Unravelling how HotDoc is about to sell for $200m while the whole sector is being turned upside down by AI isn’t easy.
Doesn’t everyone just love an Australian Financial Review leak during or at the beginning of the sale of a major asset?
I mean, what’s in advisor’s mind – Allier Capital – leaking the following to the AFR yesterday about the sale of one of our major two healthcare booking engines, HotDoc?
- That the sale is down to an auction between two buyers: Pacific Equity Partners, whose $2.5 billion Fund VI already houses healthcare software group Magentus, and Potentia;
- That north of $200 million is the going price and it’s likely to happen (which we are told it is);
- That Potentia is the frontrunner (which we don’t think is true);
- And – interesting last piece of colour – maybe, whoever buys HotDoc is going to roll up Healthengine into the deal to create a mega healthcare booking engine empire.
The Potentia frontrunner leak is easy to understand – PEP, you need to sharpen your pencils because we’re at the pointy end of the dealmaking. Allier is heating up the pot for the final showdown between the last two serious buyers.
The question I still have is, why are there still two serious buyers prepared to pay more than $200 million for HotDoc at maybe the most uncertain time in medical platform software history in Australia?
It’s about seven times revenue and nearly 27 times EBITDA – this isn’t the US, everyone. Calm down.
I do wonder what Ben Hurst, founder and CEO of HotDoc, thinks about my ravings about medical platform business models and the very uncertain potential future of healthcare booking engines, if he ever reads them.
What would I know about the future of healthcare booking engines? I’ve never run a big company, never run a software platform play and I’ve certainly never run anything like what he does.
While I’m all with the “what would I know”, because I do carry on a lot with strange thoughts, it would not be entirely true to say I know nothing about running a biggish company, a software platform group that dabbles on the internet, and anything like a booking engine – a large part of which is essentially an internet directory passing on leads to businesses.
Once in my dim and dark past I ran a much larger media group which sort of fluked its way into a largish global internet directory business, and a local Australian one, via the arrival of some very talented English folk on our shores, who wanted simply to go to the beach a lot more and drink and play soccer, but happened to be very talented internet engineering folk as well.
These English people managed to build a global business internet directory that ran in 38 countries, had much more internet traffic at the time in Australia than the Yellow Pages, competed in the US reasonably with businesses like Yelp, and had Google search revenues of around $40 million.
They started at $0 one day with an idea someone brought to me which I didn’t understand at all but thought, hey, they sound smart these people.
Then they took their knowledge and applied it locally to create an SEO business to all our existing local business clients to get them quickly to the top of Google search via exposing interesting data well – that grew to about $25 million.
Over this we had a traditional media B2B business generating another $25 million, and lots of juicy data that Google loved to keep working on.
To be clear, I didn’t do any of this myself. All I really did was recognise some talented people, hire them, and run cover for them doing things a big global would never normally allow, with HQ in London, and sit back and watch them build something from nothing. I did learn a few things as I watched it all unfold though.
Very long story short here.
Most of our revenues were coming from Google for the global directory, and even very early on, way back in 2008, we quickly cottoned on to the fact that Google never really believed the “do no evil” thing – they believed first in money and after that more money – and they planned all along to bait and switch us.
They were using our platform to gather as much data as they could from our clients and our platforms. When they had it, and they knew they didn’t need us anymore, they changed their search algorithms to point away from us so they could deal with all the new clients themselves and monetise them directly.
This, by the way, is exactly what Facebook did to all their business clients early on – free until we had all your customer data, then pay, or you’re out.
Within a few years $40 million became $10 million. I remember one night when Google did a now infamous search algorithm change called Panda, where the whole network lost annualised revenue of $10 million in one hit. It was an interesting call from the HQ the next morning on that one.
We weren’t able to pivot and be agile for a few reasons – part being stuck in a giant global that wouldn’t let us be creative enough and fund us enough, part probably because of poor decisions on my part as the boss.
That great business got killed off pretty quickly.
The local business survived longer because we took revenues directly from our long-term clients, but eventually it too wilted quite a bit.
If we’d sold that business at about $33 million in revenues, with its growth profile and global footprint at that time, I imagine we would have gotten something near $200 million or more back then, but our global owner didn’t want to do that.
We in Australia all did interestingly, because by then we understood what Google’s evil plan was. We knew it would be hard to sell once Google turned on us.
Why do I tell this story, other than to reminisce just a little – times (read fat bonuses) were good for us all at the $90 million mark of that business.
Well, for any medical software platform business these days, most especially ones whose major business footprint and model is based on the “old” internet, and SEO, today is a far more volatile global digital software platform environment than ever before in history.
Much worse than way back when, when we rode the internet-based digital platform rollercoaster.
All because of AI.
Back to the value of HotDoc and other healthcare booking engines.
It’s reported revenue is $30 million with a profit of about 25%, which is great. It’s also reportedly growing pretty well, I’m told, because of the introduction of its new telehealth business.
Here’s why I’d still be reluctant to risk paying north of $200 million (sorry Ben).
