Originally Published by KPMG.
Health care IT remains a hot investment sector despite concerns about these companies being overvalued, according to KPMG-Leavitt Partners 2019 Investment Outlook, a survey of health care investment professionals.
More than a third of respondents (34 percent) said they were most interested in investing in health care IT, followed by care management (31 percent), home health (23 percent), retail-centric medical groups (22 percent) and primary care practices (21 percent).
We are not surprised by the great deal of interest in health care IT and care delivery outside the hospital,” said Governor Mike Leavitt, founder of Leavitt Partners and former Utah Governor and U.S. Health & Human Services Secretary. “As health care continues to march toward value, the emphasis on moving care to lower cost sites and enhanced coordination will continue, and those who can increase quality and lower cost will win.”
“Deals are largely being driven by the need for savings, economies of scale, and improving cash flow or accretive earnings per share,” said Carole Streicher, KPMG’s Deal Advisory leader for healthcare & life sciences. “Secondarily, there is a bit of a defensive posture motivating investments as health care organizations contend with competition and reimbursement models connected to quality and efficiency, as well as the entrance of tech firms investing in the sector.”
Health care IT: Overvalued, yet some room to climb
The majority of investment professionals see health care IT investments as an overvalued sector (64 percent), yet 40 percent expect the valuations to increase in 2019 while 51 percent see them staying the same. Survey respondents expect ongoing demand for tools to help with consumerism will impact investment and deal making in the sector.
Care management solutions for risk-bearing providers, a highly competitive sector which helps coordinate care of the chronically ill or seriously injured (among other things), are expected to be the second highest sector for investment behind health care IT, similarly driven by trends of consumerism and increased focus on early care interventions.
The chart below provides average expected purchase price multiples in health care for 2019, according to survey respondents.
| Subsector | Average purchase price multiple in terms of EBITDA for 2019 +/- margin of error |
| Health care IT | 12.5 +/- 1.5 |
| Retail-centric medical groups | 11.5 +/- 0.7 |
| Care management | 10.8 +/- 1.8 |
| Home health | 10.3 +/- 0.9 |
| Health plans | 9.1 +/- 1.6 |
| Specialty physician groups | 8.9 +/- 0.9 |
| Primary care physician groups | 8.9 +/- 1.4 |
| Hospitals | 6.1 +/- 0.7 |
KPMG and Leavitt Partners surveyed 175 respondents online from corporations, health systems, investment banks, venture capital and private equity firms between September 17, 2018 and October 21, 2018. Of those surveyed 32 percent were c-suite executives; 29 percent were principal, partner or managing director; 32 percent were vice president or director; 6 percent were analysts/associates and 2 percent held other titles.
