June 2018 M&A activity highlighted continued momentum on several compelling themes:
- Amazon makes its long-anticipated entrance into the pharmacy market: In a move that many have been speculating about for some time, Amazon formally flexed its mighty distribution muscle, creating ripples across the healthcare industry, particularly pharmacy. Competitors are on their heels due to the capacity and scale of the e-commerce giant. However, Amazon is not guaranteed success as it must learn to navigate the healthcare industry amongst large, experienced competitors.
- Primary care, supported by significant capital, is expanding its capabilities and reach: Primary care offers a crucial touchpoint with the patient that can create access to needed care, increase consumer engagement, encourage preventative care, and ultimately become the cornerstone of a value-based care and/or population health management system. This has become the thesis for meaningful capital deployed in primary care platforms that are expanding the reach and capabilities of this valuable service.
- Actionable insights are a highly valuable commodity: June saw high strategic interest and large acquisitions (at material premiums) of companies that can produce evidence-based and/or data-driven insights that are actionable and can lead to significant improvements in outcomes, while simultaneously reducing cost and waste.
The following transactions in June align with these themes:
- Teladoc (NYSE: TDOC), a provider of telehealth services, acquired Advance Medical, a virtual care provider with an extensive presence outside the United States, from Summit Partners for a purchase price of $352M. With a broadened international presence and ability to offer an expanded set of clinical services, the combination of companies creates a virtual service platform capable of serving businesses and individuals on a global scale. By acquiring Advance Medical, Teladoc builds on its experience in acquiring and integrating companies that share common goals and have complementary capabilities. The merger of Advance Medical's medical services with Teladoc's technology and operational scale helps meet the needs of multinational companies.
- New Enterprise Associates acquired Paladina Health, a company with an innovative primary care approach to delivering individualized healthcare, from DaVita (NYSE: DVA) for $100M. Paladina's model was designed to address the main causes of poor quality and escalating costs in the U.S. healthcare system, including lack of physician access, care coordination, transparency into costs, and quality of care. The Company focuses on aligning the incentive structure between all parties involved – the physician, the patient, and the benefit sponsor. This is achieved through delivering services to engage patients and drive improvements in health outcomes, patient satisfaction, and cost. The acquisition will support Paladina for continued growth in the primary care market.
- Envision Healthcare Corporation (NYSE: EVHC) entered into a definitive agreement to be acquired by investment firm KKR (NYSE: KKR) in a deal valued at $11.2B. Envision is a provider of physician services and medical transportation. Envision delivers care through its network of 25,000 clinical professionals at thousands of hospitals, surgery centers, and alternate care sites across the country. KKR plans to partner with management to help build upon the foundation in place and accelerate Envision’s growth going forward.
- Cardinal Health (NYSE: CAH) and Clayton, Dubilier & Rice (CD&R) announced that CD&R-managed funds will jointly invest with Cardinal Health in naviHealth, a manager of post-acute benefits for health plans and a value-based care partner to health systems and providers. naviHealth partners with health plans, hospital systems, at-risk physician groups, and other healthcare providers to manage post-acute care as part of value-based care programs. Through its technology platform, the company utilizes evidence-based protocols and clinical staff to quantitatively track patient recoveries, manage hospital discharges, reduce readmissions, and support efficient clinical decision-making, which taken together reduce wasteful healthcare spend. With an aging population, prevalence of chronic illness, and increased hospital readmission rates, payers and providers are seeking innovative ways to improve health outcomes while reducing cost, which is what naviHealth's services deliver. The post-acute care segment of the market is attractive due to high levels of waste, wide variability in spend, and the complex mix of clinical, operational, and technical resources required to address patient needs. This new investment structure brings in outside capital to help support naviHealth’s growth while allowing Cardinal to retain a meaningful ownership structure and optionality through a call feature to reassume a majority ownership in naviHealth at a future date.
- Verscend Technologies, backed by private equity firm Veritas Capital, agreed to acquire Cotiviti Holdings (NYSE: COTV) in a take-private deal valued at $5.1B. Together, the companies expect to have greater impact in the healthcare IT market by increasing affordability, reducing waste, and improving outcomes and quality, as well as offering new opportunities to create substantial value for clients, including complementary solutions across multiple intervention points in the payment process. Verscend and Cotiviti will offer an integrated end-to-end solution to address the nearly trillion dollars in healthcare waste and abuse across the claims payment and care continuum. Veritas Capital has experience driving growth for companies within the healthcare IT space and an understanding of the need to digitalize the healthcare system. It brings consumer focus and a drive for growth through R&D and product innovation.
- Amazon (NASDAQ: AMZN) agreed to acquire online pharmacy PillPack, giving the e-commerce giant the ability to ship prescriptions around the country, and overnight, creating a material threat to the $400B+ pharmacy industry. Amazon is paying an estimated $1B for PillPack, which presorts medications and ships them to customers’ homes in 49 U.S. states, excluding Hawaii. The online retailer beat out Walmart, which was also reportedly in talks to buy the company. The deal for PillPack ends speculation that Amazon would enter the healthcare drug distribution market. Many expect PillPack to be included as part of Prime, benefiting from Amazon’s logistics expertise and leveraging its 70M+ subscribers in the U.S. However, the healthcare market may be challenging for Amazon to disrupt. It is highly regulated, and depends on a complex web of contracts, interconnected data systems, and other relationships with health plans and drug-benefit managers that well-established players have had decades of experience navigating.
- OMERS announced an agreement to become the lead investor in Premise Health. Premise provides primary care services for its partner employers in the work setting, as well as occupational health programs and onsite pharmacies. It manages more than 500 employer-sponsored health and wellness centers across the country. Premise has been on the lookout for new growth channels. One strategy could be to create a referral network such that Premise can negotiate rates with payers. It could also venture into new markets such as population health management or telehealth. This investment aligns with OMERS’ previous experience in healthcare, having focused largely on physician-oriented, multi-site models facing minimal reimbursement risk. Premise now has significant capital to deploy as it grows to meet demand for greater healthcare access.
TripleTree and TT Capital Partners continuously monitor the market to identify the forces and themes impacting the healthcare industry. Thanks for reading and let us know if you have any feedback!