Private Equity rollup strategies in HealthTech to focus on the 'Forgotten MidTier' portfolios in 2023 and 2024

Exec Summary:

Private equity firms have traditionally focused on investing in large, high-growth healthcare technology companies. However, there is a growing opportunity for private equity firms to tap into the midtier of the healthtech landscape.

These midtier companies have demonstrated a proof of concept, have won flagship customers, and are consistently profitable. However, they are unlikely to reach billion-dollar valuations. This makes them attractive targets for private equity firms that are looking for companies with the potential for double-digit growth.

Some of the benefits of investing in midtier healthtech companies include:

• Lower risk: Midtier healthtech companies are less likely to fail than the largest healthtech companies. This is because they have already demonstrated a proof of concept and have won flagship customers.
• Double-digit growth: Midtier healthtech companies have the potential for double-digit growth. This is because they are still in the early stages of their development and have a lot of room to grow.
• Expertise: Private equity firms can bring their expertise to help midtier healthtech companies scale and grow. This can include providing access to capital, strategic guidance, and operational support.

Here are some of the most likely private equity rollup plays in the 'Forgotten MidTier' across the HealthTech landscape:

• Telehealth: The telehealth market is highly fragmented, with a large number of small, independent providers. This makes it ripe for consolidation, as private equity firms can acquire these companies and create larger, more efficient platforms.
• Health IT: The health IT market is also fragmented, with a wide range of companies providing different solutions. Private equity firms can acquire these companies and create one-stop shops for health IT solutions.
• eCommerce in healthcare: The e-commerce market in healthcare is growing rapidly, as more and more people are using online platforms to purchase healthcare products and services. Private equity firms can acquire e-commerce companies in healthcare and help them to expand their reach and grow their market share.
• Behavioural health: The behavioural health market is also ripe for consolidation, as there are a large number of small, independent providers. Private equity firms can acquire these companies and create larger, more integrated behavioural health platforms.
• Digital therapeutics: Digital therapeutics is a rapidly growing field, as more and more companies are developing software-based treatments for a variety of medical conditions. Private equity firms can acquire digital therapeutics companies and help them to scale their operations and reach more patients.
• Pharmaceuticals: The pharmaceutical market is also a potential target for private equity rollups. Private equity firms could acquire small, innovative pharmaceutical companies and merge them together to create larger, more diversified pharmaceutical companies.
• Medical devices: The medical devices market is another potential target for private equity rollups. Private equity firms could acquire small, innovative medical device companies and merge them together to create larger, more diversified medical device companies.

These are just a few of the most likely private equity rollup plays in healthtech. As the healthcare industry continues to evolve, we can expect to see more and more consolidation in this space.

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What is a private equity rollup strategy?

A private equity rollup is a strategy used by private equity firms to acquire a number of smaller companies in the same industry and merge them together to create a larger, more diversified company. This strategy is often used in fragmented industries where there are a large number of small, independent players. By acquiring these companies, private equity firms can achieve economies of scale, reduce costs, and increase market share.

There are a number of benefits to using a private equity rollup strategy.

First, it can allow private equity firms to achieve economies of scale. By merging together a number of smaller companies, private equity firms can reduce costs in areas such as marketing, sales, and administration.

Second, a private equity rollup can allow private equity firms to increase market share. By acquiring a number of smaller companies, private equity firms can become a larger player in the industry and gain a competitive advantage.

Third, a private equity rollup can allow private equity firms to create a more diversified company. By merging together a number of companies in different segments of the industry, private equity firms can reduce their risk exposure.

However, there are also some risks associated with using a private equity rollup strategy.

First, it can be difficult to integrate a number of different companies into a single entity. This can lead to operational problems and culture clashes.

Second, a private equity rollup can be expensive. Private equity firms often have to pay a premium to acquire smaller companies.

Third, a private equity rollup can take a long time to complete. This can be a problem if the industry is changing rapidly.

Overall, a private equity rollup can be a successful strategy for creating a larger, more diversified company. However, it is important to weigh the benefits and risks before pursuing this strategy.

