Connect America Wins Auction and Seals The Deal To Acquire Philips Lifeline
Last week, there was a seismic shift in the PERS industry.
After months of speculation, Connect America officially announced it would acquire the Lifeline PERS business from Philips.
The terms of the acquisition were not disclosed, however, in October, PE Hub estimated Lifeline’s value at “anywhere from $200 million to $400 million.”
The estimated purchase price would present a significant reduction in the value of the business. In 2006, Philips purchased Lifeline for a reported $750 million and soon after purchased HealthWatch for a reported $130 million, among a set of additional acquisitions in the PERS space.
In an exclusive quote to PERS Insider, Connect America CEO Janet Dillione is confident in the expertise Connect America will bring to the partnership, “Looking ahead at the opportunity created by this transaction, Connect America and Philips Lifeline ACG will provide an unmatched connected health experience for patients, caregivers, and healthcare providers throughout North America, and bring true sustainable innovation to the healthcare market.”
With the combination of the two biggest PERS providers in the U.S., Connect America will represent the largest PERS company ever created with reportedly nearly 1 million subscribers and significant market share in both the direct-to-consumer and healthcare channels of the industry.
PERS Insider has been in touch with industry insiders all week, discussing the big deal, industry consolidation, and what it could mean for the future of the PERS industry.
Henry Edmonds, President of The Edmonds Group had this to say about the industry-shifting news, “I view Connect America’s acquisition of Lifeline as the most significant event in the PERS industry since Philips bought Lifeline."
Edmonds continued, "Lifeline has struggled in recent years operating in the shadow of Philips’ broader operations. Consolidating its activities under the Connect America management team, a team focused exclusively on the PERS industry, presents a great opportunity to create a strong performer that can be the face of the industry. "
"The Connect America team has a lot of work to do to get this right, but if they do, it will be a positive for the industry as a whole.”
Marc Gilbert, President of Pinnacle Advisory Services and former CFO of Medical Guardian, said of the deal, “Connect America is making a bold move to be the number one PERS provider in size."
"It will be an enormous undertaking by Connect, since based on the information over the last year and a half that I’ve gathered from past employees and dealers of Philips, it seems like they were a mess, including not having 4G/LTE equipment to replace the 3G out in the field,” Gilbert said.
Others in the industry are encouraged to see the potential both consolidation and the recent influx of capital investment have on the industry at large. John Mack, Executive Vice President of Imperial Capital, said:
“There has been both consolidation, and at the same time, the industry has attracted meaningful capital from the private equity community, both of which should be very good for the industry. It demonstrates that the industry is growing and attracting more interest from the investment community.”
He went on to say, “Covid has been an incredible catalyst for the industry, highlighting the great fundamental potential of the sector.”
Founded in 2004 by Ken Gross, the Philadelphia-based Connect America is no stranger to being a leader in the PERS industry.
Gross pioneered multiple innovative business practices that went on to become industry norms:
Connect was an early adopter of internet advertising to sell directly to consumers. Also, when most PERS systems were installed in homes by paid technicians, they were among the first companies to ship systems direct to customers for self setup. Connect America offered the service on a month-to-month basis with no upfront equipment cost or long-term contracts when many competitors at the time had significant installation fees and multi-year agreements.
With few exceptions, Connect’s innovations were widely adopted by both existing competitors and new entrants and set the stage for a surge in growth in the PERS industry.
In 2011, Connect America was purchased by the private equity group Rockbridge Growth Equity, a firm backed by Quicken Loans, and Cleveland Cavaliers owner Dan Gilbert. Shortly after the acquisition, Connect began building out a healthcare division with the hiring of former Lifeline and HealthWatch executive Richard Brooks.
The company is still majority controlled by the Detroit-based Rockbridge, and with the acquisition of Lifeline, “Rockbridge Growth Equity remains the lead investor and will continue to provide strategic support for Connect America.”
In 2019, Connect America dramatically expanded its healthcare focus by purchasing the American operations of the UK-based PERS provider Tunstall. Connect America claimed in the press release that the purchase brought them more than 300,000 subscribers.
In late 2020, Connect America appointed Janet Dillione as CEO of the industry leader who brought an outsider’s perspective to the brand. In an exclusive interview with PERS Insider, Dillione foreshadowed the team that would ultimately land the groundbreaking deal:
“The company itself is very well run. So, what resonated with me was the personality, the caliber, the teamness of the management team.” Janet specifically called out the executive leadership team, including Ken Gross, the company’s founder and interim CEO, Richard Brooks, president of Connect America’s healthcare division, John Brady, the company’s CFO, and the Board.
“They did not bring me in to fix anything. And sometimes, you are brought in to fix something. I think the mission here is all about eyes open, eyes forward, build, grow, differentiate, go, go, go. And again, that, for me, is very energizing and the fun part,” Dillione said.
Philips Lifeline, the pioneering company within the PERS space, has had well-documented stumbles over the last several years that have led the company to be vulnerable to outside acquisition.
Founded in 1974 by Andrew Dibner and Susan Schmidt, Lifeline is widely viewed as the first PERS company in the United States.
Philips, the Dutch health technology conglomerate, entered the PERS space in 2006 by purchasing Lifeline for a reported $750 million. In 2007, Philips went on to acquire HealthWatch for $130 million.
As PERS Insider reported last year when the news broke that Philips was putting Lifeline on the market, industry insiders were not surprised that Philips decided to jettison the venerable brand.
“Philips knows it never did a good job with its acquisition of Lifeline,” said tech industry analyst and founder of Aging and Health Technology Watch’s, Laurie Orlov.
In 2006, Philips CEO Gerard Kleisterlee hoped Lifeline would lead Philips to become a “global player in the evolving home healthcare market.”
But as one industry veteran, who asked to remain anonymous, put it, Philips approached the PERS market from a consumer standpoint and didn’t understand the industry’s unique attributes.
“PERS is a different creature. If you’re going to run your program right, it’s very much person-centric instead of a box-and-button product,” said the PERS company owner.
Other noted missteps involved Philips’ approach to technology. The industry vet went on to say,
“I think Philips has been slow to come to market [with new PERS products] given their resources and technology. That has been a huge hindrance in their continued success in the PERS industry.”
Orlov generally echoed that point, “Philips’ clumsiness gave opportunities to others to compete aggressively against them.”
Another industry leader, who requested anonymity to share unfiltered thoughts about Philips, said, “I think they’ve run the Lifeline name into the ground. They’ve lost program after program, dealer after dealer.”
Matt Newton, President of Alert Response, a PERS provider based in Texas, told us last year that he was happy to hear news of Philips selling the once iconic Lifeline business, “They had all the resources: They had the name, the history, and for years and years they’ve struggled to turn it around.”
He went on to say, “I hope their subscribers go somewhere where they’re well taken care of, and the employees of Lifeline are taken care of as well.”
As of last week, those subscribers are now in Connect America’s hands.
PERS Insider will continue to cover this developing story as deal details emerge and the industry absorbs the implications of this game-changing acquisition.
We would love to know your thoughts on the deal, industry consolidation, and implications on our industry as a whole. Email firstname.lastname@example.org and let us know.