A spate of recent investments suggests private equity firms may be rekindling their interest in the point-of-care media space, two years after a scandal sent some investors fleeing.
Exhibit A came in May with middle-market private equity firm Littlejohn & Co.’s infusion in POC network Outcome Health. The recapitalization provided a significant new line of equity capital for the company, whose investors at one time had included Goldman Sachs, the Pritzker Group and Alphabet before those same backers sued the network over allegations it inflated campaign results.
The suit was settled in 2018, after which Outcome’s founders agreed to step away from day-to-day managerial duties. They eventually gave up their board posts, as well, paving the way for new management to be installed last summer.
Another validating sign came the same month, when it was announced that WestView Capital Partners had led a funding round for fellow POC firm Health Monitor Network.
No financial terms were disclosed in either of the two 2019 deals, but both served as validation, not just for Outcome’s ongoing recovery but for the POC space as a whole.
What’s behind this enduring attraction? “It’s really about reaching patients,” says Tom O’Connor, managing director of Berkery Noyes, a middle-market merger and acquisition house leading deals in healthcare, med tech and marketing services. “Reaching patients — whether it be on an iPad, a phone, on a screen in a doctor’s office — you get consumers, right? You have a captive audience. [These networks] are a great way to get to the consumer, because it’s hard to get to the consumer.”
Indeed, on a macro level, the new investments speak to longstanding trends such as the consumerization of healthcare and pharma’s need to educate patients about drugs and conditions that are becoming more specialized, less mass-market.
“It’s not just Lipitor today,” O’Connor points out. Patient populations are getting smaller. “There’s also a lot of competition among drug makers for that first-line, second-line, third-line drug. So how do you educate the consumer?”
In 2017, MM&M reported between 10%-20% of pharma brands were shifting their spending away from digital media to digital POC, citing figures from ZS Associates, and that the market has an estimated compounded annual growth rate of 10%. That rate, per ZS, will likely rise to 15%, creating a potential $850 million market by 2020.
“These are not small businesses, they are high-cash-flow businesses. So private equity loves the high cash flow,” O’Connor added.
Take PatientPoint, which is probably Outcome’s top competitor. When the POC advertising firm, which is backed by private equity company L Catterton, said it was gearing up for a sale last year, it released financials: a run rate earnings before interest, tax, depreciation and amortization (EBITDA) north of $45 million and trailing 12-month EBITDA of $30 million, as reported by PEHub.com, which listed potential suitors ranging from media-focused PE groups as well as strategics such as KKR’s WebMD.
L Catterton’s stake in PatientPoint can be traced back to 2007, and in 2017 it was joined by investors Searchlight Capital Partners and Silver Point Capital in a financing round worth $140 million. At the time, Reuters reported the investments valued PatientPoint at $500 million.
That was dwarfed by Outcome’s one-time, self-reported $5.5 billion valuation following its 2017 Goldman-led funding round worth nearly $500 million, although the once high-flying Chicago startup has since come closer to ground level.
These days investor confidence in the power of POC networks may have shed that 2017 exuberance, but the fundamentals mean it’s still going to be a darling for media-minded investors.
For his part, O’Connor sees private-equity interest in the sector continuing into the second half of this year, first because of the glut of PE capital. Private equity general partners were sitting on about $2 trillion in undeployed cash at the end of 2018, per a report by Bain & Co.
“They’re ferociously looking for deals, and pharma marketing, which a lot of this is, is a very attractive area for a subsegment of the private equity market,” he says. “Private equity is driving deal flow in the healthcare sector because they need to put the money to work.”