Positioning Your Healthcare IT Business for a High-Value Exit

Volume 11, Issue 21, November 5, 2024

By: Jack Turgeon, MBA

In recent years, we have seen healthcare information technology (IT) companies emerge as a leading investment focus for private equity. Healthcare IT has showcased resilience and steady growth even as other healthcare sectors, like healthcare services, faced evolving regulatory challenges. While Healthcare IT faces its own set of regulatory hurdles — especially around data security, interoperability, and compliance — these differ from the direct care and reimbursement complexities that healthcare services providers confront.

As owners of healthcare IT companies consider their strategic plans for 2025, I believe they have a unique opportunity to consider lucrative exit strategies and other mergers and acquisitions (M&A) opportunities, driven by strong and rising interest from investors who recognize the substantial value of digital transformation in healthcare.

Why Buyers Are Targeting Healthcare IT Businesses

The interest in healthcare IT companies from private equity firms and others stems from the long-term customer relationships and "stickiness" of software platforms, especially in mission-critical areas like revenue cycle management (RCM), quality of care, and provider productivity applications. The ongoing digital transformation in healthcare, coupled with a rising demand for analytics and interoperability, positions healthcare IT companies as high-value targets with scalable revenue potential.

Historically, the lower-middle market in healthcare IT was less attractive to private equity due to the dominance of venture capital investors and a focus on growth at all costs over profitability. However, as fundraising becomes more challenging, companies are shifting to scale with profitability in mind, aiming for cash-flow-positive models. We have seen this shift spur a rise in venture-backed, lower-middle-market software transactions, creating new M&A opportunities for companies that previously had limited exit and partnership options.

Attractive sectors in healthcare IT include RCM, predictive analytics, value-based care, and niche-focused healthcare solutions. RCM platforms are among the most sought-after targets, with significant deal flow driven by the outsourcing of complex billing and coding tasks. Despite some consolidation in recent years, this market remains highly fragmented, offering further consolidation opportunities for private equity, while the long-term relationships these platforms foster enhance scalability and investment appeal.

With the rise of value-based care, platforms centered on financial efficiency, data-driven decision-making, and outcome improvement — such as clinical analytics, care coordination, remote patient monitoring (RPM), and point-of-care decision support tools — are experiencing elevated activity. Tools leveraging artificial intelligence (AI), machine learning, and real-time data integration are particularly scalable across various healthcare settings, making them especially attractive to investors.

Software products focused on specific niches within healthcare are also drawing premium valuations due to their high demand. With barriers to entry and limited competition, these specialized products often establish moats through customer retention and long-term contracts, making them ideal tuck-in acquisitions for larger platforms. Examples include ambulatory electronic health record (EHR) and practice management solutions tailored to specialties like dermatology and ophthalmology, which offer highly specific workflows and patient engagement tools that drive operational efficiency and improved outcomes. Products focused on chronic disease management, such as hypertension- and diabetes-focused RPM, also align well with value-based care models.

Why This Matters for Healthcare IT Business Owners

Private equity interest in healthcare IT companies is driving higher valuations, especially in the sectors outlined above, enabling many owners to achieve attractive multiples when they bring their company to market. Selling to investors that understand the strategic value of specialized software allows for smoother integration into larger platforms, enhancing scalability and impact. Owners can also benefit from flexible exit options, including minority buyouts, majority recapitalizations, earnouts, equity rollovers, and ongoing roles within the acquiring platform, offering various paths to a successful transition.

For Healthcare IT business owners considering a future sale, taking steps now to strengthen and streamline operations can lead to a more attractive valuation and smoother transaction process. Start by ensuring that financial records and key performance indicators (KPIs) are transparent, accurate, and readily accessible. Clear visibility into revenue streams, customer retention rates, and cost structures is essential for attracting potential buyers.

Additionally, focus on reinforcing your platform's scalability and interoperability to align with industry demands for flexible, integrative solutions — features highly valued by private equity and strategic investors. It's also wise to address regulatory compliance proactively, particularly around data security and interoperability standards, as these are increasingly scrutinized in due diligence.

Finally, consider solidifying long-term contracts and deepening relationships with clients. Long-term customer retention enhances the perceived stability and profitability of the business. By preparing these elements now, you'll be well-positioned to capitalize on the favorable market trends when the right opportunity arises.

Maximizing Value in Healthcare IT M&A: Why Founders and CEOs Should Trust VERTESS

At VERTESS, we bring unparalleled expertise and a deep understanding of the healthcare IT sector to every M&A engagement, helping clients achieve the highest possible valuation and a smooth, successful exit. Selling a business is more than just a transaction — it's the culmination of years of hard work and growth. We recognize these efforts and take a personalized approach to transaction engagements, working closely with each client to understand their goals and develop a strategy that highlights the unique value of their company. Our process begins by identifying the ideal target buyer groups, whether they are private equity firms, strategic acquirers, or other specialized investors. With our extensive network, we connect owners with buyers who appreciate the strategic value of their business and are invested in maximizing its future growth potential.

We also excel in crafting a compelling narrative that showcases each company's strengths. By collaborating with clients to emphasize scalability, revenue potential, and competitive advantages, we ensure their business stands out in a crowded market and attracts top-tier buyers. From structuring the deal to navigating due diligence and handling negotiations, VERTESS provides comprehensive support at every step, anticipating and addressing potential challenges to keep the process on track. Our expertise ensures that every detail is managed with precision and care, giving clients the confidence that they're positioned for success.

With private equity attention intensifying and valuations on the rise, now is an ideal time for healthcare IT business owners to consider their exit options. Partnering with seasoned advisors like VERTESS can simplify the M&A process and unlock the full potential of an exit. This will help ensure owners are well-positioned to capitalize on today's healthcare IT market opportunities while preserving the legacy of their healthcare IT businesses.

Jack Turgeon, MBA

As a Director at VERTESS, I bring extensive experience in sales, consulting, and project management from early-stage startups. With an MBA from Babson College, I have a strong foundation in business strategy, operations, and financial analysis. My personal connection to behavioral healthcare through a family member motivates me to help business owners get the best deal possible while ensuring high-quality care for their clients. Throughout the M&A process, I provide comprehensive support at every step. I have a proven track record in negotiations and client management after working with companies in various industries. I’m excited to join VERTESS and make a meaningful impact on the lives of the owners I work with.

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Email Jack Turgeon or Call: (781) 635-2883