Health IT

Educated guesstimates about the Audax Health price tag start at $100M and rise to $400M+

employer health insuranceUnitedHealth Group’s (NYSE: UNH) move to acquire Audax Health Solutions, through its Optum subsidiary, has generated a lot of interest as investors seek to develop a better understanding of how much (or how little) payers value consumer technology. Some view the Audax Health deal as a barometer of that trend. Others believe that it speaks more to the recognition by the healthcare industry that they have done a relatively poor job of consumer-focused technology. In conversations with industry insiders and investors, I looked at factors that are influencing the price and what the deal says about future payer acquisitions in digital health.

A couple of industry sources placed the deal price from about $100 million to more than $400 million based partly on the 10x revenue multiple theory. Another source in the digital health space took a more skeptical view and doesn’t expect the deal to command a substantial price in the current crowded market.

Jack Young, director of the Qualcomm Life Fund at Qualcomm Ventures, also pointed out that Software-as-a-Service companies tend to have a slightly higher valuation than other IT deals.

Setting aside the company’s web-based platform, Audax’s high-powered board probably didn’t hurt in getting the company to this point either.  Its chairman is Richard Klaussner, who helped set up the Bill & Melinda Gates Foundation’s global health program and led the National Cancer Institute. Board members also include John Scully, the former CEO of Apple; John Rowe, the former chairman of Aetna; Roger Ferguson, the CEO of TIAA-Creff; and Nick Augustino of Cardinal Health.

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Deal comparisons: A few acquisitions in the last few years serve as a guide for how payers are thinking about digital health. Although the deal value was not officially disclosed, Aetna was believed to have paid more than $100 million for iTriage maker Healthagen. The app helps consumers manage their health information, such as prescription medications. Another useful deal as a reference have been acquisitions in the health and wellness sector, particularly UnderArmor’s $150 million M&A deal for MapMyFitness. Although it’s a B2B company, UnitedHealth’s acquisition of Humedica last year through health IT subsidiary Optum for an estimated $170 million is useful to think of how the payer has approached digital health. The company’s tool extracts and organizes electronic medical record data with the goal of helping health systems improve performance and sells de-identified patient data to other payers and pharma companies.

Another consideration that could add to Audax’s value is that it had recently closed a $20 million Series B round. Mergers on the heels of or in the midst of fundraising have happened in several situations, including RxAnte’s recent acquisition by Millennium Laboratories

Startup validation: UnitedHealth, like other health insurers, has developed  its own mobile health apps and health IT tools, some of which were on display in the company’s ginormous booth at the Consumer Electronics Show. But Skip Fleshman, a partner with Asset Management Ventures, sees the Audax acquisition as a validation of technology startups, which tend to do a better job of consumer-led products than the healthcare industry has, particularly payers.

The technology platforms that Audax Health and WellTok have developed represent an opportunity to improve the way payers engage with members, particularly those with pre-diabetes, or who are at risk for developing other chronic conditions. These members stand to benefit the most from these engagement tools and can help payers lower costs. One of the interesting things about Audax is that its Zensey product straddles the worlds of payers and employer wellness programs.

Fleshman mused that UH could use financial incentives to encourage members to use Audax Health’s tools such as its health and fitness challenge. He added that another important trend to consider is how insurers are looking at mining member data to identify interesting correlations.

Young added that Audax’s similarities with WellTok mean the price UnitedHealth ultimately pays for Audax could have an impact on how WellTok is valued going forward.

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