#24: The Resilience Lab x Options MD acquisition
Company backgrounds, deal breakdown and what needs to happen to realise the value of this deal
Hi friends,
Yesterday, Resilience Lab announced its acquisition of Options MD.
The initial reporting covered the high-level details of the acquisition.
But are we happy with high-level details on something this interesting?
Of course not!
I wanted to go deeper, looking closely at the backgrounds of each company, what this deal really means and what will happen next.
I’ve spent some time chatting with folks from both companies and today, I share what I’ve learned.
We’ll cover;
- The TLDR; my take on this deal and what it means for both companies
- The Background: What you need to know about Resilience Lab and Options MD
- The Deal: Deal breakdown and how it aligns with Resilience Lab’s strategic vision
- The Future: What needs to happen to deliver real value from this deal (and some of the risks they’ll face)
Before we get into it, today is World Mental Health Day.
I have only one message and that’s I am incredibly thankful for everything you do to try an improve population mental health. It’s critically important work and while it mightn’t always feel like that, I promise you it’s true.
I think you are all wonderful humans for trying to help people live mental healthier lives.
1. The TLDR
I won’t bury the lede, I like this acquisition.
Many of the deals we see in behavioural health are either PE roll-ups or a struggling business is being sold for parts.
That’s not the case here.
Both organisations are strong businesses in their own right.
They are focused on integrated models of care that leverage technology to improve outcomes.
They have real traction, delivering impressive outcomes for thousands of patients. They have recruited impressive teams, built powerful technology and done a good job at monetising their services too.
They’re also playing in very complementary areas - Resilience Lab focuses on therapy services for mild/moderate disorders and Options MD focusing on psychiatry services for Serious Mental Illness (SMI).
Resilience Lab has a clear vision of delivering high-quality, integrated care for a wide range of mental health conditions, at scale. Acquiring Options MD accelerates their progress towards that vision by expanding their market and providing important assets and capabilities ranging from technology to a talented team.
For Resilience Lab to achieve their vision, they were always going to need psychiatrists and they were always going to need a range of technology products to support clinical decision making, patient monitoring and other aspects of care delivery. This deal, therefore, makes clear strategic sense and accelerates their progress towards that end goal.
Will 1+1=3?
However, if I know anything about M&A, it’s that doing the deal is the easy part.
For this to create real value, they will need to be s**t hot in their execution of their post-acquisition strategy.
They will need to make bold decisions, show that they can generate real revenue from this deal, align cultures and management teams (between a west coast psychiatry business and an east coast therapy business) and integrate their technology and systems in a way that actually improves the experience for patients and clinicians.
They’ll also need to do all this without blowing costs out of the water!
So that’s the takeaway!
But if we really want to understand what’s going on here and what it will take to turn the vision of this acquisition into reality, we need to take a step back and really understand these two businesses…
Let’s take a walk…
2. The background
Here’s what you need to know about these two businesses…
Resilience Lab:
- A therapy platform founded by Marc Goldberg and Christine Carville in 2019
- Focus on mild/moderate mental health disorders in the North East of the US
- Significant focus on treatment quality and consistency
- Developed their own clinical methodology (The Resilience Methodology) which all of their therapists are trained in
- Created “The Resilience Institute” to train and certify new therapists - a fascinating strategy for moving the needle on the supply constraint in mental health
- Built their own software stack to manage care delivery and use AI for improved diagnosis
- Have trained over 500 therapists and currently employ over 250 therapists
- First US therapy platform to be unionised (wow, that’s a whole article in itself)
- Have treated thousands of patients
- Raised a $15m Series A in 2020
Therapy platforms are a dime a dozen these days, so how is Resilience Lab any different?
First, they’re one of very few companies who can actually say they are solving the supply constraints in mental health care.
A lot of companies claim to be “increasing access” to therapy, but simply moving therapists online doesn’t really move the needle on the number of qualified therapists available to help clients.
The process of becoming a fully qualified therapist is long and full of challenges - some of these challenges are necessary to ensure we have highly trained clinicians, but others are completely unnecessary and lead to therapists being underpaid, overworked and unfortunately, dropping out of the process
Only 57% of clinicians every get fully licensed.
Resilience Lab built their own Institute to solve these problems.
They provide in-depth training, supervision, support and adequate case loads to help more therapists become fully licensed and start practicing. They are focused on increasing the success rate of clinicians through this process whilst also improving the quality and consistency of therapists that are being produced. This is really bloody cool.
Secondly, they are focused on providing integrative models of care.
