Bain Tech Opportunities buys and unites HST Pathways, Casetabs

Bain Capital Tech Opportunities is simultaneously acquiring and merging HST Pathways and Casetabs, two cloud-based software providers specializing in the ambulatory surgery center market, the firm told PE Hub.

The combined company will be led by executives from both teams, with HST’s Tom Hui serving as CEO of the new company. Casetabs’ existing investor Nexxus Holdings will remain a minority investor in the company.

The deal marks the first control investment and first healthcare IT transaction for Bain Tech Opportunities. As its fifth overall investment, Bain’s tech ops arm typically looks to write equity checks in the $50 million to $250 million range, investing behind companies under $500 million in enterprise value.

PE Hub wrote in mid-October that HST Pathways was in the late stages of a Piper Sandler-run sale process, with other contenders in the mix including Clearlake Capital-backed Provation.

HST Pathways, based in Lafayette, California, generates annual recurring revenue of $22 million and is profitable, sources familiar with the process said. The business was previously anticipated to command a valuation in the $175 million to $200 million range, although one source more recently said price talk had heightened to as much as $215 million.

Bain declined to comment on financials, but Darren Abrahamson, managing director of Bain Capital Tech Opportunities, said the firm developed a relationship with the Casetabs leadership team many months before the HST process kicked off.

“When the HST process got running we were already in dialogue and ramped up conversations with Casetabs with the idea of this combination being something different than what other bidders could bring,” the managing director said.

Both have seen rapid growth as of late. HST, the larger of the two businesses, has grown to serve nearly 800 facilities this year, up from a little under 400 in 2016; Casetabs today serves about 750 facilities, up from a little over 200 in October of last year.

HST and Casetabs have a long history, according to HST’s Tom Hui. “A couple of years ago we actually went down this road together [looking at] whether a merger made sense or not,” Hui said. “Bain was kind of the missing ingredient that brought our two companies together.”

The two businesses in January launched a revenue-sharing agreement, through which Casetabs’ Schedule Sharing application was integrated into HST’s practice management software.

In spite of covid-19, the company even before the Bain transaction has more than doubled its cash position from the beginning of the year, Hui said. In fact, the stress that the pandemic has placed on healthcare has underscored the important role that the ASC [ambulatory surgery center] plays in the delivery of care, he said.

“The ASC industry itself is growing in a very good way – in terms of the number of surgery centers, but also in terms of what surgery centers can do. Many sectors of healthcare have finally come to acknowledge that surgery centers provide very good quality of service at a reasonable cost metric.”

Combined, HST and Casetabs will provide a broad number of offerings to ASCs, including practice management software, physician office scheduling, care coordination, revenue cycle optimization, enterprise supply chain management, case costing, patient engagement and communication, an electronic health record system and analytics.

As a more than three-year-long investor in the now public Surgery Partners, Bain’s interest in the opportunity originated from its longstanding thesis around the ambulatory surgery center market, Abrahamson said. “The thesis starts with this view that the ASC is a compelling place within the healthcare system.”

Industry tailwinds include the shift of procedures being done in outpatient settings, driven by a preference from not only patients and physicians, but also from payers, which recognize that the ASC tends to be a lower cost, more efficient setting of care versus the hospital, Abrahamson said. Further, the industry is seeing more complex procedures moving into the ASC, he noted.

That lends to more demand for tools to utilize operating rooms more efficiently or schedule patients, for example: “What that is creating is just more and more demand for software as these centers become larger businesses as there’s increasing consolidation,” Abrahamson said.

HST, with around 20 percent market penetration today and gaining share quickly, has a lot of runway to cross-sell Casetab’s EHR Product into HST’s customer base, and vice versa, Abrahamson said. The combination unlocks new potential opportunities around things like data analytics while there is also room for small acquisitions, he added.

While there are enormous growth opportunities in which to participate within ASC alone over the next three to five years, agreed both Abrahamson and Hiu, the platform will keep an open mind.

“We also recognize that we possess some very valuable IP in the way we built our applications and we have the potential and ability to expand further beyond surgery centers,” Hiu said.