Report
At a Glance
- After a Covid-19-related drop in 2020, healthcare IT deals rose to a record high as digitalization accelerated.
- Megadeals, notably Athenahealth and Inovalon Holdings, pushed disclosed value to an unprecedented level, reflecting the growing opportunity for value creation in this space.
- Buyout investors focused on value-based care, while growth-equity investors focused on digital tools.
- Investment will grow further as digital health tools continue to gain steam and incentives increasingly align to promote better health.
This article is part of Bain's 2022 Global Healthcare Private Equity and M&A Report
Larger deals and more of them characterized the healthcare IT (HCIT) market in 2021. Deal count rose from 48 in 2020 to 75 in 2021, a record. Disclosed value also surged from $15.1 billion to $38.1 billion. The share of HCIT deals held steady at around 15% of overall volume and 25% of total disclosed value, even though the size of deals grew significantly.
Two of the year’s largest deals—the $17 billion Athenahealth and $7.3 billion Inovalon Holdings acquisitions—together accounted for 64% of disclosed HCIT value. North America continues to be the hub of these deals, contributing 80% of global deal volume and 94% of global value.
Four themes shaped most HCIT investments throughout 2021:
- redefining care delivery through digital health tools;
- using technology and big data to accelerate drug development;
- optimizing payer and provider operations; and
- supporting value-based care.
We’ll review each theme in detail.
Redefining care delivery through digital health tools
Digital tools are changing how healthcare is provided at a large scale. They aim to make providers more efficient and improve outcomes for more patients. Through mobile apps and smart devices, digital health tools offer continuous care and give patients more control over their care.
Most digital health tools focus on chronic conditions such as diabetes, musculoskeletal pain, and obesity, which account for a growing share of disease burden and healthcare spending in a number of countries. Because many of these conditions stem from years of unhealthy habits, tools that continuously nudge people toward healthier behaviors could combat chronic disease at its source and meaningfully bend the cost curve for these conditions. While the academic evidence on platforms isn’t yet sufficient to shift the clinician-defined standard of care, many employers and some payers have been early adopters, inspiring a surge of venture and growth-equity investments.
Growth-equity funding flowed into platforms that tackle some of the most prevalent and costly chronic diseases. For example, Noom, a subscription-based app focused on weight loss, raised $540 million in a Series F round led by Silver Lake. Virta Health, a digital type 2 diabetes management program, raised $133 million in a Series E led by Tiger Global.
Growth-equity funding for tools that specialize in behavioral health also surged as the pandemic increased demand for behavioral services, reduced the stigma associated with seeking support, and made such services more attractive to employers and payers. For example, Lyra Health, a virtual-first provider of mental health services, secured $187 million in new financing led by Addition Capital. Other digital behavioral health platforms received growth-equity funding from such sources as BetterUp, Ginger/Headspace, Modern Health, and Spring Health.
Using technology and big data to accelerate drug development
Bringing a new drug to market now has a median cost of about $1 billion. Technologies that reduce drug development costs and speed up the process thus stand to create immense value both for biopharma companies streamlining their pipelines as well as patients who benefit from earlier access to new therapeutics. During 2020, the Covid-19 pandemic drew investor interest specifically for technical tools that could run clinical trials with fewer in-person visits. This past year saw broader HCIT investments to streamline every stage of drug development, from preclinical drug discovery to market entry after approval.
Continuing a trend seen in 2020, private equity investors were most active with companies driving efficiencies in later stages of the development process. Large investments flowed to software tools that make clinical trials more efficient and enable decentralized testing. For example, ERT, a portfolio company of Astorg, Novo Holdings, and Nordic Capital, acquired Bioclinica to form Clario, an endpoint technology for clinical trial evidence generation. Thoma Bravo also pursued an investment valuing Greenphire at $1.1 billion, which offers payment software for clinical trials. Growth-equity investors also invested in companies making clinical trials more efficient. Coatue Management led an $220 million investment in Reify Health, a technology platform for optimizing patient recruitment, and Blackstone Growth and Tiger Global led a $304 million Series D in Medable, a clinical research software-as-a-service (SaaS) company that supports digital and decentralized clinical trials.
Analytics platforms that streamline postapproval market launches also merited large deals. Evaluate, an HgCapital portfolio company, completed a $1.6 billion merger with Managed Markets Insight & Technology (MMIT), a Welsh, Carson, Anderson & Stowe portfolio company, to become a provider of global pharma commercial intelligence. The combined Evaluate-MMIT then added Panalgo, a healthcare analytics platform serving the biopharma sector.
