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Regulatory requirements, fierce competition, and rapidly emerging technologies are creating new complexities for healthcare sector operators. Providers and payers alike are seeking to improve health outcomes while more effectively managing evolving consumer needs, behaviors, and treatments.

Competition for HCIT deals remains high, with sponsors and corporate buyers showing increased appetite, accounting for some of the largest deals of 2018 and 2019.


It should be noted that investors are not blindly pouring money into HCIT. There is significant dispersion within the sub-verticals that comprise this sector, with a focus on companies that promise growth, address a significant and unmet need, and support improved quality of care and increased efficiency. Companies that meet these characteristics and possess the ability to scale continue to be rewarded with much higher valuations, in line with the trend toward reduced transaction quantity and increased per-transaction value, which H2C expects to continue. 


Following a blockbuster year of healthcare information technology (“HCIT”) fundraising, 2019 is on track to meet or exceed prior periods, with $4.2 billion in funding already secured. This compares with $3.4 billion for the first six months of 2018. While transaction value continues to climb, the number of transactions has decreased, with 360 HCIT transactions expected in 2019, down from 376 in 2018 and 363 in 2017.


The growth in transaction size has been substantial, with an average transaction value of $23.1 million in 2019, up from $13.5 million in 2016. On a more granular level, median Series A rounds reached $10 million in the first half of 2019, an 11 percent increase from the first half of 2018 and up nearly 200 percent from that seen during FY 2011. Similarly, Series B rounds in the first six months of 2019 are transacting at a median of $17 million, up 210 percent from FY 2011.


Investor preference has steadily shifted toward larger, more mature companies as volume shifts from angel and seed investments toward Series A rounds or later. Further, as competition has picked up in other sectors, HCIT has begun to attract significant interest from investors that have not traditionally invested in either healthcare technology or healthcare more broadly.



Historically, many providers have taken an intellectual property (“IP”) investment approach to HCIT, testing the waters with promising new products and services. More recently, however, we are seeing increased investment from health systems like Providence, Ascension, OSF, and UPMC as well as hospitals that are expanding their investment repertoire through externally run venture funds. To date, there are more than 40 health systems that have started their own dedicated venture funds, leveraging in-house clinical expertise to identify promising new innovations.


This trend has accelerated as systems, providers, and hospitals seek alternative investment vehicles to boost portfolio returns at a time when low interest rates have yielded paltry returns on large cash reserves. H2C also is seeing systems that do not have dedicated venture funds begin to invest in limited partnerships (“LPs”) with HCIT companies.


Since 2014, more than 160 HCIT investments have been made by healthcare organizations, with Kaiser Permanente, Mayo Clinic, and Ascension ranking as the most active health systems, accounting for 10 or more investments each. Following general HCIT fundraising trends, provider investments also have increased in average deal size, with approximately 20 transactions accounting for more than 20 percent of all HCIT investments in 2018.



In the first half of 2019, digital health companies were the most frequent purchasers of HCIT companies, with representation in more than half of all M&A deals during the period. Technology companies and other non-healthcare companies consistently ranked as the second and third most active acquirers during the period. Innovation in areas such as data storage, cloud technology, analytics, population health management, and artificial intelligence (“AI”) continues to fuel investment as acquirers seek to remain ahead of trends. As such, the biggest challenge investors encountered was competition. Vying for desirable targets, buyers often faced a slew of rivals in the form of corporate and financial sponsors.


Valuations continue to climb in 2019 as funds look to deploy dry powder against a limited set of opportunities. In April, Elliot Management/Veritas Capital’s acquisition of Athenahealth closed as one of the most highly publicized and largest transactions year to date, totaling $5.7 billion and creating an extensive national provider network of customers and solutions.


While HCIT M&A valuations remained high, volume has gradually decreased over the past several years, falling from 395 M&A transactions in 2017 to 326 in 2018. The first half of 2019 showed a slight uptick in HCIT M&A activity, with 166 acquisitions, slightly higher than the first half of 2018.



The announcement of Change Health’s initial public offering (“IPO”) in late June marked the end of a nearly three-year drought in healthcare technology IPOs. Since then, three additional IPOs have been announced: Health Catalyst, Livongo, and Phreesia. In addition, Peloton, the creator of on-demand cycling and fitness training, recently filed confidential paperwork to go public.


These events come on the heels of other highly anticipated tech IPOs from companies such as Lyft and Uber. Despite the IPO struggles that general technology sector IPOs have faced, HCIT companies have been well-received, with prices surging on their public market debuts as investor demand continues to push stock prices higher.


Of the four recent IPOs/filings, Livongo, Health Catalyst, Phreesia, and Peloton have raised an average of $425 million from private investors, for a total of $1.7 billion. With the first half of 2019 representing the strongest HCIT IPO market in recent memory, it remains to be seen how investor appetite will play out in the long term.


In addition to these recent filings, an “IPO watchlist” of HCIT companies includes 23andMe, HeartFlow, Outcome Health, American Well, Tempus, Collective Health, Proteus Digital Health, Butterfly Network, Modernizing Medicine, Welltock, Helix, Gympass, and Human Longevity. Each of these companies has secured $240 million or more in lifetime funding and has an average life since initial investment of 8.8 years, suggesting that early investors are seeking an opportunity for exit.

Healthcare Technology • Relative Stock Performance
Public Comparables • Pharma HCIT
Public Comparables • Payer / Benefit Management HCIT
Public Comparables • Provider HCIT

Note: LTM as of March 31, 2018, or most recent available.
Source: CapIQ.



A registered broker-dealer, H2C Securities is a preeminent investment bank and a leading healthcare services firm. H2C provides investment banking services to companies seeking additional capital, acquisitions/divestitures strategies and execution and/or restructuring/recapitalization solutions. 


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Hammond Hanlon Camp LLC (“H2C”) is an independent, healthcare-focused strategic advisory and investment banking firm with a particular emphasis on the not-for-profit sector. The firm’s principals have been lead advisors on hundreds of transactions in the healthcare industry representing billions of dollars in value, offering the experience and industry knowledge to achieve the most favorable results. 

Michael B. Hammond


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Victoria S. Poindexter


312 508 4201

William B. Hanlon III


858 242 4801

C. Richard Bayman


404 937 1340


Kelly Duong

858 242 4810

+The Elements of Capital and Strategy


Securities offered through H2C Securities Inc., member FINRA/SIPC

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