I have some friends who’ve tried to get support for their mental health recently. And although it’s a sad cliché, navigating the system is still an absolute nightmare.
Bouncing from PCP to Therapist to Psychiatrist, each of them prescribing different treatments with limited visibility into what the other clinician is doing and no-one to actually coordinate your care.
This is so incredibly tough on someone who is already struggling with their mental health. Resilience Lab is trying to solve these problems by delivering an integrated care model; providing care coordination, a range of clinicians under one roof (now enhanced by Options MD) and a consistent clinical methodology all powered by systems and technology.
They are not the first to attempt to provide these kinds of models, but so far, they seem to be doing a great job on delivering on it.
Finally, they prioritise quality.
While every therapy platform will claim to be focused on outcomes, Resilience Lab are able to actually back up their claims.
Everything that they are doing with their clinical methodology, their Institute and their integrative models of care, technology and measurement is focused on consistently providing high quality care to clients (a claim some mental health platforms would struggle to stand behind).
They have implemented systems and measurements to track a wide range of outcomes for all patients and have processes in place to ensure these outcomes are improving and consistent across all therapists. And the data on their outcomes so far justifies this hard work.
One thing I found interesting is that they also measure much more than just symptom reduction for their clients.
“The majority of our clients come in for life transitions, difficulty in relationships, asking questions like how do I have more satisfaction in my career? Or what's my purpose? So we’re actually measuring this, focusing on elements like improvement to quality of life, how engaged people become in their careers and in their relationships.”
Christine Carville, Co-Founder & CCO of Resilience Lab
Over the last six years, Resilience Lab have been building their therapist team, refining their clinical methodology, expanding their coverage with payers, developing important software and systems and of course, treating clients.
But there were still a few missing parts of the puzzle in achieving their long-term vision of providing fully integrated care, high quality care for patients at scale…
Options MD:
From east coast to west coast…
Here’s what you need to know about Options MD
- An online-only clinic founded by Kyle Pierce and Morgan Hewett in 2020
- Focus on treating severe mental illness (specifically treatment resistant depression)
- Have a similar vision to Resilience Lab - providing integrated care - but with a much stronger focus on psychiatry
- Provide care navigators to clients to help them access the full suite of potential treatment options
- Deliver some of these treatments themselves (e.g., medications prescribed by Options MD psychiatrists) and refer to external providers for those they don’t deliver themselves (e.g., in-person psychotherapy)
- Created very impressive software to support clinicians with diagnosis and treatment recommendations, aiming to match patients to the most effective treatment, sooner
- Raised over $6m in funding
I had a chat with Joshua Cohen, a psychiatrist and the Head of Data Science at Options MD, and helped me learn more about their thesis and how technology enables it.
Their belief is that significant improvements in outcomes for SMIs can be achieved by supporting clinicians in their decision making around the the correct treatments to prescribe for each patient and improving monitoring and treatment adjustment over time.
“I can't tell you how many people I see come in with treatment resistant depression. And the medications they've tried are Lexapro, Zoloft, and Prozac. They've just tried SSRIs.
The standard of care, would be to switch classes, but people in the community are seeing primary care doctors or nurse practitioners who just don't have the training and experience and comfort with prescribing other things. So this knowledge - to know the right steps, to take the right kind of pathways - is incredibly important and the technology we're developing in Options MD helps connect this knowledge to clinicians and patients."
Joshua Cohen, M.D. , P.H.D. , Head of Data Science at Options MD
They have a team of experienced psychiatrists and have demonstrated impressive outcomes for patients, specifically those with Treatment Resistant Depression.
Their core vision is similar to Resilience Lab, to be able to provide truly integrated care and help patients navigate different treatment options until they found one that truly worked.
But when they have to refer to outside providers for psychotherapy or other services, they obviously lose some control over that care (and also the revenue associated with it).
3. The Deal
So what is this deal all about?
The most useful way to think about this deal is through the eyes of Resilience Lab’s founders, Marc and Christine.
The have a clear vision for Resilience Lab. And importantly, they have a clear strategy for what’s needed to achieve that vision.
This deal is an execution of that strategy, accelerating the acquisition of core strategic assets and capabilities.
To fully understand the deal, we therefore need to think about what those sets of assets and capabilities are.
What is needed to actually deliver high-quality, integrated care for a wide range of mental health conditions, at scale. What did Resilience Lab have before the acquisition? And what did they just acquire through Options MD?
Here’s what I came up with.
First, let’s look at what we think is needed in an organisation to deliver on this full vision.
We can work backwards from the specific populations and conditions you need to be able to treat. Then, we can think about the range of treatments required to deliver outcomes to those people and of course, the clinical team needed to deliver those treatments.
