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Follow Up to the Recent “Capital Meets Innovation Summit”
I appreciated the opportunity to participate on the panel and enjoyed meeting many of you at the Capital Meets Innovation Summit. For those of you that I did not have the chance to speak with, I wanted to take this opportunity to provide some additional information regarding Harris Williams & Co. and our Healthcare & Life Sciences group.
Having closed 47 transactions with an aggregate value of over $7 billion in 2008, Harris Williams & Co. is one of the largest mergers and acquisitions advisory firms in the country focused exclusively on the middle market, and represents private equity groups as well as publicly and privately held companies. The firm has a dedicated Healthcare & Life Sciences group, consisting of 13 professionals based in our San Francisco, CA and Richmond, VA offices, which is one of the leading healthcare platforms in the middle market and has successfully executed transactions for companies spanning a broad spectrum of healthcare products and services. The group focuses on transactions in the medical and life sciences products, facilities and alternate site healthcare services, and ancillary services and outsourcing sectors of the healthcare market. A brief overview of the Healthcare & Life Sciences group’s recent transactions can be found on our website at http://www.harriswilliams.com/business/recent_trans.php?temp=4e5802bf63aab34481d292ef3efe9cee.
As I mentioned during the panel, healthcare is one of a select set of industry segments in which there continues to be meaningful M&A activity. While the total number of healthcare transactions was down approximately 13% in Q1-09 relative to both Q4-08 and Q1-08, M&A activity remains strong in a number of healthcare sectors. HCIT is a real hot spot right now for deal activity with attractive valuation multiples possible for well-positioned, growing companies that can demonstrate that their product/solution improves clinical efficacy and/or reduces overall system cost. In addition, we see medium-term momentum in specialty and institutional pharmacy, home health, and proprietary and contract medical devices, which should accelerate as the legislative picture begins to firm up in the latter part of 2009.
In addition to our transaction work, from time-to-time our Healthcare & Life Sciences group publishes a “Market Monitor,” in which we provide an overview of key trends and M&A activity within a specific sector of the healthcare industry. We recently published a Market Monitor on the Contract Research Organization (CRO) sector (available at http://www.harriswilliams.com/pdf/CROmarketmonitor.pdf), which may be of interest to many of you. We have developed similar pieces on the Specialty Pharmacy and Diagnostic Imaging sectors as well, which I would be happy to provide upon request.
If anyone has any questions about Harris Williams & Co. and our Healthcare & Life Sciences group, please feel free to give me or Todd Morris a call in our San Francisco office at 415.288.4260 and we would be happy to chat further.
Harris Williams & Co.
575 Market Street, 31st Floor
San Francisco, CA 94105
Here are my top 5 quotes* from yesterday’s Capital Meets Innovation Summit. Please add your own in the comments section if you’re so inclined. (There were a lot, terribly hard to choose.)
- The first time I took investor money was the first time I started having a hard time sleeping. … Profit is liberating. – Cliff Monlux
- Health care is a great place to be. It’s a pile of manure right now, but you can grow big flowers out of that. – Howard Mahran, Deep Domain
- We’re one natural disaster, one terrorist attack, one pandemic away from this thing [the stimulus plan] not happening. Betting the farm on stimulus money is not a risk I would want to take. – Richard von Riesen
- Banks didn’t invent PayPal, accountants didn’t invent Quicken. … Coming at health care from another industry perspective can help. Make your pitch to investors as simple as possible: Our customers like us, we’re cheaper than our competitors, we have recurring revenue, we’re scalable. Period. – Henry Albrecht, Limeade
- We’re looking for superhero CEOs. – Alan Frazier, Frazier Healthcare Ventures
[to be cleaned up, filled out later!]
12:00 p.m. Stimulus plan… Morris: looking at the way health care is paid for. Lots of focus on pilots for bundling care … focus on moving system toward paying for value (not for using resources like it is now). von Riesen: if you’re an early-stage company, don’t make it a big part of your business plan. Timing is questionable, other details, etc. We’re one natural disaster, one pandemic away from this thing not happening. “Not a risk I would want to take.”
11:53 a.m. von Riesen: A sophisticated angel investor will see blind spots that an entrepreneur might not see …
11:37 a.m. Morris: Be sure if you take money from a vc, they have the right expertise …. Lots of vcs out there that invest in health care services that don’t know anything about it. Benaroya: Onerous terms create disfunctional behavior. If you start letting yourself be treated as an employee, not a founder/owner, things have spiraled in the wrong direction.
11:28 a.m. Benaroya: Found out that raising institutional money for hc services virtually impossible. Good thing … no pressure to grow on a three-year timeline …. can take time to focus on business, quality, etc. Recently invested in laser tatoo removal, clinical research, automated customer service.
11:23 a.m. Chris Price, Paragon. Peter Morris, currently with Carol, but former venture investor. John Cake, Premera Blue Cross. Russell Benaroya, REM Medical (sleep wellness), institutional investor.
