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Venture Capital Funding for Healthcare IT Is On the Rise

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As per the global communications and consulting firm Mercom Capital Group, llc, on funding and merger and acquisition (M&A) activity for the Healthcare IT (HIT) sector for the second quarter of 2012 global venture capital funding is on the rise.

The Healthcare IT sector continued to scale new heights reaching $293 million in Q2 2012 in 28 deals. Both the total amount and the number of deals were at their highest levels since 2010.

The Indian company Piramal Healthcare acquired US-based Decision Resources Group, a healthcare information company which provides web-enabled research, predictive analysis via proprietary databases, for $635 million, the second largest M&A transaction for the quarter.

The strong uptrend that started in Q2 2011 has continued for four quarters in a row, said Raj Prabhu, Managing Partner at Mercom Capital Group. Also significant is the continued strong M&A activity in the sector, providing investors and companies with viable exit strategies.

Sixty-one different investors participated in these funding rounds with Founders Fund and Venrock participating in multiple deals.

In Q2 2012, Health Information Management (HIM) companies received the most funding as a technology group with $247 million in 19 deals followed by Telemedicine companies with $19 million in three deals and Personal Health Record (PHR) companies with $16 million in four deals.

The top VC funding deal this quarter was the $100 million raised by Castlight Health, a provider of healthcare web and mobile-based transparency solutions that enable comparisons of doctors, hospitals, medical procedures based on price and quality, followed by $34 million raised by Practice Fusion, a provider of free web-based EMR, and $30 million each raised by Valence Health, a provider of clinical integration, data collection and analysis software and Liaison Technologies, a provider of cloud-based integration and data management solutions. Other top deals were $14 million each raised by Carena, a provider of healthcare services 24 hours a day via phone, secure video, and the traditional house calls and Aware Point Corporation, a provider of real-time location system (RTLS) solutions for healthcare. The average VC deal size in Q2 was $10.5 million.

There were 39 M&A transactions in Q2 2012 amounting to $2.9 billion, of which only seven transactions disclosed details. Top M&A transactions included Thomson Reuters HIT business acquired by Veritas Capital for $1.25 billion, Decision Resource Group, a health information company acquired by Piramal Healthcare Limited for $635 million and Extend Health, a private medicare insurance exchange acquired by Towers Watson for $435 million.

In Q2 2012, HIM companies accounted for 17 M&A transactions followed by 11 transactions for revenue cycle management companies.

Most mergers and acquisitions were strategic in nature but private equity firms were very active this quarter and were involved in five M&A transactions, said Prabhu.

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