1. HIT Market Perspective
October 2013
CONFIDENTIAL
Healthcare Growth Partners, LLC
2013
All Rights Reserved

2. About HGP

HGP is focused exclusively on healthcare technology
and services.
Investment Bank
M&A Transactions since 2008
Buyside
Sellside
Total
HGP
Firm A
Firm B
Firm C
Firm D
Firm E
Firm F
Firm G
Firm H
Firm I

HGP’s HIT domain expertise is unmatched.

HGP has deep relationships with decision makers
across the industry.

HGP has experience across a range of technologies, in
terms of SaaS, web-based, and client server, as well as
software-enabled services.

26
25
21
10
10
6
7
3
2
0
40
29
22
13
12
9
7
6
6
2
All engagements are driven by the senior team- no “hand-offs” to junior staff.

14
4
1
3
2
3
0
3
4
2
Results speak for themselves:

Over 50 transactions completed since inception, all in healthcare technology and services;

Most active firm in the healthcare IT and services sectors;

Over 70% completion rate for sale assignments;

Numerous repeat engagements by clients.

HGP is passionate about our clients and their businesses.

HGP named to Inc. 5000 for two consecutive years (2012 & 2013) with 400%+ growth.
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
2

3. Sector Focus
Technology
Services
Providers
Hospitals
Physicians
Others
•
•
•
•
•
•
Departmental Systems
Enterprise Systems
Revenue Cycle
Patient Throughput
Patient Access
Business Intelligence
•
•
•
•
Payers
Insurance
MCOs
Employers
•
•
•
•
•
•
Claims Systems
Case Management
Credentialing
Population Management
Predictive Analytics
Enrollment
• Marketing
• Others
• Pharmacy Benefit
Management
• Radiology Benefit
Management
• Disease Management
• Business Office Outsourcing
• Benefit Portals
• Others
Suppliers
Pharma
Devices
Biotech
•
•
•
•
•
•
Clinical Trial Management
EDC
ePRO
Site Management
Regulatory Management
Quality Assurance
• LIMS
• eDetailing
• Others
• Contract Research
Organizations
• Site Management
Organizations
• Outsourced Sales
• R&D Services
• Specialized Staffing
• Others
•
•
•
•
Personal Health Records
DTC Software
Content Providers
Others
Consumers
Patients
Members
Families
HEALTHCARE GROWTH PARTNERS
Specialty Systems
Transaction Processors
Content Providers
Others
•
•
•
•
•
•
•
•
•
CONFIDENTIAL
Management Consulting
IT Consulting
Operational Consulting
IT Staff Augmentation
Staffing
•
•
•
•
Business Office Outsourcing
Administrative Services
Case Management
Others
Care Advocacy
Benefit Portals
Care Management
Others
3

4. HGP Recent Transaction Experience
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Has been acquired by
Has been acquired by
Has been acquired by
Has acquired
Has acquired
Has acquired
Has been acquired by
2012
2012
2012
Not Disclosed
Not Disclosed
Not Disclosed
Has been acquired by
OptiLink Division
has been acquired by
Has been acquired by
2013
2013
2012
2012
Not Disclosed
Not Disclosed
$12 Million
Not Disclosed
Clinical Mobility Vendor
Has been recapitalized by
Has been acquired by
Received funding from
Has been acquired by
Undisclosed
2012
2012
2012
2012
2012
2012
2011
Not Disclosed
Not Disclosed
Has acquired
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
$36 Million
Has been acquired by
Has acquired
Has acquired
Has been acquired by
Has been acquired by
Has acquired
2011
2011
2011
2011
2011
2011
2011
Not Disclosed
$4 Million
Not Disclosed
Not Disclosed
$105 Million
Not Disclosed
Not Disclosed
Has been acquired by
Received funding from
Has been recapitalized by
Has acquired
Has acquired
Strategic advisor in
recapitalization by
Has been acquired by
2010
2010
2010
&
2011
2011
HEALTHCARE GROWTH PARTNERS
AssuranceRx, LLC
2011
2010
CONFIDENTIAL
4

