GTCR builds out Cedar Gate Technologies with more to come

Following Cedar Gate's acquisitions of Deerwalk and Citra Health this year, the healthcare IT platform sees more white space opportunity as value-based models of payment show resilience.

GTCR has been quietly building out Cedar Gate Technologies, and the healthcare data and analytics business remains in growth mode despite the Chicago firm having launched the platform more than six years ago.

On the heels of Cedar Gate’s acquisition of Deerwalk its second of the year – GTCR’s Sean Cunningham told PE Hub that although the firm teamed up with former Medco chief David Snow several years ago, examining what a potential exit path looks like is not top of mind. 

Part of the reasoning: strong end-market tailwinds persist, including the continued transition to value-based care, which Cedar Gate helps facilitate for payers through its various tools and technology. “We’re probably more focused on continuing to build the business – both organically and through M&A,” the managing director said.  

Under value-based or risk-based payment models, providers assume financial risk and are encouraged to prioritize quality and lower costs as opposed to the volume of services.  Providers with VBC-models have thrived and proven more sustainable tichrough the pandemic, adding fuel to a trend already in flight.

Our thesis all along was more healthcare reimbursement is going in this direction. We’re trying to build the tools in anticipation of where we think the puck is going,” Cunningham said. “More and more healthcare spend is adjudicated under value-based care. That didn’t really exist, or was nascent [at the time of our initial investment].”

Broadly, the GTCR healthcare team has remained active through this pandemic year. In 2020, two portfolio companies went public and nine investments were made, including one new platform and eight add-ons. Three realizations were made.

Following Cedar Gate’s acquisitions of Deerwalk and Citra Health in December and June, respectively, the platform’s EBITDA lies in the $30 million to $40 million range with its growth well into the double-digits, a source familiar with the company said. GTCR declined to comment on financials.

GTCR’s original partnership in August 2015 with Snow, then a 34-year veteran of the healthcare industry, is consistent with the firm’s “Leaders Strategy.” But its initial intention to acquire a leading healthcare IT business as the foundation of Cedar Gate didn’t go exactly as anticipated. 

“We saw a lot of stuff, but we didn’t find quite the right businesses and at quite the right prices,” Cunningham said. 

Fortunately, GTCR was flexible. The firm originally told Snow, “’Hey, we’d be willing to invest capital as you’re building out your team and technology tools that we did not think existed in 2014.’ And in fact, we did that,” Cunningham said. 

In late 2016, Cedar Gate’s own internally-developed SaaS analytics tool, ISAAC™, was launched into the marketplace, providing both large providers and payers with the ability to evaluate cost and quality of care within their delivery network. 

While a small portion of the up to $200 million of equity capital originally committed by GTCR to support the strategy went to ISAAC™, the majority was left for M&A (Snow in 2014 also said he planned to invest up to $20 million in the company).

Still, it wasn’t until 2018 that Cedar Gate, four years into the partnership, made its first acquisition. The firm bought a company called Global Healthcare Alliance, a technology tool for adjudicating bundled payments – a very high-growth area of value-based care. 

Come 2020, the GTCR-backed platform managed to clinch two deals with businesses it already had familiarity with for a long time, Cunningham said. 

The first was Citra, which it bought from Great Point Partners in June after the sellers’ sale process – initially underway pre-covid – persisted later this year. 

In connection with the deal, GPP produced a 3.6x return on Citra, PE Hub previously wrote. In buying Citra, Cedar Gate gained new software tools specifically designed to help large healthcare providers track capitated lives. 

On the heels of Citra, the platform last week snapped up Deerwalk. Deerwalk helps healthcare payers, third-party plan administrators and self-insured employers, among others, ingest a large amount of healthcare data to better understand their spend, their patient populations and covered lives.

Since 2010, GTCR has made 21 new platform investments and completed more than 80 add-on acquisitions for a total of more than 100 healthcare transactions with a combined purchase price of over $14 billion, the firm told PE Hub.

The firm has also realized several of these investments over the past five years, selling five healthcare portfolio companies for a combined enterprise value of over $3 billion and completing IPOs for two companies at a combined enterprise value of approximately $16 billion.

Update: This report has been updated with the correct spelling of David Snow.