Year End & Q4 2018 HIT Sector Report Excerpt

Executive Summary

  • Global M&A dollar value was nominally flat in 2018, ↓2% compared to 2017, while deal count decreased significantly, ↓41%. Similarly, U.S. M&A deal count in 2018 ↓ 39% compared to 2017 but dollar value was only ↓3% because of a few large deals.
  • Global Private Placements dollar value was ↓ 9% from 2017 and deal count in 2018 was ↓ 35%. However, US total sector Private Placements were ↑7% despite a 31% decrease in deal count. Again, larger transactions account for the disparity.
  •  In North America, the Digital Health M&A deal count on a YoY basis was essentially flat with at a nominal 4% increase. Of note, Q4 deal count dropped by 34% compared to Q3 and on QoQ basis down 14% compared to Q4 2017. The largest deal in Q4 was Elliott Management’s and Veritas Capital’s announced acquisition of athenahealth for $5.7 billion.
    •  For the full year (FY) 2018, Productivity Solutions was the most active in terms of deal count while Spending & Revenue Analytics grew the fastest, ↑40% vs. 2017. For Q4 the most popular Digital Health sub-sectors for M&A targets were Spending & Revenue Analytics and Patient Centric companies.
  • Private placement transactions in the North American Digital Health sector were ↑44% in 2018 and total dollar volume was ↑82%. Disclosed investments in North American based HIT firms totaled roughly $ 9.1 Billion in 2018 vs $5 billion in 2017.
    • Q4 Private Placement transactions in the N. American Digital Health sector decreased in both number of transactions (↓34%) and dollar volume (↓44%).
    • With record breaking PP activity since 2016 coupled with a lack luster IPO market, we expect M&A deal count activity to increase through 2020 but valuation multiples may soften due to a backlog of VCs wanting to liquidate, among other reasons.
  • There were 2 Digital Health IPO’s in 2018 compared to 0 in 2017. Questions remain as to how viable the IPO market will be in 2019 as a liquidity option given the vibrant alternatives that exist in both the private placement and the M&A markets.
  • For 2018, Novahill’s Digital Health Public Comparable Index outperformed the S&P 500 Index, gaining 13% vs a 6% loss for the S&P 500. Digital Health companies declined from their previous high of 2.5x greater than the EV to EBITDA or Revenues to EBITDA multiples but still trade at 200% above the respective S&P multiples.
    •  However, HIT public companies’ values have decreased by 38% from their peak valuations in the summer of 2018 and their trading multiples compressed by around 28% off of their peak valuations.