5. HGP Historical Transaction Experience
Not Disclosed
Not Disclosed
Fairness Opinion
Not Disclosed
Not Disclosed
Not Disclosed
$26 Million
Has partnered with
Has been funded by
Has acquired
Has acquired Imaging
Division of
Has been acquired by
Has been acquired by
Has been acquired by
2010
2010
2010
2010
2010
2010
2010
Not Disclosed
$4 Million
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Has been acquired by
Received funding from
Has acquired certain
assets from
Has been acquired by
Has been acquired by
Has acquired
Has acquired the
Navicare Product Line of
2010
2009
2009
2009
2009
2009
2009
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
Not Disclosed
$41 Million
Has been acquired by
Has acquired
Has been acquired by
Has been acquired by
Has been acquired by
Has been acquired by
Financial Advisor for
its sale to
Management
2009
2008
2008
2008
2008
2008
2008
$142 Million
Not Disclosed
Not Disclosed
Not Disclosed
$12 Million
Fairness Opinion
Not Disclosed
Has acquired
Has been acquired by
Has been acquired by
Has been acquired by
Cardiology Division has
been acquired by
Has been acquired by
Has been acquired by
2008
2008
2008
2007
2007
2007
2006
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
5

6. HGP Leadership
 Christopher McCord, CFA, Managing Director (chris@hgp.com)

Consultant for Mercury Ventures

CFO of Marval Biosciences

Healthcare strategy consulting and financial advisory at VMG Health

Technology corporate finance at KPMG

MBA, Kellogg School of Management | BS Engineering, Vanderbilt University
 Jon Phillips, Managing Director (jon@hgp.com)

Founder of Healthcare Growth Partners in 2005

Healthcare investment banking at William Blair

Healthcare strategic and operational consulting at Deloitte Consulting

Chairman of Streamline Health (Nasdaq: STRM)

Charitable board memberships with Kick off for Kids (vice chair) and the Ray Graham Association

MBA, Kellogg School of Management | BA Economics, DePauw University
 Amit Aysola, Vice President (amit@hgp.com)

Investment banking at Demeter Financial Group, Robert W. Baird and Banc of America Securities

Product and Account Manager at Plan Data Management (acquired by The TriZetto Group)

Systems Analyst with the Healthcare Practice at Deloitte Consulting.

MBA, Fuqua School of Business at Duke University | MS Biomedical Engineering, University of Michigan | BS Industrial
and Operations Engineering, University of Michigan
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
6

7. Where are we?
We are here.
Phase I (2010-2015)
Phase II (2012-2016)
(HITECH): Install and
ensure the usage of
Phase III (2016+)
(ACA Implementation):
electronic medical
Lay the foundation for
records with the
Phase IV: 20??
capability of collecting reform with pilot risk- (ACO/Bundled
and aggregating data
across care settings
based reimbursement
models that are
dependent on
outcomes, quality and
efficiency rather than
the volume of service
HEALTHCARE GROWTH PARTNERS
Payment): Execute on a
streamlined system of
robust care
coordination and
population health to
maximize quality as
well as efficiency with
the goal of delivering
higher value
CONFIDENTIAL
(Personalized
Medicine): Using big
data, quality reporting,
and genetic analytics,
optimize care and
medicine based on
individualized
characteristics and
genomics
7

8. Healthcare Stakeholders React to Cost, Access, and Quality Initiatives
Providers
•Direct Impact
•Risk-based pilots
•Readmission penalties
•Fraud scrutiny
•Quality reporting
•ICD-10 (non-ACA)
•Indirect
•Resource constraints
•Consolidation
•Focus on care continuum
Payers
•Direct Impact
•Public HIX
•Private HIX
•Rate hike caps
•MLR caps
•Medicaid expansion
•Coverage requirements
•Indirect
•Expanding capabilities
Employers
•Direct Impact
•Insurance requirements
(min employees/ hours)
•Indirect
•Defined contribution
•Private HIX
•Wellness initiatives
Med-Pharm
•Direct Impact
•Higher taxes
•Comparative
effectiveness
•Sunshine Act
Patients
•Direct Impact
•Greater protections (preexisting
conditions, denials, caps)
•Greater coverage
•More choice
•Non-discrimination
•Indirect
•Greater Responsibility
•Indirect
•Care management
•Big data
•Genomics
•Personalized medicine
Information Technology – Quality & Cost (aka, Value)
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
8

9. Payers Pivot
Provider organizations assume risk that was previously borne by carriers
• By design, insurance organizations manage risk across populations
• Continued need to manage large patient populations beyond the ACO
• Rapidly acquiring/developing new tools
ACO formation requires know-how, data, tools, and collaboration
• Can leverage employer relationships, patient populations, provider networks, access to data,
and balance sheets to lend support to ACO formation
• Increasing the need for hospital-physician alignment and referral management
HIX’s change the distribution landscape and touchpoint with members
• Benefits brokers and administrators getting in the HIT game due to broad employer distribution
• Beneficiaries will need help navigating
• Enables entry point for patient engagement (25mm more insured by 2023, 31mm uninsured)
Lack of transparency mitigates trust
?
• Quality and pricing remains an issue that the insurance industry has never addressed
• Start-ups like Oscar Health and MedImpact can change the game, but face challenging
incumbents
Blurring lines between providers and payers
• As providers manage risk, both payers and providers see opportunity to crossover
• Examples such as Wellpoint acquiring CareMore, Cigna acquiring Alegis Care, providers with
captive insurance programs
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
9