11:23 a.m. von Riesen: What do we look for? Mgmt team, board, other investors. Why? Have to know if the deal is gonna survive. You don’t want to be the only smart person at the table. “Back-up protection” on your money.
11:18 a.m. Switching now to investors.
11:09 a.m. Albrecht: Early stage now means 5 million. 90% of “early-stage investors” wouldn’t have been classified as such 10 years ago. I think we all know exactly how many months till we’re profitable, running lean and making sacrifices till we make it.
11:06 a.m. Monlux: The first time I took investors money, the first time I started having a hard time sleeping. Once you take money, you’re managing investor relations all the time. Profit is liberating. More latitude. What’s your timeline to profitability?
11:04 a.m. Gelpi: VC world has to reinvent itself … it’s looking more like private equity. There’s no early-stage investing yet. Put smaller amounts of money at work.
11:00 a.m. Richard von Riesen: Lots of scar tissue on the entrepreneur panel. Lots of flexible thinking. But … most people asking for money do a horrible job. Would you let your parents invest in your company? Entrepreneurs have to close the loop … have all the pieces in place so investors don’t have to find them for you. There are fewer angels, but there are angels out there that still have money. Entrepreneurs aren’t doing a good enough job. (Whoa!)
10:52 a.m. Mahran: HC is a great place to be. It’s a pile of manure right now, but you can grow big flowers out of that.
10:45 a.m. Coppedge: Big hurdles in educating angels and some vcs about health care … so complex and complicated. How have entrepreneurs educated potential investors? Gelpi: Sometimes we don’t get caught up in the HC world at all … just show Clarity as a Saas model, solving an administrative problem. Henry: very hard to explain role of delivery chain … banks didn’t invent PayPal, accountants didn’t invent Quicken, coming at it from another industry perspective can help. Make it as simple as possible: customers like it, we’re cheaper, recurring revenue, scalable. Period.
10:42 a.m. Mahran, Deep Domain. Lean times can help you to make pretty good decisions. Current customers are best salespeople .. when they talk to other folks. Idea: Getting access to potential customers is just as (more) important than capital.
10:40 a.m. Henry, it’s a great time to be a HC innovator. Just better not need a lot of money, some money is OK. At Limeade, all fat has been cut, just meat and bone at this point. But it’s turned out to be a good thing. Investment history = “typical hustle” … friends, family, employees, angel investors, no vc yet.
10:32 a.m. Stern/Snap, first self-funded, then Series A in 2006, then large debt round. 2007 revenue subscriptions started, going really well till recently due to housing market. Tightened belt, staff reduction, cost cutting, investor stepped up and gave Series B, now back to revenue model. Looking to the future, for medical home model to work, need objective info at doc fingertips for case management, continuity of care … Snap for Seniors well positioned.
10:30 a.m. Gelpi/Clarity, originally self-funded, but went out with a Series A in early October, set price point. Reduced Clarity down to one risk: can you scale, can you grow. Set parameters and learned to function within those parameters. It’s productive for companies.
10:24 a.m. First, the entrepreneurs… Peter Gelpi, Clarity Health … coordinating physician referrals, reducing administrative headaches. Eve Stern, Snap for Seniors … collect and aggregate info on assisted living, nursing homes, etc. and distribute to websites. Henry Albrecht, Limeade … online wellness service for employers, health and performance. Howard Mahran, Deep Domain … provide ways of accessing clinical, financial data, move IT bottleneck.
10:20 a.m. Starting roundtable (long table) of entrepreneurs and investors. Moderated by Rob Coppedge and Cliff Monlux.
[break due to dying computer. now resuming…]
9:28 a.m. Scott: What else can we do to foster innovation? Kaplan: Some opportunity around stimulus money for docs and HCIT. Frazier: We can really take advantage of innovation at area hospitals. This region is more advanced than others around the country as far as systems, tech, etc. Kaplan: Interoperability is key … for portability of health records to become a reality.
9:25 a.m. Kaplan: Great area for innovation. Collaboration distinguishes area. Not counting on any public money. Huge downward pressure on docs, hospitals, etc. around partnering with industry. Press is all over it.
9:19 a.m. Frazier: Where’s the one million dollars to take a great idea the next step forward? I don’t know. He’s stumped. He sees no panacea. None from state government. Entrepreneurial spirit can make things happen w/o a lot of money … that’s the most important thing. Frazier: Wants more training in the area, e.g. at Stanford, training entrepreneurs in the biotech field.
9:13 a.m. Gary Kaplan, CEO, Virginia Mason Medical Center. Frankly, much of what we do is waste. But if we can take the non-value add work, services out of the line, we can free up capital. Have to change the culture, don’t automate bad processes. Fix the process, then automate.
9:08 a.m. Second panel, overview of Seattle market. Alan Frazier: HC innovation, it’s a tough, tough place right now. In early stages, dependent on angels or vc. Good thing about this area, great place to innovate. Full of tech, full of risk takers. Al Scott (PSBJ), moderator: What about those companies we read about that are founded in the depths of recession? Frazier: They better have a low-cost model. Low capital intensity.