To support all of this care delivery at scale and to actually improve outcomes, you need a robust technology and systems in place.
You need functioning distribution channels to reach patients, providers and payers.
And finally, perhaps the hardest part, you need a way to fund all of this care delivery, ideally through a healthy mix of different payers.
Colour in all the parts of the puzzle, and you’ll deliver on the big vision.
Of course, there are other elements we could potentially add to this framework, breaking down conditions, populations or treatments into much more detail. But I think this somewhat simplistic mapping is a helpful way to assess the deal and understand how Resilience Lab may be thinking about their strategy.
So back to this deal…
To understand how it fits in to the Resilience Lab strategy, let’s look at what assets and capabilities both companies have.
It’s worth noting that these are not entirely binary. I have classified each company based on their genuinely strategic assets. For example, Options MD definitely have some distribution channels for patients and providers, however they are not operating at a significant scale for us to consider them a meaningful asset for the combined entity.
Here’s what it looks like for Resilience Lab.
They are a provider of psychotherapy treatment for people with mild/moderate conditions. Their have strong clinician training, clinical methodology and care operations and are successfully selling to insurers and employers.
And here’s the equivalent for Options MD. They are focused on SMIs and while they refer out to a range of treatment options, their core capabilities are in medication provision and management. Their technical strengths lie in the AI they have developed for clinician decision support and in measurement.
The entity post acquisition should benefit from a combined set of assets and capabilities.
At least that’s the theory, but more on that later...
Did Resilience Lab really need to go and buy a company to get these capabilities? Couldn’t they have built this themselves?
Maybe. But the acquisition of Options MD accelerates that process and adds technology and capabilities to their team that would have been very difficult to build themselves. And if the price was right, then it makes a lot of strategic sense.
So what’s the plan now?
Resilience’s integration plan is set out over two phases.
In Marc’s words;
“Resilience Lab plans to integrate the two businesses through a two-phased approach. The provider will start by offering therapy and psychiatry as two separate lines of business. Executives will then assess how its partners and clients react. Eventually, Resilience Lab plans to integrate both service lines into a “seamless” offering with a single electronic medical record (EMR) and methodology, but it will “take some time.”
The ultimate success of this deal will be determined by their ability to execute on phase two. If they can successfully integrate teams, technology, clinical operations and Go-To-Market strategies, then they have potential to create significant value.
So how likely is that and what will it take for them to achieve it?
4. The Future
At McKinsey, we worked on a lot of M&A transactions. I read and built a lot of PowerPoint decks on why a certain deal was a good idea.
On paper, the deals would often look great. Company A will buy Company B, opening up new markets or providing revenue and cost synergies (we used “synergies” so much that I shudder to even consider the term anymore).
No brainer right??
But I learned one extremely important lesson.
Every deal has a PowerPoint tax.
Between the value of the deal on our PowerPoint slides and the value it actually delivered in the real world, there was a heavy tax. Minimising that tax can only be achieved through successful post-acquisition execution.
By the way, I’m trying really hard not to sound like a consultant here… So in plainer terms…
Deal is done. Now they need to run the new business to deliver the products and revenue they said they would when they bought the company.
But we need to understand what type of acquisition this is to know what sort of value it’s supposed to deliver and what needs to be done to deliver it.
Bankers get paid a lot of money to come up for fancy names for these deals. But the one they use for this type of deal, I actually quite like.
It’s called a Scope deal.
Scope deals are used to expand market and strategic capabilities. And importantly, they are judged based on their ability to generate revenue.
So this deal will live and die based on its ability to generate real revenue.
Very often, those revenue opportunities fail to materialise however.
A PWC M&A report found that only 61% of buyers believe their last acquisition created value.
In case you need help with your maths, that means almost 40% of acquisition didn’t create value.
You don’t have to look far to find examples of this in mental health. Look at the Headspace - Ginger merger. On paper, this looked like a great deal, but three years on from the merger, they are yet to realise the value that the merger promised.
This can happen for two reasons;
- The deal was a bad idea in the first place - this usually when it’s an opportunistic purchase instead of a thought out deal in support of an existing business strategy. The other time this happen is when you mess up your due diligence (more common than you think)
- The deal was a good idea, but you messed up the post-acquisition execution
Like I said above, I think this deal is extremely well aligned with Resilience Lab’s strategy. The risk to value creation therefore, lies in their ability to execute on the integration.
Bain have interesting data on why these types of deals fail to deliver value.
