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Happy Thursday!

A prominent activist investor is back in the headlines in the universe of healthcare M&A this week.  

Paul Singer’s activist hedge fund, Elliott Management, launched an offer to take out Athenahealth for $160 per share, valuing the healthcare IT company just south of $7 billion.

Whether you’re shocked by the news or not, the development presents more questions than answers… 

Among them: Does Elliott, which began agitating for change at Athenahealth last year, actually want to outright buy the company via its PE arm - Evergreen Coast Capital? And could the hedge fund’s actions lead a group of sponsors to join forces to pursue a club deal? Or rather, will a non-healthcare strategic come out of left field with a competing bid?  

At least a couple industry sources I spoke with expressed their belief that Elliott’s ultimate agenda isn’t to buy Athenahealth: “The only angle I see: they [Elliott] feel like they know someone that will buy it,” one source said. 

Another source agreed, tipping his hat to Elliott’s “intelligent pricing” … “They perfectly bid so the board would have to take it seriously … opening up the door for a big strategic review,” the source said. I mean, a 27 percent premium and the bid’s all-cash nature are both pretty compelling. 

Still, one source close to Elliott reiterated that the proposal is serious, and said the investor is fully prepared to lead this take-private should Athenahealth accept the offer. Elliott has in fact taken public companies private in the past. That includes Gigamon, the provider of traffic monitoring technology that it bought last fall in a deal valued at about $1.6 billion.

Looking at it from a PE perspective, the list of buyers that could put up the equity to fund a take-private of this size is minimal - even in a club deal. And the likelihood that a sponsor could do it on their own? “Can the math work? I don’t really see it,” one of the sources said. 

So how hungry is PE to buy a business - whose various challenges Elliott laid out in its letter - at a rich multiple well into the double digits? 

Of course, a strategic review could also result in discussions with strategic buyers, though sources agreed that a deal with HCIT peers like AllScripts (which is smaller) or Cerner is unlikely. Rather, Athenahealth is more apt to nail down a buyer in a non-healthcare corporate such as Salesforce, Google, Oracle, Amazon or IBM, they speculated. 

Another interesting dynamic is the fact that GE’s former CEO Jeff Immelt was recently brought in as Athenahealth’s chairman. Immelt, of course, has plenty of experience working with prominent activists - including Nelson Peltz’s Trian Fund

If Elliott’s efforts do ultimately lead to a sale, it would be its second homerun in healthcare as of late. Don’t forget, the billionaire investor - whom Bloomberg has called the most feared activist in the world - helped drive up the price tag for Stada last year. Bain and Cinven ultimately took the German drugmaker private for several billion dollars. 

An Elliott representative declined to comment, while an Athenahealth spokesperson reiterated that the company’s “management team and Board are reviewing the offer from Elliott and in due course will move forward with the best next step for the company”.

As activist shakeups typically go, it’s likely to be a drawn-out battle, which leaves you plenty of time to send me your thoughts, tips, feedback… Reach me at springle@buyoutsinsider.com 

Speaking of high prices… 

I spoke to GTCR’s Ben Daverman the other day about the healthcare landscape and his Chicago firm’s approach. Here’s a snippet of the investor’s take on today’s price environment: 

I would characterize valuations in today’s environment as challenging ... In addition to higher purchase prices, we’re also seeing increasing pro forma adjustments, which is something that we are very focused on in this market. There’s also an increasing aggressiveness to which sellers are pushing the earnings of a business, and buyers are pursuing more opportunities on the basis of forward earnings. That introduces another level of risk into every deal. In order for us to be competitive, we need to get out in front of deals. 

Daverman also talked about how the firm’s executive-driven strategy lends to its specialization in niche healthcare segments and carveout transactions, among other things. Check out the full Q&A

Fund News

Keep an eye on another Chicago firm. Linden Capital’s fourth pool of capital just collected $1.5 billion, topping its $1.25 billion target. The fund will target middle-market healthcare companies in the services, medical products, specialty distribution and pharma sectors. 

That’s it for now. Have a great weekend, everyone. 

--Sarah 


 



Top Stories

Third Rock’s Alexis Borisy on bringing the perspective of a healthcare investor to the NVCA chair

Alexis Borisy will take over later this month as the chair of the National Venture Capital Association and bring to the year-long position the perspective of a healthcare investor. Borisy, a partner at Third Rock Ventures, says he views his new role as a civic responsibility, and one that corresponds with a productive time for […]
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Five Questions with GTCR healthcare executive Ben Daverman

Ben Daverman is a managing director at GTCR, where he helps lead the Chicago firm’s healthcare efforts. Daverman holds various board directorships, including at GTCR portfolio companies Albany Molecular Research, Maravai LifeSciences, TerSera and XIFIN. GTCR in October closed its 12th buyout fund, collecting $5.25 billion. How has GTCR’s strategy in healthcare evolved over the […]
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Lightyear puts Alegeus on the auction block

Lightyear Capital is exploring the potential sale of Alegeus, a consumer-directed healthcare payment and processing firm, according to four sources. The process is expected to produce a sale to a strategic, having drawn interest from both healthcare IT and fintech players, two sources said. Lightyear’s investment in Alegeus dates to August 2012, when it purchased […]
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Why PE could soon dial into the hype around telemedicine

While venture capital has already begun to swoon over telemedicine, the market has remained largely untouched by the private equity community. But at least some industry sources suspect the tide may soon be shifting as different ends of the market begin to appreciate the value of virtual diagnosis and treatment. Simply put, it’s another tool […]
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Roundup
 
