Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt
For my health care tidbits this week, it’s time to delve into the private equity firms’ buying and selling of Athenahealth. That’s of course the practice management/EMR firm bought by private equity companies led by Elliot Capital Management–they of the Israeli spy agency dirty tricks division–for roughly $6.5bn in 2018. Many (including me) have wondered how, given it was already doing about $1bn a year in revenue then, Athenahealth could be sold for $17bn three years later. After all it’s hardly likely to have tripled its revenue in a mature market! This comment by “Debtor 23” on @histalk is very instructive:
“Elliott did quite a bit better than 3x on its investment. The original deal was funded with about $4.8B of debt and $1B of equity from the hedge fund sponsors. Add in the acquisition cost of Centricity (call it $500M of equity, $500M of debt) and the equity investors are all-in with $1.5B of equity and $5.3B of debt. They sold off some assets for a total of ~$600M in cash, so net equity in play is $900M. They turned that equity into $11.7B (assuming no interim debt pay down), which is a 13x return. 13x feels ridiculous….but….if you’d invested that same levered-up $6.8B in the Nasdaq (QQQ) on the same timeline (Elliott began buying ATHN in spring 2017)…you could sell today for $18.1B. Absurd as this whole deal sounds, it has actually underperformed the market. This story is more about tech multiple expansion/bubble broadly than it is about improving management or running the business.”
So much like Renaissance and other hedge funds that rely on leverage, essentially Elliott leveraged Athenahealth up with debt to the tune of 80% of its value. So after slashing and burning R&D, selling assets (like the HQ which they apparently got $500m for) they probably got costs down & profits way up. When it was public under CEO Jonathan Bush, Athenahealth never tried to be that profitable. It was always fixated on the next big thing (the last one was building the future state inpatient EMR with Toledo & using the BIDMC tech it bought from John Halamka). That’s one reason its PE ratio was 100+.
So if Elliott can get some sucker to pay up and manages to turn $1bn into $13bn, how do the next greater fools–H&F and Bain Capital–do it? Well they need to layer Athenahealth up with even more debt (as money is currently so cheap) and keep generating enough cash to pay the debt. Of course at that price and with this mature a market it’s going to be super hard to grow the company enough to justify another leap in sales price, but it might be doable to service or even pay down some of the debt and take it for an IPO for a couple of billion more if the market stays nutso. So if H&F and Bain Capital basically shrink their equity portion down to $1-2 billion, and get it to IPO in a year or so for say $20Bn, they will at least double or triple their money. Not quite 13 x but not terrible.
And if it all goes wrong and Athenahealth can’t service the debt? Well the beauty of leverage and debt is that it attaches to the company – not to the PE fund that put it in that position. So all the new owners will have at stake is a reasonably small amount of equity. Of course if the shit hits the fan and Athenahealth goes bankrupt the employees and customers may not be so happy, but who cares about them? (Apart from that hasbeen CEO who got kicked out!)
Jonathan Bush has “More Disruption Please-d” himself and is back at it with a new company, Zus (get it…like the father of Athena) backed by a $35M Series A led by Andreessen Horowitz, F-Prime Capital, Maverick Ventures, & Rock Health.
“It’s ‘Build-A-Bear’ for EMR, patient relationship management, CRMs…” says Jonathan, and meant to help digital health startups work around incumbent EMR companies by providing a developer kit of components common to the “middle” of a health tech stack — AND a single shared record backend where all Zus clients can land and access patient data.
The intention is to help digital health startups reduce the time and cost of developing their tech by eliminating the redundant, generic aspects of building a healthcare tech stack in the same way companies like Stripe or Twilio have taken the burden out of writing code to process payments or integrate messaging. Zus intends to be the go-to for code used to make an appointment, create a patient profile, connect to a telehealth platform, etc. And the shared record on the back end? Does that make Zus a next-gen EMR company?? Find out more about Zus’s business model, current client list, and why, exactly, Jonathan believes that NOW is the time that the dream of the shared patient medical record is within reach.
Virtual-first primary care company Firefly Health is becoming a health plan! Backed by a $40M Series B, CEO Fay Rotenberg and Executive Chairman Jonathan Bush stop by to explain how they’re providing “half-price healthcare that’s twice as good.” (Or, as only Jonathan can put it: “we’re a bloat-less Kaiser.”) All kidding aside, some big-name health innovation investors are not only behind this raise (Andreessen Horowitz led, F-Prime Capital and Oak HC/FT dipped back in), but also this idea to wrap a benefit around Firefly’s digitally-driven comprehensive care model. Already in-market, the new benefit-plus-care product is aimed squarely at mid-sized/small, fully-insured employers – shops with 50-500 employees which, right now, have limited options for dramatically changing their healthcare spend or being able to build out their own benefits the same way large self-insured employers can.
Fay and Jonathan get into the details about how they’re extending their “Marie Kondo-ing” of healthcare delivery – which has thus far netted some pretty impressive health outcomes, cost savings, and a 92 Net Promoter Score – into healthcare financing.
BONUS: Tune in around 25:30 and stick around for a few minutes as Jonathan weighs in on the health tech funding boom, how it compares to the EMR arms race days of ole, and whether or not he thinks he can beat Glen Tullman’s $14.5B valuation if/when Firefly goes public. HA!