10. Providers Pivot
The number of insured is going to increase by 25 million by 2023
• Demand for healthcare will inevitably go up, particularly among under-served populations
• Managed Medicaid will require more “management”
• Care will need to be managed and delivered in cost-effective settings (home, mid-levels, etc)
Utilization management is trending to real-time clinical decision support
• Retrospective utilization management is getting closer to the point-of-care
• Requires integration between big data, EMR and CDS system
• Pulling data from disparate sources and putting proven intelligence around that data
Intensive focus on care coordination and care management
• Care coordination involves managing the patient (and data and referrals) across care settings
• Care management involves actively engaging with patients throughout the care episode
• Demographic-specific: A pediatric case is very different from geriatric (care keepers, etc)
Readmission penalties put the spotlight on post-acute care
• Acute care facilities have rapidly responded to readmission penalties (proving penalties work)
• Enhancing discharge process and post-acute follow-up, as well as providing an entry point for
provider organizations to get into home monitoring and linking to care management
Quality and pricing transparency is still lacking
• Without patient advocates, the market is opaque
• Given the shift toward greater patient responsibility (given health plan design), favorable
quality and transparency measures are likely to be rewarded, hence investment in data
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
10

11. Patients Pivot React
The Affordable Care
Act put in place a
number of patient
protections…
• Elimination of pre-existing limitations
• Structural changes to insurance caps and denials
• Protections against premium rate hikes
• Expanded coverage (children up to age 26, Medicaid
expansion, employer requirements, etc)
• Broader coverage (mental health, etc)
• Greater choice (insurance exchanges)
• Non-discrimination (no premium variability for higher-risk vs lower-risk
patients – cuts at the heart of the insurance model)
• Sunshine Act (reduce the risk of clinical decisions based on kick-backs)
• Readmission penalties and never-events (increase quality and reduce
error)
…only to result in
market forces driving
toward patient
responsibility
• Health plan selection through insurance exchanges (public and private)
• Trending toward higher deductible plans as beneficiaries opt in to these
plans by choice, aided by employers steering employees toward higher
deductible policies
• Readmission penalties are resulting in more non-acute care
management
• Mobile technology and information-connectivity is a patient
engagement macro tailwind
• Patients are faced with the conundrum of rising costs, greater
choice, more responsibility, and access, but lack the information
transparency to make informed decisions
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
11

12. A Common Goal
 Lines are blurring because providers, employers, and payers are working toward
variations of a common goal – alignment that has historically been elusive
Goal: Engage the patient to take greater responsibility
• Employer Interpretation: Shift the benefits burden to patients through private HIX defined
contribution plans, which indirectly result in lower coverage plans that decrease options and
increase patient responsibility, and also incorporate other tools that improve workforce health
and productivity to help manage that additional burden assumed by employees
• Payer/Provider Interpretation: Ensure patients are proactively monitoring the health of
themselves and their dependents, to preempt health complications and utilize efficient care
settings, and not to overlook the consequential benefit of consumer marketing
• Result: The ACA on its own didn’t engage the patient – stakeholders and market forces are
aligning to engage patients in ways that have a demonstrable ROI
Goal: Create risk-based systems that align providers across the
care continuum
• Provider Interpretation: Align with key referring providers and give them the technology and
care management tools to ensure seamless care transitions
• Payer Interpretation: Land grab as many ACO’s as possible, and deliver value through knowhow, data, and provider and patient networks
• Result: Hospitals and payers are acquiring and partnering across the entire care continuum in
ways that require data exchange, patient engagement, and care management as well as
creating new forces that enable collaboration and competition that previously didn’t exist
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
12

13. Trending Investment Verticals
Employer
Wellness
ACO-Oriented
RCM
Benefits
Management
Guiding Theses
• Transparency
•
ACO Tools
Cost & Quality
• Risk-Management
•
Health
Consumers
Employer & Provider (&
increasingly patient) vs Ins
Carrier
• Patient vs Consumer Engagement
•
Informed, connected patient
• Utilization Management
Remote Care
•
Real-time CDS
• Care Coordination
•
Non-Acute care focus
PM & EMR
HEALTHCARE GROWTH PARTNERS
Patient
Engagement
Big Data
CONFIDENTIAL
13

