The
Covid-19
pandemic
spurred
a
rapid
expansion
of
health
tech
companies,
and
new
market
realities
post
pandemic
meant
it
was
only
a
matter
of
time
before
some
consolidated.
Indeed,
investors
in
recent
years
predicted
greater
M&A
activity
only
to
never
see
it
materialize
either
in
2024
or
2025.
But
2026
may
be
the
year
the
predictions
do
come
true.
Consider
the
deals
announced
in
just
over
a
month:
-
Musculoskeletal
provider
Sword
Health
acquired
Kaia
Health,
another
musculoskeletal
company,
for
$285
million -
Spring
Health
acquired
Alma,
both
of
which
are
mental
health
companies -
OCD
provider
NOCD
acquired
Rebound
Health,
a
provider
focused
on
trauma -
Women’s
health
company
Wisp
acquired
TBD
Health,
a
sexual
health
startup -
OpenAI
acquired
Torch,
a
health
data
company,
for
$60
million
According
to
one
investor,
the
uptick
in
dealmaking
signals
a
maturation
of
the
sector.
“The
acquirers
are
venture-backed
digital
health
companies,”
said
Neil
Patel,
head
of
ventures
at
Redesign
Health.
“They
are
not
health
systems
or
payers
playing
defense.
That’s
a
sign
of
category
maturation.
It’s
tempting
to
compare
this
to
the
telehealth
wave
seven
or
eight
years
ago,
when
video
tech
commoditized
and
became
a
land
grab
for
distribution.
We’re
not
there
yet.
There’s
still
real
product
differentiation.
These
deals
are
more
surgical.
Each
has
its
own
logic:
geographic
expansion,
category
expansion,
supply-side
acquisition.”
Investors
anticipate
seeing
more
M&A
activity
throughout
the
year.
However,
the
IPO
market,
which
saw
a
slight
resurgence
last
year
with
announcements
from
Hinge
Health
and
Omada
Health,
will
likely
be
a
less
popular
route
this
year.
Why
companies
are
combining
Keith
Figlioli,
managing
partner
of
LRVHealth,
believes
there
are
two
main
reasons.
Many
digital
health
companies
are
merging
in
an
effort
to
scale
or
extend
their
financial
runway
after
struggling
to
grow
quickly,
raise
more
capital
or
reach
cash-flow
breakeven,
he
said.
Meanwhile,
larger
and
more
established
players
“are
starting
to
see
real
value
in
tuck-in
acquisitions
that
broaden
their
platform
with
unique
capabilities
or
talent
usually
on
the
AI
front.”
This
seems
to
track
with
Sword
and
Spring
Health’s
acquisitions.
A
spokesperson
for
Sword
told
MedCity
News
that
the
company
acquired
Kaia
to
strengthen
its
leadership
in
AI
care
and
allow
the
company
to
enter
the
German
market.
For
Spring
Health,
the
acquisition
of
Alma
brings
established
health
plan
relationships
and
in-network
provider
infrastructure,
allowing
the
company
to
reach
more
patients.
“In
mental
health
care,
demand
continues
to
outpace
supply,
and
access
alone
is
not
enough,”
said
Adam
Chekroud,
president
and
co-founder
of
Spring
Health.
“Quality
and
continuity
matter
just
as
much.
As
people
move
between
coverage
types
or
levels
of
care,
too
many
experience
disruption.
Bringing
together
complementary
strengths
allows
us
to
build
stronger
infrastructure
that
supports
consistent,
high-quality
care
across
those
transitions.”
Define
Ventures
Partner
Chirag
Shah
echoed
this,
stating
that
mental
health
companies
stand
to
benefit
the
most
from
scale
“because
our
persistent
supply
demand
imbalance
means
that
larger
companies
disproportionately
benefit
from
differential
payer
relationships.”
Flare
Capital
Partners’
co-founder,
Michael
Greeley,
noted
that
he’s
been
expecting
this
increase
in
M&A
activity
in
digital
health
for
sometime
now,
and
this
movement
is
positive
as
liquidity
in
this
segment
has
long
been
absent.
He
noted
that
the
industry
is
starting
to
see
a
separation
of
“winners”
from
the
rest
of
the
pack.
More
successful
deals
are
when
companies
that
already
have
significant
scale
buy
smaller
assets.
He
pointed
to
the
Sword
deal
as
an
example.
However,
a
less
successful
deal
is
when
two
subscale
companies
combine,
though
Greeley
declined
to
cite
examples.
“Those
are
really
hard
transactions
to
pull
off,”
he
said.
“In
2021,
we
set
up
something
like
900
companies.
A
more
normalized
rate
of
new
companies
in
the
sector
should
be
like
300
to
400.
So
it’s
fully
expected
that
you’d
see
consolidation,
but
combining
two
companies
that
are
struggling
doesn’t
mean
you’re
going
to
have
one
company
that’s
thriving.
You
may
just
have
a
slightly
larger
company
that’s
still
struggling.
And
when
I
say
struggling,
its
growth
is
slower,
and
they
still
need
to
raise
significant
capital.”
He
added
that
with
payers
facing
more
financial
pressure
—
particularly
after
it
was
recently
announced
that
Medicare
Advantage
plans
will
see
essentially
flat
payment
rates
in
2027
—
digital
health
companies
that
want
to
partner
with
them
will
need
to
be
in
a
stronger
position.
“Payers
are
going
to
have
to
kind
of
repurpose
a
lot
of
their
benefit
designs,
and
that
means
they
may
have
to
cut,
drop
some
of
these
capabilities
that
the
digital
health
companies
are
bringing
to
market
or
pay
less
for
them,”
Greeley
said.
He
added
that
consolidation
will
create
stronger
companies
that
will
have
more
leverage
in
negotiating
with
partners.
Another
accelerant
for
M&A
activity
is
the
“hyper
kinetic”
pace
of
change
in
the
technology
space,
Greeley
declared.
Companies
that
launched
three
to
five
years
ago
with
technology
once
considered
state-of-the-art,
such
as
traditional
SaaS
models,
may
now
struggle
to
compete
with
the
latest
AI
capabilities.
Like
others,
Greeley
anticipates
more
mergers
to
create
comprehensive
solutions
that
can
be
brought
to
the
market.
What
to
watch
out
for
So
which
sectors
could
see
more
consolidation?
Primary
care,
post-acute
care,
ancillary
services
and
the
technology
that
supports
those
areas
are
markets
that
would
benefit
the
most,
per
Shah
of
Define
Ventures.
Figlioli
also
called
out
revenue
cycle
management,
imaging/radiology,
robotics
and
consumer
health
as
areas
to
watch.
Meanwhile,
the
IPO
market
that
showed
signs
of
life
last
year
may
see
less
activity.
Greeley
expects
more
exits
via
M&A
this
year,
rather
than
through
the
public
markets.
“I
think
it’s
less
a
reflection
of
the
category,
but
more
of
the
geopolitical
turmoil
that
we’re
all
going
through,”
he
said.
When
it
comes
to
IPOs,
Abundant
Venture
Partners
Senior
Vice
President
Katie
Edge
expects
them
to
be
“targeted
and
well-validated
exits”
amid
the
lack
of
headline-dominating
IPOs.
But
IPO
or
M&A,
the
same
fundamentals
hold
true.
“Companies
with
strong
execution,
clinical
impact,
and
economic
clarity
remain
the
best
positioned
for
IPO
windows
or
strategic
sales,”
she
stated.
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