity investors. In particular, companies that sell the technologies providers, payers, and pharmaceutical manufacturers need to effectively manage their increasingly complex businesses can be a winning play for buyers and private equity investors that want to increase their presence in the growing healthcare market. The key will be to identify the technology vendors best positioned to capitalize on that growth and deliver strong returns over the longer term.
Published March 2019