Health tech rabble-rouser, Jonathan Bush, marked his return to digital health with an appearance on the Health 2.0 stage, and quick chat with WTF Health about his new role as Executive Chairman at Firefly Health. As if conquering EMRs wasn’t enough, JB’s planning on disrupting primary care for his second act. With $10.8M series A funding and a huge addressable market, this may not be such a crazy idea after all. So, what made us miss this guy so much during his year-long hiatus from health tech? Just watch. This interview goes from the “Kabuki theater of the doctor’s office visit” to “Marie Kondo-ing” healthcare to Machiavelli and universal healthcare’s impact on the health tech market. Welcome back, JB.
Filmed at the Health 2.0 Conference in Santa Clara, CA in September 2019.
Jess and I are at Health 2.0 for Episode 95 of Health in 2 Point 00! To wrap up the conference, Jess and I talk about Jonathan Bush’s reappearance in health care on the stage at Health 2.0, with Firefly Health, with echoes of this direction in primary care by Tony Miller on the insurance panel. We talk about all the winners at Health 2.0, including the RWJF Challenge winners, Ooney with Prehab Pal and Social AI Impact Lab, and Omny who won Launch. My favorites from the conference were Indu Subaiya’s Unacceptables panel with two amazing speakers, Melissa Hanna, CEO of Mahmee & Joia Crear Perry, Founder and President of the National Birth Equity Collaborative. Catch highlights from Jess’s panel on social movements in health care as well! —Matthew Holt
Jessica DaMassa asks me about Jonathan Bush’s exit and the future of Athenahealth, celebrity suicide and the future of mental health apps, and who Amazon/Buffet/Chase should choose to be their CEO — Matthew Holt
In this edition of Health in 2 point 00 the tables are turned! Jessica DaMassa is at the upstart HLTH conference, which will make those of you with long memories of the first ehealth bubble laugh. So today I’m asking Jessica the questions, including whether Jonathan Bush likes the buyout idea, what Alex Drane (Walmart’s most extraordinary cashier) said, and whether there was anything about sex at HLTH or whether that was just at YTHLive!–Matthew Holt
Hello THCB Readers, I’m Jessica DaMassa. At Health 2.0’s Fall Conference, Matthew Holt and Indu Subaiya set me up with a camera crew and open access to the influencers, leaders, investors, and startups who graced the stage at this November’s meeting in Santa Clara. Over the course of two days, I asked more than 60 different interviewees from across the health continuum to share their point-of-view on the future of healthcare. Our goal was to capture the “state-of-play” in health innovation and contribute as many answers as possible to that elusive question: What’s going to be disrupted next?
All 60+ interviews are available for your guilty binge-watching pleasure on Health 2.0 TV, or you can stay tuned to THCB as we share some of the best-of-the-best. If you have any recommendations for future interviews (live or online), or want me to talk to you, I’ll be starting a longer series of interviews including showing tech demos. So please get in touch via @jessdamassa on Twitter. Thanks for watching! —Jessica DaMassa
Jonathan Bush, CEO of AthenaHealth, spoke at Health 2.0’s Fall Conference about the potential of networked medicine as a way to transform both the way healthcare is delivered and consumed. After his panel discussion, we got his take on where we can expect the next big disruption in healthcare. Here’s a hint (and a Jonathan Bush-ism to look out for): “ACO’s are kind of a training bra for becoming your own insurance company…”
Since 2011, over $13 billion in venture funding has flooded into digital health. 2015 alone saw well over 200 digital health companies raise more than $2 million each. From personal DNA tests to on-demand doctor’s visits, startups are taking a page from technology giants (Google, Apple, Amazon) and digital unicorns (Uber, Slack) to bring health care into the internet age.
The consumerization of health care is en fuego(!), and rightfully so. With the rise of high-deductible plans, we as patients have been forced to take on greater financial responsibility for our own health. Adding fuel to the flame, the widespread adoption of internet and mobile tech has evolved patients from passive recipients of care into active managers of care. Health care’s consumerization wildfire is thrilling, and it’s created a perfect breeding ground not only for new models of care delivery to take root, but for entrepreneurs to introduce new tools and apps for the patient and provider alike.
John Gage, Sun Microsystem’s fifth employee and its former chief researcher, famously said “the network is the computer.” The majority of us experience this every day through interactions with a wide variety of highly-intelligent, super-connected networks including Facebook, which remembers our friends’ birthdays better than we do; ATM networks, which know instantly if we have the cash that matches our request; and the complex, yet seemingly simple interweaving of phone networks, which allows us to communicate smartphone-to-smartphone regardless of carrier. Sadly, healthcare struggles to grasp this important concept.
Earlier this month, I flew to Utah for a conference hosted by KLAS, a major healthcare research outfit, about interoperability. Interoperability is a clunky word that’s talked about endlessly in healthcare, but at its root is an important notion: health care information needs to flow freely. Interoperability means that important information isn’t stuck in proprietary enterprise software that a hospital spent millions of dollars buying years ago. Having this information in the right place at the right time equates to reduced risk of medical errors and makes the delivery of health services more efficient and less costly. I’m convinced more than ever the only way to free information from the silos where it’s currently stranded is for the industry to embrace connectedness by switching to cloud-based, open networks.
The goal is clear. Yet healthcare IT executives and those buying their products remain stuck in the old ways of thinking. In their minds, software is still the computer, and sunk costs keep it so. As such, health information is largely trapped on technology islands that are maintained at great expense onsite at hospitals across our country versus flowing across the care continuum via a universally available information network. Just how bad is the data jam? An Epocrates’ survey earlier this year of nearly 3,000 physicians found that only 14 percent of physicians can access usable electronic health information across all care delivery sites and six out of 10 doctors, even when in the same organization, aren’t effectively sharing information.Continue reading…
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