Private Equity $15 Billion Funds for Healthcare

According to a report by Bain & Company, firms raised more than $15 billion in new buyout capital for funds where healthcare is the exclusive or core focus in 2022. This is the highest level of fundraising for healthcare-focused private equity funds since 2019.

There are a number of factors that are driving this trend.

First, the healthcare industry is undergoing a period of rapid change, as new technologies and business models are emerging. This is creating opportunities for private equity firms to invest in companies that are leading the way in innovation.

Second, the healthcare industry is a large and growing market. The global healthcare market is expected to reach $10 trillion by 2025. This provides private equity firms with a large pool of potential investment opportunities.

Third, there is a strong demand for private equity investment in healthcare. Institutional investors, such as pension funds and insurance companies, are increasingly looking to private equity as a way to generate high returns.

As a result of these factors, we can expect to see continued growth in private equity investment in healthcare in the years to come.

Here are some of the specific areas of healthcare that are seeing the most private equity investment:

• Digital health: Private equity firms are investing in digital health companies that are developing new technologies to improve the delivery of healthcare. This includes companies that are developing telehealth solutions, electronic health records, and other software-based solutions.
• Life sciences: Private equity firms are investing in life sciences companies that are developing new drugs, diagnostics, and medical devices. This includes companies that are working on treatments for cancer, Alzheimer's disease, and other chronic diseases.
• Healthcare services: Private equity firms are investing in healthcare services companies that provide support services to hospitals, doctors' offices, and other healthcare providers. This includes companies that provide staffing, IT services, and other support services.

These are just a few of the many areas of healthcare that are seeing private equity investment. As the healthcare industry continues to evolve, we can expect to see even more investment in this sector in the years to come.

Forgotten midtier opportunities across the HealthTech landscape

Private equity firms have traditionally focused on investing in large, high-growth healthcare technology companies. However, there is a growing opportunity for private equity firms to tap into the midtier of the healthtech landscape.

These midtier companies have demonstrated a proof of concept, have won flagship customers, and are consistently profitable. However, they are unlikely to reach billion-dollar valuations. This makes them attractive targets for private equity firms that are looking for companies with the potential for double-digit growth.

The healthcare technology (healthtech) industry is vast and growing, with a wide range of companies at different stages of development. Private equity firms have traditionally focused on investing in the largest and most well-known healthtech companies, such as those that have achieved unicorn status. However, there is a growing opportunity for private equity firms to invest in the midtier of the healthtech landscape.

Some of the benefits of investing in midtier healthtech companies include:

• Lower risk: Midtier healthtech companies are less likely to fail than the largest healthtech companies. This is because they have already demonstrated a proof of concept and have won flagship customers.
• Double-digit growth: Midtier healthtech companies have the potential for double-digit growth. This is because they are still in the early stages of their development and have a lot of room to grow.
• Expertise: Private equity firms can bring their expertise to help midtier healthtech companies scale and grow. This can include providing access to capital, strategic guidance, and operational support.

Some of the challenges of investing in midtier healthtech companies include:

• Competition: The midtier healthtech landscape is becoming increasingly competitive. This is because there are more and more companies vying for a share of the market.
• Regulation: The healthcare industry is highly regulated. This can make it difficult for midtier healthtech companies to navigate the regulatory landscape.
• Exit: There are fewer potential buyers for midtier healthtech companies than for larger companies. This can make it difficult for private equity firms to exit their investments.

Overall, there is a growing opportunity for private equity firms to invest in the midtier of the healthtech landscape. These companies offer the potential for double-digit growth with a lower risk profile than the largest healthtech companies. However, there are also some challenges that private equity firms need to be aware of, such as competition and regulation.

Here are some examples of midtier healthtech companies that have been successful:

• Catalyst Health: Catalyst Health is a provider of telehealth services. The company has raised over $100 million in funding and has over 1 million patients.
• Athenahealth: Athenahealth is a provider of electronic health records (EHR) software. The company has raised over $2 billion in funding and has over 100,000 customers.
• PatientPing: PatientPing is a provider of patient engagement software. The company has raised over $50 million in funding and has over 10,000 customers.

These companies have all demonstrated the potential for growth and success in the midtier of the healthtech landscape. Private equity firms that are looking for opportunities in the healthcare industry should consider investing in these types of companies.

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