Now do I think a Bain survey perfectly identified the major risks of this specific acquisition? No. But let’s look at some of the top reasons and see if they are things we should be concerned about.
Failure to integrate product portfolio. This should be a major consideration for Resilience Lab and Options MD. They need to combine their technology and teams whilst expanding the range of conditions they are treating. This will be hard.
Failure to adapt their Go-To-Market accordingly. This is less of a risk considering that their Go-To-Market strategies are largely similar.
So, given these risks, what can they do and how then they minimise their PowerPoint tax?
It’s boring… but you gotta plan!
“For acquisitions with significant value lost relative to purchase price: 79% didn’t have an integration strategy in place at signing, 70% didn’t have a synergy plan in place at signing, and 63% didn’t have a technology plan in place at signing.” Source
I don’t even know what a “synergy plan” is, but the point remains - you need to be thinking, early doors, about how you are going to actually integrate the business you just bought.
Their two phase plan sounds reasonable, but the reality will be a lot messier. The most important thing will be to avoid spending too much time in this transition phase, they need to make clear strategic decisions around team, technology and clinical operations and move forward boldly.
- Team: How will they integrate the two teams? One is a west-coast team of psychiatrists and technologists, the other is east-coast based and focused primarily on therapists. I cannot over emphasise how important it is to align culture, define a clear organisational structure and related incentives. How will leadership interact of the two companies interact? One of the main assets Resilience Lab have bought is the talent of the Option MD team - how do they motivate and incentivise them to stay? Talent drain is a massive post-acquisition risk.
- Technology: A lot of the price paid by Resilience Lab would have been for the IP of Options MD. I’m impressed by the Options MD technology - it’s one of the reasons I think they were a good buy - but Resilience Lab need to decide exactly how this technology will integrate into their existing systems and move fast to integrate it. Every month that passes without these decisions being made will create uncertainty for both product teams and risks slowing them down.
- Clinical Operations: Both companies have clear clinical methodologies, and have built systems and processes to support them. They have built teams around these methodologies. It’s a strategic asset to both businesses. But of course, to achieve the vision of being a seamless provider of integrated care, they will need to decide how they want to align and adapt their clinical operations and start the work to actually get that done.
On a much more tactical level, they need to start delivering new revenue asap.
Post acquisition, it’s very easy to get stuck in planning mode. Yes, I just told you how important it is to plan, but you must not get stuck there. Ideally, a lot of the planning is already done, but if not, you can’t wait around until it is all completed before you start thinking about generating revenue.
The best acquirers find the one or two levers they can pull to start delivering short term revenue and then pull them hard!
As anyone who’s ran a startup knows, momentum is magic!
Bain have a great story about how Dell did this after their acquisition of EMC. It’s even more impressive considering the size and complexity of buying something like EMC for $67 billion…
“When Dell acquired EMC for $67 billion, it faced thousands of conflicting, interdependent decisions, but it zeroed in on one that would be critical to the deal’s success. Dell decided early to prioritize cross-selling both companies’ products with separate sales organizations, which is a departure from the typical approach of spending a year or more integrating teams and systems first. By mobilizing around that pivotal decision, Dell achieved multibillion-dollar revenue synergies within the first year, when most other acquirers would still be sorting out internal questions.”
When I was browsing around the Resilience Lab site yesterday I spotted something in their site footer that makes me think they understand this point. See the ‘Options MD’ link under the Psychiatry option?
That’s right, even though the deal had been announced less than 24 hours, they had already added a link to their site to refer out visitors to Options MD.
Options MD have also added links to Resilience Lab on their site.
Now, do I think a footer link is going to bring either business any revenue? Of course not. But it signals to me that the team is thinking practically about how to start delivering revenue quickly.
This is not an exhaustive list of what is needed for successful integration after an acquisition. To be honest, I have to hold myself back from going full McKinsey mode and writing a ten thousand word, MECE report on what is needed.
Instead, I wanted to highlight they need for a focus on planning, bold decision making around team, technology and clinical operations, balanced with a focus on delivering real short-term revenue. These are the most important elements for the team to be focused on in order to create value and ensure 1+1=3.
This deal has me genuinely excited.
From my conversations, I’ve been super impressed with both teams and the technology and processes they’ve built. I think they are in this for all the right reasons, are extremely thoughtful and realistic about the challenges in the sector and genuinely have the potential to deliver real change for patients and providers.
I’ll be excited to check back in in a few months and see how it’s going.
That’s all for this week.
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Keep fighting the good fight!
Steve
Founder of The Hemingway Group
P.S. feel free to connect with me on LinkedIn
