The health care information and solutions market continues to see transactions at robust multiples, and that M&A momentum should carry through next year, said Tom O'Connor, managing director at Berkery Noyes.
O'Connor said there is a tremendous interest in health care technology and solutions companies from both strategic and financial buyers as the industry continues the shift from paper-based to digital solutions and IT based solutions. He said the Medicare market is highly regulated and failure to comply is costly, as errors affect quality of care, leading to increased need for Medicare software and solutions that ensure compliance.
"The ACA [Affordable Care Act] and the regulatory environment today is pushing change in health care from Americans getting older to people getting out of hospitals to lower costs, better care and more access," said O'Connor.
O'Connor said the greatest demand is for health care information solutions that are employing Software-as-a-Service-based subscription strategies, especially those with recurring revenue models. In his view, acquirers are looking for opportunities that increase reimbursements and revenue, ensure compliance and lower costs.
Strategic buyers are flush with cash and looking to make investments to jump-start revenue growth in their core markets and move into related markets where they can upsell and cross-sell to the same or similar customer base, according to O'Connor. He said financial buyers are also flush with cash, with over $1 trillion in "dry powder." Plus, credit markets are favorable, with certain deals receiving multiple term sheets and high available leverage levels.
Still, for all the recent talk of increased deal flow, there still remains a lack of high-quality opportunities of scale in the market today, said O'Connor. As evidence of this lack of quality, he cited continued calls and visits he is getting from large and mid-market strategic buyers and private equity groups looking for deals. Once an attractive opportunity of scale comes out, however, he said there is no lack of buyers at robust prices.
"There's plenty of deals, but it's hard to find what we call a 'unicorn,' or a privately held business without institutional money with a certain scale and growing at a certain rate that's willing to be acquired," said O'Connor. "That's what's tough to find today."