Deals Exit Personnel

Deals

Stem cell company Forever Labs attracts $2 mln

Forever Labs, a company that banks young adult stem cells, has secured $2 million in funding. The investors included Northwestern Mutual, Silicon Badia Ventures, Babel Ventures and DogVacay CEO and founder Aaron Hirschhorn.
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Tencent’s WeDoctor raises $500 million, values firm at $5.5 billion pre-IPO: Reuters

Chinese online healthcare solutions platform WeDoctor, which is backed by tech giant Tencent Holdings Ltd (0700.HK), said on Wednesday it had raised $500 million from several investors, valuing the firm at $5.5 billion ahead of a listing this year.
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Digital healthcare company Murj fetches $8.5 mln

Santa Cruz, California-based Murj Inc, a digital healthcare company, has secured $8.5 million in funding. Longitude Capital led the round with participation from other investors that included True Ventures.
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Escient Pharmaceuticals rakes in $40 mln Series A

San Diego-based Escient Pharmaceutials, a newly launched biotech company, has closed $40 million in Series A funding. The investors were The Column Group, 5AM Ventures and Osage University Partners.
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LyGenesis procures $3 mln Series A

Pittsburgh-based LyGenesis Inc, a biotechnology company developing technology for organ regeneration, has raised $3 million in Series A financing. The investor was Juvenescence Ltd.
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Prescription digital medicine company Akili inks $55 mln Series C

Boston and San Francisco Bay Area-based Akili Interactive, a prescription digital medicine company, has secured $55 million in Series C financing. Temasek led the round with participation from other investors that included Baillie Gifford, Amgen Ventures, M Ventures, JAZZ Venture Partners, Canepa Advanced Healthcare Fund and Brooklands Capital Strategies.
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Luna DNA inks $4 mln

Solana Beach, California-based Luna DNA, a community-owned genomic and medical research database, has raised $4 million in funding. The investors included Illumina Ventures, Arch Venture Partners, Bridgelink Capital and Hemisphere Ventures.
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Wellist reels in $10 mln Series A

Wellist, a provider of integrated patient experience solutions, has raised $10 million in Series A funding. Summation Health Ventures and .406 Ventures led the round.
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Owlet Baby Care fetches $24 mln Series B

Lehi, Utah-based Owlet Baby Care, a health tech company, has secured $24 million in Series B funding. Trilogy Equity Partners led the round with participation from other investors that included Eclipse Ventures, Broadway Angels, Enfield Ventures and Pelion Venture Partners. In conjunction with the financing, Amy McCullough, managing director at Trilogy Equity Partners, will join Owlet’s board of directors.
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Periscope invests in Integrated Behavioral Health

Periscope Equity LLC has made an undisclosed investment in Integrated Behavioral Health. Mesirow Financial provided financial advice to IBH on the transaction while Katten Muchin Rosenman LLP provided legal counsel to Periscope. Based in Costa Mesa, California, IBH is a provider of behavioral health and employee engagement products and solutions.
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Firms & Funds

Foresite Capital raises $668 mln for fourth fund

San Francisco-based Foresite Capital, a healthcare and life sciences investment firm, has closed its fourth fund at $668 million. The fund's limited partners include university endowments, pension funds, insurance companies and foundations.
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Exits

Riverside acquires DoseLogix as an add-on

The Riverside Company has acquired Georgia-based DoseLogix, a provider of metered dosing dispensers and applicators to compound pharmacies, as an add-on for its Team Technologies platform. No financial terms were disclosed. Jones Day and KPMG served as legal counsel and accounting adviser, respectively on the transaction while Antares and Ares provided the incremental financing.
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VC-backed Evelo Biosciences goes public

Cambridge, Massachusetts-based Evelo Biosciences, a biotech company, has raised $85 million for its IPO after pricing its 5.3 million shares at $16 per share. The stock began trading May 9, 2018 on the NASDAQ under the ticker symbol "EVLO." Morgan Stanley, Cowen and BMO Capital Markets are the lead underwriters. Evelo's pre-IPO backers included Flagship Pioneering, GV, Celgene, Mayo Clinic and Alexandria Venture Investments.
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UK biotech firm Autolus joins CAR-T rush with Nasdaq IPO filing: Reuters

Autolus Therapeutics, a small British company developing cell therapy treatments, is to join the swelling ranks of listed biotech companies using the new anti-cancer technology with a planned IPO on Nasdaq, Reuters reported.
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PE-backed Spectrum Medical Partners acquires Cape Coral

Spectrum Medical Partners Inc, a portfolio company of HealthEdge Investment Partners LLC, has acquired Florida-based Cape Coral Hospitalists Inc, a private hospitalist group. No financial terms were disclosed.
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PE-backed PromptCare buys Hometown Oxygen

The PromptCare Companies, which is backed by The Halifax Group, has acquired Charlotte, North Carolina-based Hometown Oxygen, a provider of respiratory services. No financial terms were disclosed.
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Personnel

Baird-backed Apervita appoints Bradley as board chair

Apervita, a healthcare-focused platform-as-a-service company, has named James P. Bradley as chair and independent director for its board of directors. Bradley is chief information officer of UnitedHealthCare and chief technology strategy officer at McKesson Corporation. Apervita is a portfolio company of Baird Capital.
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Genstar taps Hubbard for strategic advisory board

Genstar Capital has named Dr. John Hubbard to its strategic advisory board. Recently, Hubbard was president and CEO of Bioclinica Inc.
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PE-backed Care Advantage promotes Hanold to CEO

Care Advantage, a portfolio company of BelHealth Investment Partners, has promoted Tim Hanold to CEO. Hanold joined the company in 2018 and recently was president and executive vice president of sales as well as leader of the personal care division.
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