HCIT & Healthcare Business Services Industry Update Q2 2024

Observations

• The capital markets remain at an all-time high with concerns around inflation, high interest rates, and the upcoming presidential election tempered by the US economy growing faster than expected and the Federal Reserve expected to drop rates. At the same time, publicly-traded Healthcare Information Technology & Healthcare Business Services companies have seen some decline since their 2021 peak
• In 1H2024, New Mountain Capital made an offer to acquire R1 RCM at a value of $7.6 billion while Waystar Health made its public market debut at 7x revenue, representing the first HCIT IPO since before the pandemic
• Overall, M&A and private placement activity in the first half of the year suggest that 2024 is tracking in line with the two prior years with respect to transaction size and volume trends
  
• Four sizeable deals comprise the majority of reported transaction value: New Mountain Capital’s offer to acquire R1 RCM Inc. ($7.6 billion), Thomas H. Lee Partners’ acquisition of Agiliti, Inc. ($2.6 billion), Accenture’s acquisition of Cognosante, LLC ($1.0 billion) and Vista Equity Partners acquisition of Model N, Inc. ($1.1 billion)
• While transactions with reported metrics suggest valuation trends remain under some pressure, companies that deploy artificial intelligence (AI) and other technologies to address clinical and financial workflow issues are still attracting significant attention from investors
  
• This includes companies that leverage data analytics for predictive insights and also those that enhance interoperability standards to streamline data exchange across healthcare systems to improve patient care coordination and outcomes
  
• Additionally, investors are focused on companies with technology and services that address inefficiencies in the revenue cycle with an emphasis on the use of AI across the revenue cycle (e.g., prior authorizations) to reduce denial rates, as well as companies that service medical specialties (e.g., laboratory, behavioral health) underserved by traditional RCM vendors
  
• Overall, we remain optimistic on the markets as valuations are holding for quality assets in specific areas