HCIT M&A in the wake of COVID-19; Blackstone goes shopping Morning, healthcare hub!

More fallout from the coronavirus--healthcare conferences are cancelled but insiders say don't panic

Is it just me, or is it impossible to stay focused on any one thing when the coronavirus is all anyone wants to talk about?

Since I wrote you a week ago, HIMSS 2020, the big global health-tech conference in Orlando, is among the long list of conferences that have been called off. (Although it appears HIMSS is ”going digital”). The MWE Healthcare Private Equity Symposium is carrying on in Miami, but after my company instituted a non-essential travel policy, I regretfully unpacked my warm-weather conference clothes. Howdy from Brooklyn.

COVID-19 and healthcare: Don’t panic. Healthcare, specifically, is more insulated than other industries, many sources told me this week. There’s going to be a fallout; just no one can quantify it, I’m told.

“I don’t know of a company yet that is meaningfully impacted. Healthcare companies are not,” an industry banker commented.
If you’re looking at the last recession as you hash out how serious the reaction to COVID-19 will be on your portfolio companies or auction processes, healthcare is clearly a good spot to be.

Investments made during the last recession had a MOIC nearly 50 percent higher – 2.7 vs. 1.8 for other industries – according to Bain & Co analysis in partnership with CEPRES, the former which earlier this week published their annual ”Global Healthcare Private Equity and Corporate M&A Report”.

Sure, physician office visits and elected procedures at hospitals may decline in the short-term, but if you’re a capitated group, that’s a good thing, the banker said. “If anything, managed care companies will have a huge windfall.” In other words, care coordination grows increasingly more important in a situation like this.

From a debt perspective? “My personal view for weeks now has been: this is not a covenant issue; this is a liquidity issue,” one lender said. PE and lenders need to have a cooperative approach, he said: “We will have to give these guys oxygen … We need to be prepared for three to four months to try to fund liquidity into these businesses – both equity and debt.”

The impact is more acute of people getting laid off and not having insurance anymore – vs. a few months of corona – the lender suggested.

While the severity and magnitude of COVID-19 impacts remain very uncertain, PE Hub spoke to dozens of sponsors, lenders and bankers, who agreed that many sponsors will hit the pause button when it comes to launching new processes. Read our full coverage.

Open for business
Whether or not you’re full on WFH (work-from-home) mode, or plan to be, deals are still getting done in healthcare.

In fact there was no shortage of activity this week, with healthcare tech and tech-enabled services particularly active. That includes Veritas Capital’s $5 billion carveout of DXC Technology U.S. state and local health and human services business.

Elsewhere, Blackstone, whose healthcare efforts across both its Tac Opps and its new growth-equity strategy are led by Ram Jagannath and Aaron Weiner, was involved in back-to-back transactions.

First, in what marked the first healthcare-focused deal led by Blackstone’s new growth-equity team, was its more than $700 million deal for HealthEdge, which makes administrative software for health plans. A day later, Harvest Partners SCF joined hands with Blackstone Tactical Opportunities to make a preferred equity investment in Genstar’s ConnectiveRx, after the medication adherence company last year called off its sale process. Check out my full story for more financial info on both deals.

As it relates, I got the chance to catch up with Kara Murphy of Bain & Co on continued momentum around healthcare technology and data. 2019 produced 42 sponsor deals in HCIT, up from 32 in 2018, with a disclosed value of $17.1 billion, up from $8.3 billion, the report said.

“The interest in HCIT is pretty wide-sweeping,” Murphy said.
Murphy spoke specifically to the excitement around companies incorporating data as part of their competitive advantage. Whether that’s care management, drug development, financial services or alternative site electronic medical records, investors are making derivative plays of high-growth sectors as they think through how to use data to make processes faster, she said.

“Everybody is focused on data but data alone isn’t a holy grail,” Murphy told me. “You have to really think about what is the business model around that data.”

In fact, sometimes creating data sets through more manual efforts can be helpful, she said. One great example she said, is the evolution of Flatiron Health, an electronic medical record company for oncology care.

Will it be another record year in HCIT? Are there any other hot assets on the block that I should know about? Let me know!

Top Scoops
On the move: Boston’s Riverside Partners, which concentrates in lower middle market healthcare and technology companies, has promoted David Del Papa and Craig Stern to General Partner. Stern, focused in healthcare, currently serves on the boards of Revecore and Enovate.

In addition, Chris Ryan, who joined Riverside in 2011, is departing, effective March 2020, in order to pursue new opportunities.

Autism-treatment: KKR’s Blue Sprig Pediatrics is in growth mode as demand for autism-treatment increases and calls for greater professionalization, adding PE-backed Florida Autism Center in a transaction valued at about $120 million, according to sources familiar with the matter. Read more.

That’s it for today. As always, shoot me a note with your thoughts on COVID-19, along with any feedback or deal tips.
–Sarah