如何为医疗信息化独角兽公司估值？（英文版）.pdf

20-Years of Intelligent Dealmaking in Health nullare nullnull Even if you dont have an eight-year-old girl, youve probably heard wondrous tales about unicorns in this case, investments in startups (frequently in technology) that are often short on revenues, long on losses, but nevertheless impute valuations at a billion dollars or more. And were not just talking about those billion dollar babies. In fact, in health care IT, were mostly talking about baby unicorns “minicorns,” if you will those companies that have a couple million in revenues, a bumpy road ahead to get into the black, and can fetch valuations of $15-20M or more. Which begs the question. How can a company losing millions of dollars a year have a fair market value that dwarfs their losses? Well, well let you in on a secret. It cant. Well, anullnullllnullit nulln, nullt not on math alonenull (Stay with us, well get there soon.) You see, just like unicorns and minicorns, a sober, risk-return based rationale that confidently declares that a company with a history of losses is worth far more than one with a long track record of profit and growth, simply doesnt exist. Sure, the Masters of the Universe may come up with elegant discounted cash flow models that mathematically arrive at these conclusions. But truth be told, any self-respecting spread-sheet jockey can produce a DCF that will produce any number you like. Project numbers far enough in the future with the right amount of growth, couple them with a lofty terminal value multiple and a discount rate that underestimates the real risk of the investment, and faster than you can say bitcoin, a unicorn is born. Moreover, there are often gaggles of analysts that can cite market comps derived from similar transactions that can make even the most jaded investor believe in miracles. marketALERT PROPRIETARY DATA. PROPRIETARY INSIGHT. IN THE LAND OF UNICORNS, HOW DO YOU VALUE A HEALTH CARE IT COMPANY? The problem, of course, is that if the comps are drawn from the “corns” themselves (as they almost always are in hyper-inflated markets), you can wind up with Monty Python-esque valuation justifications like dollars per click. Silly season, indeed. So, what gives? Fundamentally, the initial question was a trick one. You see, perhaps more so in technology or technology-enabled businesses, the concept of fair market value is beside the point. This is particularly the case with companies that transform their sectors (for which there is no history to draw upon) or companies that become exponentially more valuable with each new customer (“the network effect”). Consider Uber transforming on-demand transportation, or Airbnb transforming overnight lodging, each becoming more and more valuable as the “inventory” of drivers and residences increase. Rainbow colored, bedazzled unicorns, indeed. So where does health care IT fit in? While revenue cycle management, predictive analytics, popu- lation health, patient engagement, and telemedicine may not be transformational on the order of an Uber or Airbnb. with such enormous growth potential.with alternative payment models positively screaming for the most advanced solutions. with the opportunity in many situations to generate value from both revenue production and expense avoidance - the traditional models of valuation are often inadequate. In many situations, then, value is far more a function of an individual buyers assess- ment of what an acquisition candidate can deliver to them, than a firms innate risk-return fundamentals. You see, the standard of value that makes the “corns” real, is what is referred to as investment value: The value a specific investor accords a specific acquisition, given, among other things, their evaluation of market dynamics over an anticipated investment holding period, or in the case of a strategic deal, the unique needs of the buyer and the unique characteristics of the seller. Now we routinely see investment value premiums above fair market value. (In fact, as a sell-side only advisor our primary objective is to orchestrate a process designed to surface these very premiums.) Whats so unusual, however, is that given the unique financial characteristics in technology firms among them extraordinary scalability and low variable costs that can produce equally extraordinary margin the “delta” in even nascent firms, particu- larly those still in the loss column, can be gobsmackingly large. From an investment and mergers and acquisitions perspective, the implications of this are enormous. Think of it this way. If there is little basis for a reasoned fair market value assessment, and investment value is a function of buyer characteristics that live outside the acquisition candidate itself, then the only way (and we mean only) to surface the highest valuation is to tap into a broad market and deploy a strategically orchestrated process. Only then are investors “forced” to evaluate how much an opportunity is worth to them. When it comes to financial buyers venture capital and private equity this internal calculation is based not only on expecta- tions of the gains a company will realize, but also on where they believe the external market will be at the end of their typical three to seven year holding period. So, there is often a “market-timing” aspect to their assessment of value. marketALERT PROPRIETARY DATA. PROPRIETARY INSIGHT. 