Growth-equity investors were also attracted to companies that accelerate preclinical drug discovery using artificial intelligence (AI). These companies are working to reduce risk in R&D pipelines, making drug candidates more likely to become successful medicines. For example, XtalPi, a Chinese company doing AI-assisted drug discovery, raised $319 million in a SoftBank-led Series C round. Accutar Biotech, a biotech and software-as-a-service (SaaS) company that uses computationally enabled drug design to reduce the time and cost of drug discovery, raised $100 million in a new round led by Yunfeng Capital.
Optimizing provider and payer operations
The payer and provider sectors face pressures to operate more efficiently. HCIT solutions that boost efficiency thus attracted a flurry of investment in 2021. Revenue cycle management (RCM) was the common thread linking megadeals in this space.
Athenahealth, a cloud-based software company that offers revenue-cycle-management software and services and electronic medical record software, was acquired by Hellman & Friedman and Bain Capital for $17 billion, the largest HCIT leveraged buyout ever. Nordic Capital, Insight Venture Management, and 22C Capital acquired Inovalon, a provider of RCM as well as other data-driven services, for $7.3 billion. On the corporate side, UnitedHealth’s Optum is set to acquire Change Healthcare, which offers RCM and clinical information exchange services, for an estimated $13 billion. These sums reflect the value created by companies that help providers and payers navigate the administrative complexity linking care provision with payment in the US.
Beyond RCM, growth-equity investors are fueling development of AI tools that raise employee productivity through automation. For example, Olive, an artificial-intelligence-as-a-service company that automates administrative tasks for providers and payers, raised $400 million in a round led by Vista Equity Partners and Base10 Partners. Aidoc, selling radiology decision support software, raised $66 million in a Series C round led by General Catalyst. If HCIT reaches its potential, the tedious and repetitive tasks that contribute to administrative burdens, employee inefficiency, and clinician burnout may one day disappear.
Supporting value-based care
Since the passage of the Affordable Care Act in the US, the shift from fee-for-service to fee-for-value has been slow, but progress remains steady. Under value-based payment models, where better health outcomes affect returns, companies need a different strategic approach than under fee-for-service incentive systems. Innovative HCIT tools are helping providers and payers realize value as part of that transition.
Several platforms designed to engage patients and improve health outcomes had major buyouts. TPG and Leonard Green-backed WellSky acquired Careport Health, a SaaS company that allows clients to monitor patients throughout their care and intervene when appropriate to prevent unduly expensive care. CVC purchased a majority stake in Icario Health, which empowers payers to improve health outcomes through targeted member engagement.
Growth-equity investors also pursued many deals in this space. For example, Innovaccer, a SaaS company that helps providers unify patient data to generate clinical and financial insights for quality and costs, raised $105 million in a Series D round led by Tiger Global. Summit Partners led a group raising growth capital for TurningPoint HealthCare Solutions, which uses data and AI to help providers unlock better care, safer treatments, and lower costs.
Three factors to watch
With innovation so critical in healthcare, HCIT deal activity will likely accelerate. Digital health tools will continue to present outsized opportunities for returns as they go mainstream. We see three factors as determining the quality of digital health investments:
- robust data that demonstrates both compelling return-on-investment and superior clinical outcomes, strengthening the sales pitch to employers/payers and attracting more clinician referrals;
- products that target more diverse patient populations, especially marginalized populations that experience a disproportionate burden of chronic disease, thereby expanding the number of patients who can be served; and
- partnerships or integration with brick-and-mortar health systems to deliver coordinated care and a superior patient experience.
Tools that use technology and big data to accelerate drug development will also present major investment opportunities. Platforms that support next-generation, decentralized clinical trials will continue to be attractive investment targets. Emerging AI tools that leverage multiomics data to accelerate drug discovery will likely mature and trigger larger deals among biopharma companies in the coming years.
On the heels of the landmark Athenahealth deal, infrastructure investments to enhance interoperability and data flow limitations will continue to attract significant investor attention as more businesses try to break down barriers in today’s often siloed healthcare IT systems.
Investors should also track the unique needs of the growing number of combined provider and payer entities in the US—payers with provider networks, providers with insurance plans, and providers operating under capitated payments. These entities are gaining share, and companies that meet their needs stand to grow as the transition to value-based care intensifies.