Athenahealth Acquisition Among Largest HIT Buyouts in 2018
February 5, 2019
“The importance of the healthcare industry is manifestly obvious, whether viewed in terms of its potential to profoundly impact people’s lives, its universal relevance that cuts across demographics and geography or its major contribution to global economic activity, with annual healthcare expenditures projected to surpass $10 trillion by 2022, according to Deloitte.
But there are also major structural challenges facing the global healthcare industry. Developed economies have to navigate aging populations, chronic illnesses and reduced government subsidies since the financial crisis. Developing economies strive to improve access to quality healthcare and population life expectancy. These pressures threaten significant human and economic costs for individuals and society at large.
Understandably, technological advancements have been identified as the panacea for all these healthcare challenges. I’ve written before on how technology is evolving from a standalone sector to a broad theme that intersects with and is revolutionizing every other traditional industry vertical, from financial services to travel. The strategic application of big data analysis, artificial intelligence and cloud-based IT infrastructure in the healthcare sector presents a natural avenue to improving outcomes, optimizing the delivery of care, streamlining regulatory processes and creating more tailored, mobile-friendly, patient-centric experiences.
The problem, however, is that neither the pressures on the global healthcare industry nor the expectations that technology will prove to be the silver bullet are new phenomena. The healthcare industry has always understood the importance of technology; take, for example, the National Programme for IT launched by the UK’s National Health Service back in 2002. However, the programme’s massive cost overruns and eventual abolition epitomize how consensus-building, slow decision-making and misplaced priorities can cripple the digitization journey.
In addition, hospitals and health services typically undertake large IT infrastructure projects generationally, often governed by strict procurement rules in the public sector. Consequently, the opportunities for adopting technology can be separated by lengthy intervals. Meanwhile, the cadence of technology evolution is often much faster, leaving healthcare systems woefully obsolete even after a wave of modernization.
Given this backdrop, the most successful ‘HealthTech’ companies are those that can tailor their products to solve specific needs, interoperate with existing systems and demonstrate exceptional return on investment in a short timeframe.
The sustained volume of investment from venture capital and private equity firms into European HealthTech businesses in 2018 therefore represents an important landmark. Private equity investments in the likes of Allocate Software and Datix in the UK, Maincare in France and Prospitalia in Germany reflect the assessment of sophisticated financial sponsors that these companies can now offer technological solutions that are sufficiently advanced, flexible and affordable to be integrated as essential components of their respective healthcare ecosystems. With technology and healthcare being the top two priority verticals for capital deployment across the private equity ecosystem, it is no surprise that HealthTech, sitting firmly at the crossroads, resonates strongly as an emerging investment theme.
It should be noted that, as usual, North America was ahead of Europe. Accordingly, the comparable uptick in institutional ownership of digital health companies in the US certainly predates last year. Nonetheless, the $5.7 billion take-private of Massachusetts-headquartered healthcare software provider Athenahealth by Veritas Capital and Elliott Management ranked as one of the year’s biggest buyouts in the US, providing another eye-catching milestone in 2018. Bain & Co also forecast that the movement of tech companies like Apple and Amazon into healthcare would spur a further increase in interest from financial sponsors.
Moreover, there is a certain logic to viewing Europe as the more meaningful bellwether, rather than the larger US market. Firstly, the funding models are radically different either side of the Atlantic, with governments playing a pivotal role in Europe. Also, in Europe, healthcare is heavily localized, meaning that digital penetration within the homogeneous market of the US will not necessarily translate into greater transatlantic adoption of American HealthTech in Europe’s fragmented domestic markets – and certainly not with the same reliability as in a more distributed sector like financial services. By contrast, European HealthTech companies have had to scale internationally from the start and are better equipped to localize their solutions in new geographies.
For example, Germany-headquartered Prospitalia serves over 3,000 customers in Germany, the UK, the Netherlands and Australia. Similarly, Datix, a pioneer in patient safety and compliance software, provides its predictive analytics and other cloud-based technologies across 20,000 global sites, not only in the UK but also in North America, Australia and the Middle East. Allocate, a leader in healthcare workforce management software, is also active beyond its home market of the UK, in Australia, Sweden and other parts of continental Europe.
Looking beyond traditional healthcare, the vast ecosystem of digital wellness unlocks lifestyle benefits and takes a preventive approach to healthcare challenges, which has particularly resonated amongst millennials.
Digital health companies, already benefiting from several long-term fundamental drivers, therefore appear to have reached an inflection point in terms of their role within healthcare ecosystems, signaled by the rising tide of private equity investment. There are, however, some potential headwinds that continue to face the sector.
Chief among these are complex legal questions around liability, arising from medical staff becoming more reliant on technology-driven data analytics and artificial intelligence, and privacy concerns, raised by the extensive digitization of personal healthcare records. One aspect of digital health companies that’s currently attractive to investors is that they bear less of the direct reimbursement and regulatory risks that affect other segments of the healthcare industry. As the direct role of technology in diagnosing and treating patients increases, this situation could be reversed, echoing, for example, the as-yet unresolved questions over prospective corporate liability in the event of a fatality involving an autonomous vehicle.
Ultimately, however, this won’t disrupt the inevitable direction of travel. As populations age and healthcare budgets are stretched, the role of technology in dictating how we prevent illness, improve outcomes, schedule treatment and receive care will only continue to grow – and the pulse is set to pick up, now that financial investors are injecting significant capital into the digital health revolution.”
Sourced from Forbes Online and shared by VOWHS for news-related purposes.