888.922.5169 The calculus, however, is far different for strategic buyers. For these acquirers, the maximum they might be willing to pay comes down to the revenue enhancing or cost-reducing syner- gies a prospect can be expected to produce. Consider the value a nationwide population health management company might ascribe to a data firm that has created an infrastructure capable of capturing and analyzing the social determinants of health, perhaps the biggest missing link in predictive analytics? Or how about the value a revenue cycle management company might ascribe to a firm that addresses a niche they dont cover but is in the same sales channel as their flagship products? One more. How about the value a buyer would ascribe to perhaps a small technological module or improvement that can dramatically reduce their time to market? This assessment of value is literally, a big deal. A quick example. Recently we represented a health care IT firm that developed a software module that greatly improved the data collection and document exchange between a physician and a provider, which allowed providers to accelerate the billing and collection process. But it was a niche within a niche, in a highly challenging sector. So as a stand-alone investment, its value was limited. But to a buyer that valued the software not as a revenue generator, but as a free module that could help it retain and win new customers in its highly competitive, core product lines, it was worth far, far, far more than what you could justify by the financials themselves. marketALERT PROPRIETARY DATA. PROPRIETARY INSIGHT. 888.922.5169 In cases such as these, buyers might be willing to ante up, but only if they have to in order to “win” in a competitive process. Now, you would think that buyers hate to be put into this situation having to bid against others to land an attractive opportunity. And they do. At least they think they do. While buyers will never declare that they actually like an auction process, they unquestionably act that way. Let us explain. When value is ambiguous, the buyers themselves have little context to determine what to pay. Even if they go through a rigorous financial analysis to determine a theoretical range of value, they are loath to put this number on the table for fear of paying more than they have to. And there is only one way for buyers to truly know that they are not paying “more than they have to.” That is by seeing what other buyers are willing to pay. It is only in this context that buyers can comfortably make a premium offer and heres the really important part even if that offer falls within their pre- determined range. You see, the fear of over-paying for a deal almost always trumps whether it fits within a buyers criteria for rates of return on acceptable acquisition candidates. How do we know this? In highly competitive acquisition processes, we often ask buyers to submit a best and final offer an offer that, if the price were a dollar more, they would happily walk away. Simple, right? Yet in a remarkable number of situations, when we inform a buyer that they did not win a deal, we hear something along the lines of, “Why didnt you give us another shotwe could have paid more.” Yup, repeat after me. The fear of over-paying for a deal trumps whether it meets a buyers acquisition criteria. So, yes, auctions may drive buyers to distraction. But they also provide them with peace of mind to “stretch” (if they have to) to secure an investment or an acquisition which, premium valuation notwithstanding, can still deliver satisfactory returns. All of which brings us back to the central question. Are nullinullorns nullor mininullorns realnull Well, it turns out, if you believe hard enough, they are. And how do you value a promising health care IT company? You dont. You let a broad, strategically orchestrated process do it for you. And yes (self promotion alert), that is exactly what we do. Just sayin. FOR MORE INSIGHT INTO THE HEALTH CARE INFORMATION TECHNOLOGY M&A MARKET, CONTACT ONE OF OUR INDUSTRY EXPERTS: Dexter W. Braff, MBA President Pittsburgh Ariel Veltre Business Development Pittsburgh 412-283-0066 Deirdre Stewart Director of R&D Pittsburgh 412-833-1355 888.922.5169 marketALERT PROPRIETARY DATA. PROPRIETARY INSIGHT. The Braff Group has established a dedicated Health Care Information Technology (HIT) Advisory Board. We have convened this esteemed group of industry thought leaders to tap into their broad and diverse knowledge base in the highly complex and dynamic HIT market. We look forward to consulting and working with this unparalleled team of advisors to provide our clients with the level of market insight and intelligence that is the hallmark of The Braff Group. Mike Broderick, MBA Managing Director CapitalSource Carter Montague, MBA Chief Operating Officer Cyft Ken Botsford, MD Chief Medical Officer naviHealth John Lynn Founder & Editor HealthcareS Kelsey Mellard, MPA Advisor Honor Bob McDonald, MD, MBA Owner/Founder Aledo Consulting Shahid Shah, MSc Founder/Chairman Citus Health Reggie Williams Senior VP Avalere Health The Braff Group is the leading mergers and acquisitions advisory nullm specialinullng exclusively in health care services including health care information technologynull home health carenullhospicenullbehavioral healthnullspecialty pharmacynullinfusion therapynullhealth care stafnullg and other ancillary services. The nullm provides an array of sellnullide only transaction advisory services including representationnulldebt and equity recapitalinullationsnullstrategic planningnulland valuation. nullnce being founded in nullnullnullnullThe Braff Group has closed more than nullnulltransactions and has been repeatedly ranked among the top nulle health care mergers and acquisitions advisory nullms according to Thomson nulleuters. 20-Years of Intelligent Dealmaking in Health Care M&A