Digital health M&A has already set a record this year


Digital health mergers and acquisitions are reaching a fever pitch this year as companies spent at least $46.1 billion on deals in the first half.

That’s more than during any full year since market research firm Mercom Capital Group began tracking digital health M&A activity in 2010, and the real number is probably much higher.

The latest compilation of Mercom data reveals that 136 companies disclosed mergers or acquisitions through June. Only 29 of those firms provided financial details about the transactions, and those deals alone amounted to $46.1 billion. That’s a big jump from at least $35 billion on 184 deals last year and at least $16.7 billion on 168 M&A transactions in 2019.

The 136 deals so far this year also is the most Mercom has recorded for a half year. Telehealth transactions were the most common (25), followed by practice management tools (20). Mergers and acquisitions between clinical decision support and mobile health app companies accounted for 10 transactions each.


Digital health M&A activity is rising quarter-over-quarter, with 73 deals in the second quarter. During the first quarter, digital health companies made 63 deals. Last year, there were 52 transactions in the fourth quarter, 49 in the third and 42 in the second.

Consolidation in the digital health industry had to happen, said Paddy Padmanabhan, CEO of Damo Consulting. “There’s way too many digital health startups with way too many undifferentiated products,” he said.

Amwell’s planned purchase of digital mental health company SilverCloud Health and chatbot startup Conversa Health are examples, Padmanabhan said. Both SilverCloud Health and Conversa Health are in highly competitive markets. By joining with Amwell, they grow within the parent company’s telehealth operations, and provide founders and initial investors a return on their investments. Amwell’s deal represents an increasingly common trend of large virtual care companies acquiring digital health capabilities from smaller startups.


Another trend in digital health M&A is startups merging with each other to bring complementary services together, Padmanabhan said. Companies such as Grand Rounds Health and Doctor On Demand, and big technology firms, are building out their offerings by acquiring digital health companies.

Provider-focused companies “dominated” M&A activity in the second quarter, comprising 43 of 73 transactions, according to Mercom. That includes Microsoft Corp.’s planned $19.7 billion purchase of Nuance Communications—the priciest acquisition so far this year—and Optum’s pending $13 billion purchase of Change Healthcare, which the U.S. Justice Department is reviewing.

M&A remains the most common exit strategy for digital health startups, but initial public offerings have experienced a sizable uptick in recent years.

In 2019, a handful of digital health companies made waves when they went public within weeks of each other—ending a nearly three-year drought in digital health IPOs. Since then, these offerings have become more common, with 10 IPOs in the first half of 2021 and six in 2020.

Digital health “wasn’t a business model that many folks understood,” said Stephanie Davis, a senior research analyst who covers healthcare technology at investment bank SVB Leerink. The COVID-19 pandemic changed that by demonstrating that digital tools can be integrated into care delivery.

A handful of “category-creating” businesses that aren’t yet part of a broader sector with many competitors, such as prescription discount provider GoodRx and clinical networking service Doximity, also have gone public. GoodRx’s IPO took place late last year and Doximity went public in June.

“Investors are now showing that they are interested and willing and able to spend time ramping up on the health-tech side of the world,” Davis said.


Source: modernhealthcare.com

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