“We think a lot about high-quality, durable technology and technology-enabled businesses in healthcare that can persist in any regulatory environment,” explained Alex Mason, partner at FTV Capital. Based in San Francisco and founded in 1998, FTV has raised $6.2 billion. The firm invests in three sectors: enterprise technology and services; financial services; and payments and transaction processing. Many of the subsectors the firm invests in are in the healthcare industry. Mason spoke with PE Hub for our ongoing series profiling PE firms that invest in healthcare.
“At FTV, we’re excited about all things digital health, which can be software to providers, for example,” Mason said. The “massive” amount of paper still in healthcare, the inefficiency of payment transfers and payment modalities are big opportunities for the firm.
“There’s a really interesting business called Luma that we’re involved in, which is really pushing the boundaries of digital patient success and digital patient engagement,” he explained. “We see a lot of parallels and use cases if you think about FTV investing in enterprise technology companies and other end markets, similar to healthcare, just going through massive digital transformations.
“There are a couple of dynamics at play, one of which is what we call the consumerization of healthcare. Many areas outside of healthcare are accustomed to things becoming more digital. If you look at other historically analog industries, like wealth management, there’s fee compression as a result of this market opening up and expanding.”
Mason noted that the “tipping point in software and technology adoption is not more deep domain healthcare knowledge, which you need as a basis, but an understanding across a multitude of end markets. Gale Healthcare and Luma are great examples of partnering with entrepreneurs in the healthcare ecosystem.”
“Price transparency is another big one along with the notion that you can have something that’s more and more digital,” said Mason. “The friction is decreased in the system with the more information the consumer has.”
He continued, “If you think about the world of healthcare, prices are incredibly opaque. There is also the question around adoption, which is how do folks and how do patients and consumers actually consume this information? For example, what’s the role of an expert, a broker or a healthcare concierge service, anything that can help translate what the healthcare world is saying and what decisions you’re trying to make as a consumer? If you combine all of those three really powerful forces together, we think there is a massive amount of opportunity. They are all interrelated, meaning if you have massive amounts of technology, innovation, and you can start to engage the patient a little more digitally, not providing a level of price, transparency, or information is just going to stall out that adoption. At FTV, we really think about these three moving parts together.
“Gale Healthcare is an interesting example of being an enabler,” Mason went on to say. “We don’t focus on med devices or life sciences. When we draw that boundary line, everyone gets frustrated, like, well, the US healthcare system is broken with the lens of the self-insured universe where we sit. It’s working exactly how it’s designed. There are a bunch of intermediaries and a lack of price transparency. There’s an ongoing and consistent tail pushing costs, and it takes a lot to mitigate against that and change that. But I think that lens of just understanding economic motivations across the value chain is so important.”
“Over the last 25 years, we have built and nurtured our Global Partner Network (GPN), which is comprised of more than 170 enterprises today,” he told PE Hub. “We have a dedicated business development team and an organizational structure that helps our portfolio companies interact with those enterprises, allowing us to facilitate hundreds of commercial introductions each year.
“We have a very active proactive sourcing model,” he said. “We’ve spent a lot of time doing sector research. Oftentimes, these businesses are bootstrapped with a lightly institutionalized capital base, and they have spent a lot of time bringing some form of technology into their service offering, which can be a tech-enabled service, or they can be a pure product company. We like the intersection of those two, and these are the sort of lanes we participate in. Oftentimes, we hear about these companies through our Global Partner Network from folks that are partnering with interesting enterprises to help reduce healthcare costs or bring increased benefits and transparency.”
Mason explained, “In addition to making commercial introductions, we are great at really understanding the pain points of the business and where these sort of choke points of growth are and helping to navigate that together. About 75 percent of the time these companies are profitable when we invest, so we’re not solving a capital problem, per se. With our investment we’re really thinking through these things, so we tend to think a lot about the integration and intersection of healthcare, which could be a software and integrated payments experience.”
Tail end of covid
“It’s a very complicated macro environment for any healthcare constituent provider or health system entity and those that are in the provision of care,” Mason pointed out. “One thing worth mentioning is the tail end of covid and what that is doing to the ecosystem. It’s not just in how people prioritize their own budgets and spend, but as patients we have deferred a lot of healthcare activity. There is a delayed maintenance concept in healthcare now. People just didn’t physically see their doctors. There’s obviously the rise of telehealth too.
“The labor dynamic is a super interesting problem and opportunity,” he said. “Gale in particular sits at the intersection of that. The question you have to ask yourself if you’re going to be successful in scaling these companies is what is the end consumer? Who is the decision-maker budget owner influencer? Where does the staff break in their priorities? And how does it enable them to deliver better care? And can better care be wanting more people to show up in my office so our care can lead to better outcomes and also eventually getting paid more quickly? Intersecting all of that is the challenge and the opportunity.”
Flight to quality
“At the broader pricing valuation and public market dynamic, there is always an ongoing flight to quality that has been accelerated in this market,” said Mason. “If you just think about the stage in which healthcare is in terms of its adoption, everyone quotes 5-8 percent. It’s a massive market, and you create this really interesting tailwind effect by investing behind it.”
He noted that the whole landscape of the provider space as an acquirer is “very interesting,” and added, “I think others will follow or have followed in really trying to move to more of the non-clinical side of healthcare, which is about 20 to 30 percent of healthcare itself.
“We generally think of value creation in our companies as the ultimate success or ultimate determinate,” said Mason. “There is a lot to think a lot about: what’s the business we want to build over the next 4, 5, 6, 7 years together, and can we achieve that in half our time? So that’s product innovation and it can be acquisitions, talent, or commercial introductions.
“We really aren’t in the flip business,” he continued. “We think about scaling healthcare assets and value creation in a way that’s consistent and persistent across the business.”
FTV invested $60 million in Gale Healthcare in January 2022 and $130 million in Luma in November 2021, and it invested in 6DH in September 2020.
FTV exited Empyrean Benefits Solutions in November 2019 after initially investing in March 2013. The asset was acquired by Securian Financial; exited Health Credit Services in October 2019 after initially investing in January 2017. The asset was acquired by Ally Financial; exited MedSynergies in October 2014 after originally investing in April 2004. The asset was acquired by Optum/UHC; exited Presidio Reinsurance Group in December 2012 after originally investing in July 2007. The company was acquired by PartnerRe; exited VPay in December 2020 after initially investing in February 2016. The company was acquired by Optum.
FTV’s healthcare portfolio highlights
(Dates refer to initial investment)
6DH: Helps companies and their employees take control of healthcare costs by bringing transparency to medical reimbursement claims. (September 2020)
Gale Healthcare: A healthcare technology and payments platform that provides per diem, contract, and travel temporary staffing services in post-acute and acute healthcare settings, along with daily pay for healthcare staff. (January 2022)
Luma: A patient success platform that unifies and automates the patient healthcare journey, currently used by more than 550 health systems, hospitals, federally qualified health centers (FQHCs), and clinic networks nationwide. (November 2021)