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Majority recapitalization: Preparing for fast growth

Jon Krieger, managing director at investment bank Berkery Noyes, managed healthcare IT firm Healthx’s majority recapitalization, which the company undertook in preparation for the swift market growth it anticipates. He spoke recently with Healthcare Finance News Editor René Letourneau about the transaction and its implications for the mergers and acquisitions market.

Can you give a little background on Healthx’s majority recapitalization?

Healthx went through a process in which the private equity firm Frontier Capital acquired a majority stake in the company. Frontier Capital partnered with the management team essentially to affect the next stage of the company’s growth.

Healthx currently touches close to 13 million health insurance members in addition to half of the physicians in the U.S. They’ve had a lot of success with engaging these constituents and, as a result, with taking cost out of the system. If you look at what their value proposition is along with a lot of the macrotrends in healthcare that our country is currently facing, they are really uniquely positioned to capitalize in the marketplace.

What are the major macrotrends affecting the market?

The trends that I am referring to are the evolving reimbursement models, which are incentivizing providers and healthcare insurers to work together to improve clinical outcomes while simultaneously reducing care expenditures – the new models that put an emphasis on value as opposed to volume.

Then you have the demographic trends such as the aging population, which will further tax the healthcare system through increased utilization. The only way to really address these new payment methodologies and care treatment options is to use technology.

If you look at the liquidity of patient data, it’s being digitized at rates that are unprecedented. A big part of that has to do with when the federal government enacted the HITECH Act a few years ago, which mandated the distribution of close to $20 billion to those healthcare constituents who adopted technologies. What this has done is shed a bright light on the value proposition of these technologies, and it’s really catalyzed the current rapid adoption rates that we’re seeing in the market.

Healthx saw the market opportunity and where they were situated within the competitive landscape and said “if we can have the growth capital to pursue this addressable market opportunity in front of us, then this could be a very different company in a very short period of time.”

Are we going to keep seeing more and more recapitalization as companies prepare to take advantage of the market?

I think so. The healthcare M&A markets, in particular the healthcare technology market, were extremely active last year. The software industry, just like any other industry is finite. There is kind of a market grab out there right now. Some smaller companies have limited resources and the extent to which they can get acquired or partner with larger strategic companies or private equity firms with the experience and relationships throughout the healthcare market affects their ability to grow.

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