Hartford Business Journal

34 HARTFORDBUSINESS.COM | September 26, 2022 Matt McCooe Diameter Health CEO Eric Rosow in the company's Farmington office. HBJ FILE PHOTO What's The Deal? Recent spate of startup mergers highlights growth of CT's innovation ecosystem, raises concerns about long-term job growth By Skyler Frazer sfrazer@hartfordbusiness.com A number of high-profile Connecticut startups have been acquired in recent months, raising some concerns about their future growth in the state, especially with new influences from out-of-state owners. But beyond the jobs concerns, business experts and boosters say the deals offer proof that Connecticut is cultivating a strong innovation ecosystem that could hopefully yield more successful startups in the future. Connecticut has long sought to grow its network of startup compa- nies, some of which have gained national recognition for the products and services they provide. However, success typically breeds attention from outside investors. Farmington medtech startup Diameter Health announced in August it was being acquired by national real-time health information network, Availity. The deal, terms of which weren't disclosed, closed Aug. 26. Biorez, a New Haven-based medical technology company, also announced last month it had entered into an agreement to be purchased for an undisclosed sum by Florida-based CONMED Corp. Glastonbury-based digital payments company Payrailz recently closed a deal to be acquired by Missouri's publicly traded financial technology firm Jack Henry & Associates Inc. "On one side of the coin, people can get nervous around mergers and acquisitions because it can signal that perhaps companies aren't staying where they were started, and some- times that's the case," said Michelle Cote, director of Launc[H]artford, an organization focused on building up Hartford's startup ecosystem. "But I actually think that acquisition activity in particular, is one of the best signs for the overall health and maturation of a startup ecosystem that you can get. Because what it really means is that the startups that are being built in our state and in our commu- nities have enough market potential and are attractive enough to other industry leaders." Moving or staying? Startup acquisitions aren't new in Connecticut. Last year, Crom- well-based Payveris announced it was being bought by Washing- ton-based Paymentus Holdings Inc. in a deal worth $152.2 million. And merger deals — even between larger, more well-established compa- nies — don't automatically mean bad news for Connecticut. For example, there were major concerns last year after AstraZeneca bought homegrown rare disease drugmager Alexion for $39 billion, but the United Kingdom-based company announced in April it was expanding its New Haven footprint following the deal. Connecticut Innovations CEO Matt McCooe said such deals, including Pfizer Inc.'s announce- ment in May that it would be acquiring New Haven-based Biohaven Pharmaceuti- cals, have resulted in more influence coming out of Connecticut, not less. "When companies like (Pfizer) acquire and stay in our cities, that's amazing because now we suddenly have another Fortune 500 company that can be part of the success in building out the New Haven life sciences corridor that's thriving right now," McCooe said of the Biohaven deal. University of Connecticut Professor of Finance and Economics Fred Carstensen, who is also the director of the Connecticut Center for Economic Analysis at the UConn School of Business, said mergers and acquisitions can typi- cally go a number of ways. Some- times a large firm will buy a smaller startup in their industry to simply squash competition. Other firms might purchase a startup with the intention of absorbing their technology. Regardless of intentions, Carstensen said startups might be more willing to consider selling based on the current business climate. Selling a business is the biggest return on investment for some, he said. "We're in a (venture capital) winter," Carstensen said. "Startups are having a very hard time finding funding." Marvin S. Goldwasser, vice presi- dent of marketing and chief of staff of Payrailz, said his company will remain in Glastonbury even though it's now part of Jack Henry. "The plan is to keep the presence," Goldwasser said. Payrailz provides cloud-based, AI-enabled consumer and commer- cial digital payments services that enable money to be exchanged quickly. The company, which was founded in 2016, has been a note- worthy Greater Hartford startup with investors that have included Stam- ford-based Webster Bank. Payrailz has 65 employees across the country, mostly remote, and all jobs have been kept through the acquisition. He said 12 employees are Connecticut-based out of the company's Glastonbury office. "We were acquired to round out their product line, and they want us to keep going," Goldwasser said. "Lots and lots of positives." Diameter Health CEO Eric Rosow said joining Availity was a natural step for his company. Availity facilitates clinical, administrative and financial transactions, so Diameter Health's expertise in data analytics is a good fit for the company. Rosow said Diameter still has its Farmington office and another location in Massachusetts, but many employees work virtually now, which has been increasingly common in the tech industry. "While we still have an important Connecticut presence here, in our industry, lots of companies are largely virtual," Rosow said. Rosow was noncommittal about Diameter's long-term plans to remain in the state, but said there aren't any immediate plans to leave. "Diameter Health is a huge success story for Connecticut," Cote said.

• Cover