Healthcare IT From the Investor’s Chair 2/4/11

Ask the Chair

Why does the financial community attend HIMSS?

The tickets are bought, the hotel rooms booked, and the excitement is near. Time to start the HIMSS prep. Inquiring minds want to know – what do members of the financial community do at HIMSS?

Yes, in addition to vendors and healthcare professionals, Orlando will be swarming with a bevy of equity research analysts, both those who follow stocks for money managers and for brokerage firms (aka buy-side and sell-side); investment bankers; venture capitalists (earlier-stage private investors); and private equity investors (later-stage private investors).

One might wonder. Why do they come? What do they do? What do they hope to get out of it? As with most conferences, the goal is a combination of market intelligence, networking, and seeking business opportunities. Let’s take each attendee group in turn.

When I was a sell-side analyst, I started attending HIMSS primarily to learn more about the sector and those who play in it. I still remember the great San Antonio registration system crash, in fact! Any analyst, buy- or sell-side, goes to major conferences to see products, talk to management of the companies they follow and, ideally, actually speak with users / customers to get information about a vendor’s products and prospects beyond what they hear simply from talking to company management.

As the sector got more interesting to investors, a number of companies started having actual analyst briefings at HIMSS where they could parade not only part of the management team, but often a happy customer or two. Several sell-side analysts (often working together) will host day-long tours, leading groups of investors from booth to booth where they can get personalized demos and presentations from management. The best analysts use this time to build relationships with companies and users to help them with later channel checks to see just how well a product or company is performing.

It’s a long day for the sell-side, with 7:00 AM analyst meetings and late-night receptions. Most then publish a research note (known as a FirstCall) to update their buy-side clients on what companies are doing (and how diligent the analyst is in reporting it).

When a company actually releases earnings during HIMSS, it’s particularly challenging to juggle. Some of my best conversations, however, were held in hotel bars in the wee hours with tipsy company employees. I met one high-profile CEO (whose company I later covered) at lunch near the exhibit floor. I had started chatting, thinking he was merely a young sales exec.

Investment bankers use HIMSS primarily to seek out new business. With all the CEOs in the sector in one place, it’s a highly target-rich environment. As I’ve observed about the recently concluded JP Morgan conference, it’s an ideal opportunity to get together, trade gossip, catch up on a company’s recent performance and goals, and brag about your firm’s recent activities. Not to mention hinting about some "big deals” you have in the market in the hopes of eliciting future transaction business (sales or capital raises).

It’s also a time when bankers can arrange meetings between their current clients for sale and potential buyers. At any given time in Orlando, look around and you’ll likely spot one (their Ferragamo, Hermes, or Burberry ties are a giveaway) looking frazzled and hurrying to their next meeting. Several firms (including my former one) actually spend the money for exhibit space. Why? Partially to demonstrate how seriously they take HCIT, but also to give them 24-hour access to the exhibit hall so they can meet whenever they want. It’s actually a huge time saver given that HIMSS (like Christmas) comes but once a year.

Investors, both venture and later stage, come to assess how their current portfolio companies are stacking up against their competitors and to learn more about the sector. More importantly, they come seeking "ideas", that is to say, investment opportunities.

Investors in both stages of companies will spend time on the exhibit floor, wandering around looking for companies with interesting products or prospects in the hopes of finding a quality (and ideally undiscovered) company which might need venture or expansion capital. In many cases they’ve made pre-arrangements to get demos and to chat. In others, they are simply hoping to broaden their network of potential companies and increase their understanding in general. Much like with the vendor / hospital dynamic, few checks get written at HIMSS, but the road to do so is more smoothly paved.

Ben Rooks is the founder of ST Advisors, a consultancy which has worked with dozens of HCIT companies and investors typically on issues around strategy, financing, and outcomes/exit planning. He has attended HIMSS as an analyst, a banker (albeit with no fancy tie), and on behalf of venture and private equity investors. He also looks forward to seeing everyone in a few weeks!