HotDoc, unlike its competitor Healthengine, has a client base almost entirely hubbed in general practice. It’s growth engine apparently now is telehealth.
Healthengine is going another way – wider and wider into other provider categories like dental and allied, and more sophisticated AI-assisted patient front ends.
That HotDoc is now in the telehealth game may eventually present a few problems because it is now, in theory, competing directly with its own clients by offering an alternative service to booking an appointment with their long established GP client base.
HotDoc got into a lot of hot water for this a few months back with its clients. There were a lot of angry GP practices rolling out letters of complaint. But that seems to have settled down with HotDoc saying they aren’t actually competing, they are only offering the service when a patient can’t get to their own doctor.
To be fair it is probably true that the HotDoc’s telehealth service only defaults when a practice hasn’t got anyone available to see the patient. So, it’s a complementary service according to HotDoc that is helping both the patient and the practice.
I hear in this explanation the dulcet tones of my old Google account manager in that soothing explanation (don’t worry, we’d never do that).
But the optics are still really bad, especially if HotDoc is getting a lot of growth from its new telehealth service which seems to be one factor driving this sale.
Like Google did to the business I used to run, HotDoc is using the goodwill and the data of its foundation client base to leverage itself into a business that ultimately competes at a level with those clients.
That’s one thing.
There are quite a few other problems – elephants in the room – I alluded to few in my original piece about the HotDoc sale.
But that’s worth a quick update:
- Telehealth is a pretty tough business model in healthcare because it’s a commodity product. It has failed spectacularly for some big plays overseas like Babylon in the UK and Teladoc in the US. It’s already a very crowded market with lots of private players, some with lots more money than HotDoc, and even Fund VI, in play – Wesfarmers with InstantScripts, now Woolworths with Hola Health, Eucalyptus, Mosh, Medibank, BUPA, and the list goes on. It’s very competitive and each player has an angle, so is having a booking facility advantage enough to make you a winner if the booking engine model starts to falter?
- HotDoc and Healthengine’s number one competitor very soon, or already, might be the federal government, with 1800MEDICARE, and when the government intervenes in health they don’t play fair because they do this thing called “legislation” which often will give them a good advantage at what they are trying to get done. Technically, 1800MEDICARE is going to be built by the government as the most well branded and comprehensive navigation tool for patients in the country. But, as a part of that service they are building direct connections to virtual providers – specialists, GPs and hospitals, via telehealth. That’s going to either be a major competitor of the healthcare booking engines or they are going to somehow end up part of the 1800Medicare ecosystem and get paid to help. HotDoc and Healthengine do a lot of what the government wants to do already. Either way it’s all a bit of worry, though. The person running 1800MEDICARE, btw, turns out to be very clever especially around data and AI.
- In GP Land, there are two main gatekeepers to accessing GPs in the form of the patient management systems GPs use every day to process patients, prescribe drugs and do their billing – Best Practice and MedicalDirector. In a new cloud world, both could theoretically switch off the booking engines for all the internal booking stuff they do for patients with their practices and allow their practice to have a direct relationship with the patient via an app that does neat things like results, bookings, telehealth direct, repeats, and so on. The thing that stops that now is that the PMS vendors take a good cut of. the booking engine revenue to allow them to integrate. But the direct practice to patient app model may present a better longer term revenue growth model for the PMS vendors in which case they might start competing with the booking engines on bookings and any patient AI stuff they are starting to do.
But if you wanted to pick the biggest elephant sitting staring dumbfounded in the foyer of the offices of PEP and Potentia wondering what the hell are they thinking, pick a multicoloured, large and erratically behaving elephant called AI.
AI without any doubt is going to change the way we do medicine and provider productivity and significantly improve patient experience.
AI scribes and front-end admin integrated into some of the PMS systems, or being used directly, are already creating significant productivity gains for healthcare providers, especially GPs.
Before too long, lots more functionality will come, including summary notes for EMRs, better scheduling and triage at ED, and of course, decision support.
Both healthcare booking engines are onto AI with new functionality coming that will simplify the patient journey into their providers a lot.
Healthengine, we are told, has pivoted very rapidly into AI and has a lot of patient side products coming, which, if they can do it better than some others, and given their existing client base of both patients on one side and providers on the other (their greatest current business strength probably), might give them enough reason for the PMS systems to keep using them, and for GP owners themselves to keep using them.
The problem might be that everyone is eyeing off the game of optimising the healthcare provider front office with AI, and to do that, you need to be both patient-facing as well as over the patient data inside the healthcare provider PMS. Join the outside patient up intelligently with all the existing longitudinal data on that patient in a PMS and magic will start to happen for both the doctor and the patient in terms of experience.
But has been pointed out, the PMS vendors, who largely control access to the GPs and their patient data, have the dab hand in this evolving dynamic. If they won’t want to let you in, then as an AI patient side experience provider, you aren’t going to get far.
Heidi, apparently our next Canva unicorn, is growing very rapidly and offering a lot to a healthcare provider, not just scribing and notes.
