September 2021 M&A activity consisted of several compelling themes:
- Continued Consolidation in the Substance Use Disorder (SUD) Market: While the tailwinds associated with the growing demand in the SUD market pre-date COVID-19, the pandemic acted as a catalyst for significantly higher levels of stress and increased feelings of isolation which, in turn, led many to turn to substance use. The Centers for Disease Control and Prevention (CDC) recorded over 96,000 deaths from drug overdoses in the 12-month period ending in March 2021, nearly a 30% jump from the prior year. Additionally, there is also growing societal recognition of the need for expanded access to care and SUD capabilities. Private equity firms have taken notice of this growing demand and are deploying significant capital into the SUD sector. Many of these private equity-backed platforms have started consolidating and we continue to see M&A activity in the space.
- Strategic Expansion of Data-Driven Pharmacy Technology Platforms: As pharmacy costs continue to rise and the growth of specialty drugs increases complexity for consumers, small errors can lead to large financial and operational risk. Within the expanding pharmacy management space, providers and payers are looking for tools and analytics to bolster clinical empowerment and decision making. Strategic buyers looking to dominate the pharmacy analytics space are showing increased interest in acquiring assets that help entrench customer relationships and provide access to primary data and analytics platforms, while stakeholders across the pharmacy value chain are looking for data-driven insights to improve access, increase adherence, and ultimately deliver lower costs.
- Regulation and Rising Costs Drive Demand for Transparency and Engagement Platform. Last month, we shared perspectives on price transparency and the implications of the 2019 executive order requiring hospitals and health plans to increase price transparency. While the executive order is directed at hospitals and health plans, employers are also driving demand for price transparency and navigation solutions as they look to reign in the rising costs of providing benefits. Annual worker and employer premium contributions have risen a combined 22% over the past 5 years and medical costs are expected to increase 6.5% in 2022 and platforms that help contain costs, improve engagement, and can demonstrate ROI are witnessing strong interest.
Several transactions in September aligned with these themes:
- Patient Square Capital announced that they are acquiring Summit BHC, a substance use disorder treatment and psychiatric services platform. The transaction marks the first traditional buyout deal for the firm launched by ex-KKR chief Jim Momtazee and provides an exit for existing shareholders Lee Equity Partners and FFL Partners.
- Broadstep Behavioral Health, a portfolio company of Bain Capital’s Double Impact Fund, which serves individuals with intellectual and developmental disorders and mental illnesses, announced its acquisition of Coastal Southeastern United Care. Coastal Southeastern United Care provides behavioral health services and substance use disorder treatment to adults, adolescents, and children across North and South Carolina. The deal follows other acquisitions Broadstep has made this year for providers across the behavioral health care spectrum.
- Bradford Health Services, the largest provider of addiction treatment programs in the Southeastern US, announced the acquisition of Cornerstone of Recovery, a Tennessee-based substance use disorder treatment provider. Cornerstone of Recovery operates two Knoxville-area inpatient facilities offering a full spectrum of clinical treatment options. Bradford Health Services is backed by Centre Partners, a middle-market private equity firm focused on the consumer and healthcare sectors.
- Omnicell, a provider of medication management solutions and adherence tools for health systems and pharmacies, closed on its acquisition of pharmacy software solutions provider FDS Amplicare for total aggregate cash consideration of $177 million. FDS’s financial management, analytics, and population health solutions along with its network of over 15,000 retail pharmacy customers expands Omnicell’s suite of capabilities and retail pharmacy footprint.
- Milliman, a consulting and actuarial firm, announced the acquisition of SkySail Rx, a pharmacy benefit technology firm that specializes in leveraging data for all aspects of pharmacy benefit pricing and contract management. The addition gives Milliman’s clients a platform for managing pharmacy benefits and complements the firm’s existing suite of analytic tools.
- Sapphire Digital, a platform for provider selection, patient access, price transparency, and digital consumer navigation, was acquired by Zelis, a Bain Capital-backed healthcare payments company. Sapphire Digital serves more than 100M members and more than 50 health plans, third-party administrators, and self-funded employers, and will help Zelis expand its care coordination throughout the patient journey. TripleTree served as the financial advisor to Sapphire Digital.
- Pager, a virtual care navigation and collaboration platform that enables individuals to make better healthcare decisions by making care options transparent, straightforward, and easy to comprehend, raised $70M as part of an equity and debt financing round. Excitement around Pager’s future potential expansion is derived from the platforms ability to improve navigation, care access, and outcomes within the healthcare system while reducing costs. The Series-C round was led by Susquehanna Private Equity Investments. It included new and existing financial and strategic investors, including an affiliate of Horizon Healthcare Services.
TripleTree and TT Capital Partners continuously monitor the market to identify the forces and themes impacting the healthcare industry. Thanks for reading and, as always, let us know what you think!