14. Market Moving HIT Investment Activity in 2012 and YTD 2013
Sector
Thesis
Employee
Wellness
Closely related to patient
engagement, geared toward
self-funded employers with
incentive-based programs to
reduce healthcare costs.
Benefits
Management
Geared toward employers
and consumers, businesses
that aggregate data with an
eye toward transparency in
quality and pricing (aka,
value). Includes health
insurance exchanges (HIX).
ACO Tools
These vendors promise
everything from population
health management, care
coordination, analytics,
engagement, and referral
management, yet actual
capabilities tend to be
narrower.
HEALTHCARE GROWTH PARTNERS
Notable Investment Activity
Oscar Health
CONFIDENTIAL
14

15. Market Moving HIT Investment Activity in 2012 and YTD 2013
Sector
Thesis
Health
Consumers
Consumer-oriented health
content and products that
generally bypass the
healthcare system.
Patient
Communications
View the patient as
“connected consumers”,
solutions that aim to engage
patients on behalf of
markets served (employers,
payers, providers, etc)
Data – Clinical
Decision
Support &
Population
Health
Offer tools that not only
aggregate and warehouse
data sets, but build
intelligence that enable data
to better manage large
populations and enable realtime clinical decision
support.
HEALTHCARE GROWTH PARTNERS
Notable Investment Activity
CONFIDENTIAL
15

16. Market Moving HIT Investment Activity in 2012 and YTD 2013
Sector
Thesis
Notable Investment Activity
PM & EMR
Still going strong, PM & EMR
has concentrated down to
SaaS solutions with large
distribution networks,
vendors focused on
physician specialties, and
vendors serving the postacute market.
eHealth Solutions
ACO-Oriented
RCM
Includes RCM vendors who
engage in patient access,
bundled payments, and
hospital-physician
alignment.
Remote Care
Enabling
Platforms
Technology-enabled care
models that strive to
manage the patient in the
home environment, a
reflection of HIT intersecting
with healthcare
services/care delivery.
HEALTHCARE GROWTH PARTNERS
Consulting MD
CONFIDENTIAL
16

17. Technology-Enabled Healthcare Delivery – Who to watch?
Humedica (2013), Connextions
(2011), Ventures Group
Coventry (2012), Healthagen
(2011), Prodigy
(2011), Medicity (2010)
Linkwell (2013), Amerigroup
(2012), SoloHealth (2012),
Bloom (2011), CareMore
(2011), HealthyCare Solutions
Certify Data (2012), Anvita
(2011), Concentra (2010)
PureWellness (2013), Clairvia
(2011), Resource Systems
(2011), IMC Health (2009)
Medical Referral (2013),
360Fresh (2012), Pivot Health &
Cielo Med (2011), Southwind
(2010), Crimson (2008)
Array (2013), $11mm Carnegie
Mellon Partnership, $100mm
Medical Mall
Data warehouse initiative,
UPMC Health Plan
CardioCom (2013)
Health Catalyst, Telcare,
AssureRx, Airstrip
Navihealth, Hello
Health, Patientco, change:healt
hcare, Essence Group, Bloom
Health, Phreesia
Quantros, Navihealth, Vivify,
GetWellNetwork, BodyMedia,
Phreesia
Competitive Dynamics
Oscar Health
Aviacode, Vivify, Awarepoint, S
hareable Ink
HEALTHCARE GROWTH PARTNERS
Transparent Insurance ($40mm
investment in July ‘13)
CONFIDENTIAL
35mm member “transparent”
PBM
17

18. Technology-Enabled Healthcare Delivery – Key Takeaways
Healthcare IT is on the front-end of a long-term growth cycle (see slide 8)
 Putting $20mm+ to work is challenging in pure HIT, but it’s happening with greater frequency
given long-term plays on big data (see slides 14-16)
 Generally requires $200mm+ exit – few $200mm+ HIT exits are VC-backed (2012 & 2013) and
reflect a mix of high-growth and turnaround scenarios:
Target
Acquiror
Seller
Target
Acquiror
Seller
Target
Acquiror
Seller
Epocrates
Athena
VC, Public
Transcend
Nuance
Public
Aeroscout
Stanley
VC
dbMotion
Allscripts
VC
Mediconnect
Verisk
VC
M*Modal
One Equity
Public
Mgd Health
Roper
PE
Coderyte
3M
VC
MaxIT
SAIC
PE
Med Man
Zotec
Public Sub
eResearch
Genstar
Public
Sunquest
Roper
PE
CardioCom
Medtronic
NA
Truven
Veritas
Public Sub
Quantim
Nuance
PE
APS
Univ Amcn
Public
Extend
Twrs Wat
VC
JA Thomas
Nuance
NA
eScreen
Alere
VC
DRG
Piramal
VC
Milliman
Hearst
Private Sub

