The Public Market Health IT LandscapeApril 26, 2018
The public markets for Health IT have been unusually quiet in recent years. Despite record setting private equity investment, the number of publicly-listed Health IT companies is contracting as the rate of IPOs is outpaced by go-privates and acquisitions. During the period since 2016, no single Health IT company listed on a US exchange. Several marquee Health IT companies have been acquired or taken private over the same period, including The Advisory Board and WebMD, as well as Imprivata, IMS Health and Press Ganey in 2016. Even so, awareness of public company performance is important, and HGP monitors a robust set of 36 publicly-traded Health IT companies as well as dozens of public companies in closely-related sectors.
Valuations of publicly-traded companies do not set the standard of value in Health IT due to the fact that there are only a handful of public Health IT companies that share similar characteristics to high growth, private SaaS companies. One of the challenges in Health IT valuation is that valuation is generally based on a more opaque set of private company valuations (see our semi-annual HGP HIT Market Review for more information on this topic). However, public company valuations provide a reference point among the many indicators of value that can assist with private company valuations.
On an EBITDA-multiple basis, the HGP PBM and CRO indices are currently trading at similar levels to Health IT. However, the PBM and CRO indices are concentrated with only five constituents and are generally not weighted down by underperformers, which negatively impact the overall Health IT index.
The Health IT Index has seen mixed performance over the years. The EMR cohort has undergone multiple compression from ~3x revenue to ~2x revenue since 2014 with even the stronger EMR players like Cerner and athenahealth seeing a squeeze on value. However, as noted, the mix of public companies is generally not a fair reflection of the market overall. Large, private EMR vendors, particularly specialty EMR vendors, such as Modernizing Medicine, Nextech, Net Health, NetSmart, PointClickCare, Logibec, AdvancedMD, Office Practicum, and many others have or will transact at valuations generally higher than their public comps. The high performers of the Health IT group saw revenue multiples hold steady, or in select cases increase conservatively (see Roper Technologies). This cohort is the strongest comparable set for private company valuations. The low performing Health IT companies are mostly those that overpromised in their IPO prospectuses or have business models that have evolved to become more services heavy since they went public. The disconnect between private and public HIT valuation is noteworthy and generally leads to public comps not serving as an influential guidepost for private company valuation. It may also partially explain why many companies have chosen to remain private despite having the wherewithal to IPO.