8:47 a.m. Butler: Get to know investors well before you need the capital. Investors will take one risk these days … before they would take two. (Management, execution, market, product.) Let investors know what milestones are and hit them. Take mgmt, execution off the table as risks. Focus on the right funds … avoid those that are troubled, dealing with existing problems. Dixon: Optimistic about moderate improvement. HC, your product/service has gotta reduce costs or improve clinical effectiveness.
8:45 a.m. Butler: Large tech funds (e.g., MS) making more strategic investments. Dixon: Have to take into account how that affects an entrepreneur’s path.
8:42 a.m. Butler: Investors valuing capital efficiency more than ever. “Immensely focused.” Whitford: The capital efficiency trend is great for everybody.
8:40 a.m. Butler: Seeing a shakeout of the vc industry. Better firms in position to make investments, others are referred to as the walking dead. Early-stage, angel investors not coming back like late-stage. Risk not really coming back into the market yet. Dixon: 2008 VC $30B, Q1 2009 $3B. Estimate $15B/year over next couple of years, market basically cut in half. Presumably that money will be going to later-stage, not start-ups. (Dark clouds moving in.)
8:35 a.m. Dixon: Strategic buyers looking for smaller targets, don’t want to bet the whole farm.
8:29 a.m. Now looking to future (crystal ball) … Butler: Will continue to look choppy for the rest of the year. As things start to normalize, buyer companies will buy growth (inorganic growth vs. organic growth). Dixon: On the HC side, things are improving moderately not rapidly. Clarity about legislation will free up capital. Lots of interest in HCIT, as you would expect. On the services side, no big platform investments, but tuck-ins. Bigger bets coming in 2010.
8:22 a.m. Whitford: Asking what panelists see “before and after Lehman.” Butler: Before, buyers looked for a reason to say YES. Now they’re looking for reasons to say NO. Every buyer has two emotions: fear and greed.
8:20 a.m.: Dixon: Market peaked May/June 2007. Since then, funding has dried up completely. Within last month, lenders coming back into the market (conservatively). HC along with food and bev is one of the few industries still showing activity. HC is down, but has held in there.
8:16 a.m. Butler: Starting to see some unfreezing of vc, m&a markets. Valuations are the caveat. Today it’s take it or leave it. Negative feedback loop starting to be broken.
8:12 a.m. Hand-raising test: room full of entrepreneurs, investors scattered all around as well.
8:10 a.m. First panel, all about context. Operating at 6,000 feet. Michael Butler, Cascadia, and Andy Dixon, Harris Williams.
8:05 a.m. Getting started now. And on time! Intros by Joe Whitford of DWT. Working hard to get the word out about health care innovation in the Pacific Northwest.
7:55 a.m. We’re here in the lovely conference space at Davis Wright Tremaine … cloudy day in Seattle, but high spirits (so far) and good coffee starting the day.
While there will be a number of additions to the agenda in the coming week, we have posted it here.
We are very excited about how the event is shaping up. The response from entrepreneurs and investors (from all over the country) has been overwhelming. If you are interested in joining us on May 12, you can click through here to register.
We are reaching out to the community for help in building the Capital Meets Innovation Summit’s panel of health care technology entrepreneurs.
We are looking for health care technology entrepreneurs to share unique fund raising strategies and/or their insights into coping with the difficult fundraising environment.
What has worked? What hasn’t? Have you closed a deal recently? Have you found alternative ways to finance the short term or adjusted your operating and growth strategies to survive the cold winter?
If you have a compelling story, or know of an entrepreneur who does, then please email Bob Crimmins (Bob.Crimmins@imedexchange.com).
Capital Meets Innovation Summit
Tuesday, May 12, 2009
8:00 a.m. – 12:00 p.m.
Davis Wright Tremaine
1201 Third Avenue, Suite 2200
Seattle, WA 98101
Davis Wright Tremaine, iMedExchange, Clarity Health and Faultline Ventures invite you to attend the innovateHealth inaugural Summit. This program will highlight successful strategies being used by health care entrepreneurs from the Pacific Northwest to access capital and build their businesses during “droughts” in the traditional funding markets. In addition, the Summit will feature an opportunity to introduce investors from across the country to the next generation of technology-enabled health care services companies clustered here.
To view the full agenda and register, please CLICK HERE.
For those looking for soft copies of the handouts from the March 3 innovateHealth event, please follow these links:
For Sheryl Skolnick’s report on Obama’s budget that Michael Burcham referenced, please click here. (opens a pdf)
Thanks again to Becky and Michael – the positive reviews on the event keep coming in.
Just a heads up to add innovateHealth’s first annual Capital Meets Innovation Summit to your calendars. We will use this event to introduce local health care entrepreneurs to successful strategies for accessing capital outside the region and to introduce investors from across the country to the next generation of technology enabled health care services companies that are clustered here.
More details will be released soon.
If you are interested in getting involved or sponsoring the Summit, please email Rob Coppedge at firstname.lastname@example.org.