Healthcare IT is becoming increasingly important in PE healthcare deal activity, according to Pitchbook’s Q2 Healthcare IT Report. Although traditionally smaller than healthcare services deals, healthcare IT has shown resilience recently.

In the first half of 2024, there were 25 healthcare IT platform buyouts, a mere 25% decrease for compared to the recent peak in 2021. This trend suggests that healthcare IT is gaining attention when compared to other healthcare sectors, possibly due to regulatory uncertainties and limited exit options for large healthcare provider assets.

Current Deal Activity

PE sponsors announced or closed 69 healthcare IT deals in Q2 2024, maintaining a steady pace compared to the previous three quarters. Larger deals are expected to continue, driven by an active loan market and potential rate cuts. Notable deals include:

• Blackstone’s $1.4 billion acquisition of The Chartis Group
• CD&R and TowerBrook Capital Partners’ $8.9 billion acquisition of R1 RCM

Emerging Trends: PE and VC Convergence

The lower middle market is seeing more PE firms acquiring VC-backed startups, driven by the convergence of asset classes. These acquisitions often involve larger, nearly profitable VC-backed companies focusing on profitability or smaller VC-backed firms selling at a discount but offering valuable tech enhancements.

Key Investment Themes

The fragmented healthcare technology ecosystem presents opportunities ranging from basic outsourcing of revenue cycle functions to advanced AI and data interoperability solutions. PE investors are likely to pursue investments with positive EBITDA or a clear path to profitability, leaving high-risk, cutting-edge technologies to VC investors.

Established Playbooks in Healthcare IT

Healthcare IT continues to offer tried-and-true investment strategies, such as RCM and EHRs. These investments generally follow a buy-and-build approach, combining regional M&A with technological upgrades. The market remains attractive due to long-term contracts and high fragmentation.

Looking Ahead

With a steady pace of deal activity and increasing interest driven by regulatory shifts and market dynamics, healthcare IT presents a promising area for investment. Healthcare IT’s resilience and potential for innovation is attracting diverse investment strategies. As PE and VC asset classes converge and more tech-driven acquisitions occur, healthcare IT is positioned to become a key component of future PE portfolios, offering both stability and growth opportunities in a rapidly evolving market.