Health IT VC hits $293M in Q2
One can practically hear it buzzing: A recent report from global consulting firm Mercom Capital Group shows the healthcare IT sector was a hive of activity in quarter 2 of this fiscal year.
Based on venture capital (VC) funding levels, deal totals and merger and acquisition activity, in fact, the sector is experiencing its highest levels of economic bustle since 2010.
[Also: Some healthcare execs look for increased M&A activity after SCOTUS ruling]
In the quarter months of April, May and June, “Venture capital funding continued to scale new heights,” stated Mercom’s managing partner Raj Prabhu.
Total VC funding in the HIT sector reached $293 million in 28 deals, according to the “Healthcare IT Funding and M&A” report, in which researchers note that this sort of level isn’t totally unexpected for the HIT sector.
“The strong uptrend that started in Q2 2012 has continued for four quarters in a row,” Prabhu explained. “Also significant is the continued strong merger and acquisition activity in the sector, providing investors and companies with viable exit strategies.”
[Also: M&A: What is driving the market?]
At the upper height for Q2 stands Castlight Health, a provider of healthcare web and mobile-based transparency solutions that enable comparisons of doctors, hospitals and medical procedures based on price and quality. Castlight Health held the top funding deal, which raised $100 million. Practice Fusion, a provider of free web-based EMR, followed this with $34 million.
“The average VC deal size in Q2 2012 was $10.5 million,” the report described. That number reflects the positive trend referenced by Prabhu; the average deal size in Q1 2012 was $6.8 million.
“Some of the government initiatives, like the HITECH Act of 2009 and Affordable Care Act, along with health information exchanges have kick-started funding interest that seems to be gaining momentum,” Prabhu said. “VCs are seeing enormous opportunities in the market for consumer participation that can unlock cost efficiencies, transparencies and efficiencies to be gained through data analytics.”
Key highlights in the piece include:
- Health information management (HIM) companies received the most funding as a technology group with $247 million during Q2.
- Telemedicine companies took second place in funding levels with $19 million in three deals
- Personal health record companies received the third highest amount of funding with $16 million in four deals
Within the HIM realm, the greatest number of deals made involved Practice Management Solutions companies, who participated in a total of five deals during the second quarter. Business and clinical intelligence companies fell just short of this mark at a total of four deals.
Prabhu found the magnitude of this quarter’s VC rounds to be the most striking result of the report, “$100 million VC rounds for healthcare IT companies is probably the biggest surprise,” he said.
On the M&A front, the report outlined various figures from the second quarter that indicate a rise from the activity levels of Q1 2012.
“Most mergers and acquisitions were strategic in nature but private equity firms were very active this quarter and were involved in five M&A transactions,” Prabhu said.
The report cites a total of 39 M&A transactions in Q2 2012 amounting to $2.9 billion, of which only seven transactions disclosed details.
Here are some key facts regarding M&A HIT activity for Q2 2012:
- HIM companies accounted for the most M&A transactions, having completed 17 in this second quarter
- The second-most leading companies active in M&A activity were revenue cycle management companies at 11 transactions
- Service providers accounted for 5 transactions, and;
- Organizations related to the area of telemedicine accounted for 3 transactions
The report also highlighted some of the specific acquirements of the quarter. Top transactions included:
1. Veritas Capital acquired Thomson Reuters’ HIT business for $1.25 billion
2. Piramal Healthcare Limited acquired Decision Resource Group, a health information company, for $635 million
3. Towers Watson acquired Extend Health, a private Medicare insurance exchange, for $435 million
Altogether, these facets help to form a clearer picture of the fiscal state of the healthcare information technology sector, one that shows increasing activity and momentum in this area. The magnitude of deal totals and the levels of funding are scraping new heights, keeping with the sector rising trend.
So as Mercom states in the report, Q2 2012 marks an engaging period for healthcare technology: “Both the funding amount and number of deals were at their highest levels since we started tracking HIT funding in 2010.”
And when Prabhu looks ahead to the coming quarters, he sees an increasingly brighter and buzzier future for the HIT sector. The trend willcontinue, he adds, “I expect the momentum to continue into the second half.”