In healthcare, sometimes you want to think BIG and small
 A big risk is getting too far ahead of the innovation curve despite the temptation
 External Sensitivities: Regulatory swings, workflow challenges, stakeholder politics
 Scalable HIT investment models historically enable <$100mm exits without compromising IRR
(smaller capital base) – larger exits are fewer, and today’s big plays are yet to-be-proven wins
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
18

19. HIT Challenges and Opportunities
The rising HIT tide will not lift all boats
Operating Characteristics
• Distribution Models: Successful HIT companies win on execution (“we have a great
product but lack the sales channel” is a message often heard).
• Workflow, Utilization and Adoption: Whether selling to providers or
payers, vendors need to ensure utilization of their products, particularly when
selling into a PMPM model, and minimizing workflow disruptions for providers to
ensure clinical and administrative adoption.
• Sales Cycle: Sales cycles of 9-18 months are not atypical.
Investment Characteristics
• Competition for Investment: There’s no shortage of funds claiming to be HIT
experts – using various forms of differentiation: Strategic LPs (health systems,
health plans), Advisory Boards (comprising thought leaders across the industry),
Synergy Across the Portfolio (cross-sell, potential customers, know-how),
Marketing the Big Wins.
• Opportunistic vs Investment Thesis Strategies: Investors act on a mix of
opportunism and investment thesis. The latter can be challenging given the
scarcity of viable assets that can play into an investment thesis.
• Valuation: There is a sharp inflection point for businesses that show momentum in
“hot” sectors, resulting in high subsequent financing valuations.
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
19

20. HIT Valuation Characteristics
Deal activity has deviated away from the typical normal distribution toward a more “bi-modal” distribution
Revenue Multiple
Range1.0x
0.0x -
1.0x - 3.0x
>3.0x
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
Characteristics of Business
Commoditized offering
Product and capability gaps
Low or negative gross and EBITDA margins
High customer attrition
Distressed transaction
Technology scalability
Significant growth prospects
Strategic synergy
Competitive sale process
License model
Expense synergy
Prior relationship with buyer
Rights to data
High revenue synergy
Platform investment
New market entrant
Sustainable business model
Addresses healthcare structural challenges
20

21. HIT Valuation Outliers
The Long Tail
Number of Transactions
Typical Distribution
 Size
 Data Rights
 Growth
 Market (see below)
 Recurring Revenue
 Accountable Care
 Profitability
 Supply/Demand
 SaaS/Web
0.5x
1.5x
3.0x
Revenue Multiple
>4.0x
Number of Transactions
The Long Tail
HIT Platforms
Interoperability
Select EMR
Post-Acute
2.5x
HEALTHCARE GROWTH PARTNERS
3.0x
Analytics
Care
Coordination
Patient Engagement
4.0x
Revenue Multiple
CONFIDENTIAL
5.0x
>5.0x
21

22. Characteristics of Outliers
SaaS Architecture and Delivery
• Single database enabling robust analytics
• Delivery model that creates scale on the cost side, and recurring revenue on the top line
Pricing Alignment with ROI
• Pricing methodology that aligns with customer ROI – the vendor wins when the customer wins
Scalable Distribution Model
• Efficient distribution model (eg, customer acquisition cost < customer value)
Reform-Centric Value Proposition
• Addresses healthcare structural flaws rather than take advantage of them in an effort to deliver
sustainable change in a post-ACA environment
Data Rights
• Contract structures that contain explicit rights to data
General Considerations
• Market leadership (or opportunity to lead) = Favorable supply/demand characteristics at exit
• Large and growing market opportunity, strong financial characteristics = recurring revenue &
growth, inherent scalability if not profitability, strong management, size
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
22

23. HIT M&A (Including Buyout) Trends
 Annualized 2013 as of June 30
 Note deals announced in Q1 2013 likely include a number of Q4 2012 transactions
 2013 activity 30% lower than 2012
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
23

24. HIT Capital Raise (Non-Buyout) Trends
 Note deals announced in Q1 2013 likely include a number of Q4 2012 transactions
 2013 activity 22% higher than 2012
 Investment valuations tend to be superior to M&A valuations
HEALTHCARE GROWTH PARTNERS
CONFIDENTIAL
24