Noteworthy M&A Transactions – August 2020

Despite early uncertainty surrounding COVID-19 and the ensuing financial turmoil, M&A markets continued their momentum through August. Perhaps the most notable transaction during the period was the announced merger between Livongo [NASDAQ: LVGO] by Teladoc [NYSE: TDOC] marking one of the most significant transactions in the telehealth landscape this year valued at $18.5 billion.

TripleTree has monitored other market activity for the month of August and have noted three important themes from across healthcare M&A and capital markets.

1. Continued consolidation across Revenue Cycle Management (RCM): While US hospitals and healthcare organizations have adapted the way they serve patients during the pandemic, their performance and financial stability have taken a significant blow as patient volumes and elective procedures suffered under COVID-19. Top inpatient procedures, which account for 50 percent of total payments made to hospitals, saw significant declines in volume according to Strata Decision Technology. As a result, hospitals are projected to lose over $320 billion due to the coronavirus, and these losses could worsen if cases surge again. The need for hospitals and healthcare organizations to better manage their revenue cycles is increasingly important as providers additionally make investments to follow new social distancing standards, to fund PPE, and to provide telehealth alternatives. Recent transactions highlight the importance of revenue cycle management to healthcare organizations and the need for RCM providers to both broaden and optimize their product offerings.
2. Impact to Behavioral Health: An under-recognized effect of the pandemic is the devastating impact isolation, unemployment and general stress is having on individuals’ mental and behavioral health. COVID-19 and the corresponding financial crisis has driven an increase in mental and substance use disorders, including depression, anxiety, and alcohol or drug use. Before COVID-19, the US was already experiencing a shortage of mental health professionals, and the economic challenges imposed by the pandemic may exacerbate this shortage even further. Despite this, the behavioral health market is expected to reach $240b+ by 2026 as national expenditures on mental health and substance abuse treatment increase at a significant rate. Along with the increased demand for behavioral health services, favorable legislative initiatives, attractive financial models, the ability to serve niche markets, and other tailwinds are expected to fuel M&A activity going forward.
3. Reinvigoration of the Medical Imaging market: With the return of nonessential and elective imaging exams and procedures, imaging professionals are adapting their services and procedures for patient interactions to meet pent-up demand while complying with social distancing and other safety standards. One measure being taken by many hospitals and healthcare providers is to transfer some of the workload over to off-site imaging. Off-site imaging companies have helped keep imaging processes moving forward. Additionally, increasing the availability of mobile and portable imaging systems has helped expand options to image patients inside and outside of healthcare facilities. Recent transactions highlight these dynamics within the medical imaging market.

Several transactions in August aligned with these themes:

• R1 RCM Inc. [NASDAQ:RCM], a leading provider of technology-enabled revenue cycle management services to healthcare providers, announced it has completed the acquisition of the Cerner RevWorks’ services business and commercial, non-federal client relationships. The financial terms of the transaction were not disclosed.

• Centauri Health Solutions announced that it has acquired Applied Revenue Analytics, a Texas-based healthcare business intelligence company, from OSG Billing. This transaction introduces a complementary line of hospital revenue cycle performance services to Centauri’s comprehensive solutions that encompass Medicaid and Disability Eligibility and Enrollment, as well as Out-of-State Medicaid Billing services. AppRev delivers technology-enabled revenue cycle optimization services in a Software-as-a-Service (SaaS) model. Terms of the transactions were not disclosed.

• Health Catalyst [NASDAQ:HCAT], a Salt Lake City, Utah-based provider of data and analytics technology and services to healthcare organizations, will acquire Yakima, Washington-based Vitalware. Vitalware is a provider of revenue workflow optimization and analytics SaaS technology solutions to healthcare organizations. According to the SEC filing, Health Catalyst will pay $120M plus a potential earnout of up to $30M, financed by a mix of stock and cash.

• Waystar, a leading provider of healthcare payments software, announced they have entered into a definitive agreement to acquire eSolutions. eSolutions is a revenue cycle technology company with unique Medicare-specific solutions. With the acquisition, Waystar will be the first technology to unite both commercial and government payers into a single platform. TripleTree served as an advisor to eSolutions as part of the transaction.

• Blue Sprig Pediatrics, Inc. announced that it has acquired the assets of the Carmel, CA based Aptitude Habilitation Services. Aptitude is a multi-state clinic and home-based provider of Applied Behavior Analysis (ABA) therapy services treating children with Autism Spectrum Disorder (ASD). The financial terms of the transaction were not disclosed.

• Rethink First, the New York-based provider of cloud-based software solutions and assessments for supporting individuals with autism and other developmental disabilities, has secured a strategic investment from K1 Investment Management. The financial terms of the transaction were not disclosed.

• Change Healthcare (Nasdaq: CHNG) acquired Nucleus.io for its state-of-the-art, cloud-native imaging technology, including a zero-footprint diagnostic viewer with patented streaming technology. The acquisition is intended to accelerate Change Healthcare’s timeline to implement a complete cloud-based, Enterprise Imaging solution with customers. Nucleus.io brings over 7,500 entities it currently serves to help expand Change’s market share.  The financial details were not disclosed.  Nucleus Health was a portfolio company of TT Capital Partners

• Siemens Healthineers agreed to buy Varian Medical Systems for about $16.4B in cash in the biggest medical acquisition of the year. The German medical technology company offered $177.5 a share for the Palo Alto, California-based business, 24% more than its closing price on Friday. The bid will be financed through both debt and equity, Siemens Healthineers said in a statement on Sunday. The deal would give Healthineers a sizable market share in the rapidly growing field of cancer treatment where it has little presence currently. The purchase will bring together two partners that have collaborated for more than a decade in areas such as radiotherapy diagnostics for cancer treatments.

• Intelerad Medical Systems, a leader in enterprise workflow solutions, announced the acquisition of Radius, a Nashville-based private cloud platform provider. This acquisition will help Intelerad in their goal of becoming the imaging cloud platform of choice. The two companies have more than 15 US-based clients in common. The financial terms of the deal were not disclosed.

• Sunstone Partners, a growth-oriented investment firm focused on tech-enabled services and software companies, has invested in RSource Healthcare, a leading provider of RCM services to hospitals and health systems. RSource provides specialty RCM services that help hospitals and health systems to efficiently manage complex areas of the revenue cycle, including clinical denials, patient-involved denials and accident claims. Terms of the transactions were not disclosed.

• Revint Solutions also announced the acquisition Triage Consulting Group and Praxis Healthcare Solutions. Triage is one of the nation’s premier healthcare revenue integrity companies, offering payment review, recovery, consulting, and legal support services. Praxis strengthens Revint’s revenue recovery and denials management capabilities. Revint is an active investment of New Mountain Capital. Financial terms of the acquisition were not disclosed.

TripleTree and TT Capital Partners continuously monitor the market to identify the forces and themes impacting the healthcare industry. Thanks for reading and let us know what you think!

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• Noteworthy M&A Transactions – July 2020
• Noteworthy M&A Transactions – June 2020
• Noteworthy M&A Transactions – May 2020