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THCB Reader -- Dec 5, 2021

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THCB Reader

December 5 · Issue #137 · View online

Everything you always wanted to know about the health care system. But were afraid to ask.


This week our content was very interview-driven, so scroll down for those interviews! We have a great piece where Kim Bellard asks, where’s our national health tech academy? He argues that we need a better pipeline for digital talent in healthcare.
On WTF Health, Jess DaMassa interviews Acorai CEO Filip Peters - a company turning smartphones into heart failure monitoring devices. She also chats with FarmboxRx CEO Ashley Turner on the first-of-its kind partnership with the U.S. Dept of Agriculture using SNAP/EBT benefits. Jess also drops in with Rajeev Singh, CEO of Accolade, on the big moves that the healthcare navigator is making. We also have an episode of Health in 2 Point 00 where Jess and I chat about Owlet’s run in with the FDA and some other big deals.
Finally this week’s #THCBGang featured patient activist, author & entrepreneur Robin Farmanfarmaian (@Robinff3); medical historian Mike Magee (@drmikemagee); and patient safety expert and all around wit Michael Millenson (@MLMillenson)
Don’t forget to listen any time—you can subscribe to #THCBGang and #Healthin2Point00 podcasts with an easy click on Apple or Spotify.

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!)
Learn more at https://www.bighealth.com/
Learn more at https://www.bighealth.com/
Follow me on Twitter @boltyboy and THCB at @thcbstaff for more similar insights/nonsense (and even the occasional sensible idea)! Enjoy! – Matthew Holt
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One Drop is reimagining chronic condition care. Learn more at getonedrop.com
One Drop is reimagining chronic condition care. Learn more at getonedrop.com
Early-Stage Med Device Startup Acorai is Turning Smart Phones into Heart Failure Monitoring Devices
Inside FarmboxRx's Groundbreaking Work in SNAP/EBT Benefits to "Eradicate Food Deserts Overnight”
Accolade Navigates Itself into New Territory: CEO on Personalized Healthcare & Tech Infrastructure
#Healthin2Point00, Episode 242: Owlet, EasyHealth, Luma Health, Calal Health, and more
Hope you enjoyed the newsletter. As ever let me know if you have any comments or want to sponsor/advertise–this newsletter doesn’t write itself but about 17,000 people get it and 80-100K visit the blog every month!
Matthew Holt
Matthew Holt
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