It has functions around an AI reception and is working on document processing from the PMS to match the patient record so that when a patient arrives at a provider reception, a lot of work is done that is going to make the consult significantly more productive.
It is also looking at after-consult experience for the provider which will improve productivity.
The PMS systems are the gatekeepers to the providers in this game because they can gate who gets into the patient data and who doesn’t.
Currently a big part of their business model is to take a cut of what an integrated piece of software is doing for their doctors inside their platform.
The main point here is, if you want a better patient journey you have to connect the patient outside to the data inside the PMS, and the PMS providers control this today.
Maybe the government with its “sharing by default” mantra will end up seeing that this is not at all “sharing by default” so they need to do something about what is effectively very deep and powerful business model moats because if they don’t, patients won’t end up with a better experience. Then we’d see some really interesting things potentially happen with data sharing, AI and new healthcare business models.
A good example of a PMS as a controller of distribution is Best Practice, our largest GP PMS, with about 70% market share, pretty much locking Heidi out of the Australian GP market by doing a deal with – they have some equity we think – Lyrebird, another smart, fast-growing local healthcare AI provider.
I am a non-executive director of a cloud-based PMS called MediRecords, which hasn’t got much share of the bricks and mortar GP PMS market, but probably has the lion’s share of the growing virtual PMS market (because it’s so agile around location and mobile data sharing, being cloud-based) and it’s AI program around the patient experience and the connection between the patient’s record and the provider about to do a consult, is big.
And it’s working a treat.
Related
MediRecords, like Best Practice, has its own booking engine it can deploy with any practice if it likes. Being virtual, MediRecords has deployed its quite a bit.
Heidi is a very big play, having just secured a $100 million round from a well-known US VC to go faster globally. It is aggressively trying to snatch up all the local AI talent, which for local software vendors like HotDoc may soon become a problem as it tries to compete and roll out its own AI solutions.
But it might be an advantage to HotDoc and Healthengine that Heidi now has to make it in the US and UK market or it will die. Heidi has nearly all its chips on being a global with big positions in the US and the UK market. That’s going to be a brutal journey but if it makes it, sure, it will be like Canva, so good luck to them.
But while AI scribing is reasonably generic the other stuff everyone is planning on doing for the front office of providers is quite different between each country because of payment systems, regulations and policy.
There’s a lot of devil in the detail of building PMS software for Australian doctors and patients and it might be hard for Heidi to maintain its number one position in Australia going forward if it has to build more for the UK and the US.
And of course it is locked out of most Best Practice locations.
Meanwhile there’s a host of very creative new start-ups in Australia just in AI and provider and patient experience, often run by smart doctors bored by being doctors, such as Care GP, which is providing front of office AI integrations for things like document processing, which work well.
Essentially, everyone’s all in on AI, as we hear each day when we look at the US stock market which would probably be below the waterline if it weren’t for the top seven AI-driven stocks.
Back again to HotDoc and value.
One interesting thing that might lead to value being realised (you see it’s not all bad, Ben) is the idea that PEP with its Fund VI already has Magentus in it.
Magentus is a good company with some very interesting healthcare software assets across the board, one of which is the cloud-led specialist patient management play, GENTU.
Being the PMS of record for specialists in Australia is maybe going to be as pivotal as being the GP PMS of record one day. GPs, in theory, should be the gatekeepers of real prevention and chronic care management and to do that they need to be much more smartly connected to the system and their patients.
Specialists have never been properly connected for system productivity, but with a cloud-based PMS, and great new products emerging like Consultmed’s cloud-based referral and advice and guidance services, they are rapidly starting to connect for more patient-side value and provider-side productivity to both GPs and hospitals.
Magentus, GENTU, HotDoc with a little bit of cool AI thrown in are an interesting combination.
Not that two companies in one fund will necessarily even talk to each other, but if PEP buys HotDoc, they will, because the synergies are so obvious.
GENTU and its older desk version Genie, once had a small footprint in the GP market, and the company once had designs on getting a much bigger share of the GP market.
Maybe they still can.
HotDoc’s whole footprint is GP. Maybe there is something in that combination.
Last possibility, a rollup of HotDoc and Healthengine.
If the ACCC let it happen – it probably would for a few reasons I won’t go into here – that would be a lot of market power, albeit older technology base power.
The footprint of Healthengine’s 5000 or so dental, specialist, and allied health practices (they have GPs too) with HotDoc’s GP practices would make it a very strong play, and give it more leverage and capital to pursue AI much faster, as both groups need to.
It might even give the combined play some edge in the low margin and highly competitive telehealth market.
But as interesting as that rumour is, it’s almost certainly not happening, not in the near term anyway – too much paperwork and complexity. Better to just buy HotDoc, learn what you’ve got and then maybe return to the idea.
What a wonderful gathering cluster-storm of threat and opportunity for our local healthcare software industry, eh?
I’m glad I’m not in the middle of it (although that’s not quite true as I’m on the board of MediRecords).
The great thing is, whatever happens it’s mostly all upside for both the patient experience and healthcare provider productivity.
Bring it on.
