When Teladoc first struck an $18.5 billion deal to acquire Livongo last year, experts predicted that it would herald an era of digital health mergers hitherto unseen. So far, that prediction has held up.
For the first three quarters of 2021, Rock Health tracked 216 digital health mergers and acquisitions, outpacing the entirety of last year’s deal count of 146. By comparison, in 2019, there were 113 M&A deals, according to Rock Health.
“We are blowing our stats out of the water and I have high expectations that that’s going to continue,” Alyssa Jaffee, a partner at 7wireVentures, said in a phone interview.
And the big headline for 2022 is to expect more mergers and consolidation to occur, especially in areas that have multiple, major players like care navigation or virtual physical therapy.
Michael Greeley, general partner at Flare Capital, said that there are lots of good options for companies right now.
“The M&A market this year, it’s quite robust,” he said. “People are putting real value on these companies, their customers are real, they have significant books of business and the technology’s compelling.”
Although some of these markets are still relatively nascent, companies are starting to emerge as category leaders. Those that raised large funding rounds recently, but haven’t gotten the same traction, might become targets for mergers with another private company.
Point solutions consolidate
Like with the Livongo-Teladoc tie-up, experts interviewed by MedCity News said they expect to see more point solutions combine to win over more markets and stand out to benefit managers. One more recent example of that is Doctor on Demand’s merger with Grand Rounds, a health navigation company, and later with Included Health, which connects LGBTQ employees to affirming care.
As digital health startups proliferate, company benefits executives have to screen a growing number of solutions, whether that be for benefits navigation, telehealth, or management for specific conditions. It’s gotten to the point where it’s difficult to vet all of them, as illustrated by a recent Wall Street Journal article.
“Moving away from this fragmented uncoordinated care across all of these point solutions, into something more integrated and more holistic care… that’s a trend that I see, that’s not dying,” said Joe Murad, CEO of pharmacy benefits startup WithMe Health, in a Zoom interview. “There’s got to be consolidation among a handful of those because also employers are saying, I only need one navigator, I don’t need four, and I’d rather have one phone number on the back of that card.”
Chrissy Farr, a principal at Omers Ventures, is watching patterns between competitors to see what they might acquire next. For instance, both Livongo and Omada have built or acquired solutions for diabetes prevention and management, as well as mental health support. Since Omada acquired a remote physical therapy company last year, it would also make sense for Teladoc and Livongo to make a musculoskeletal care acquisition, she predicted.
“I think you’ll start to see a lot of these companies mirroring each other’s moves, and the broader goal would be to have a full suite of offerings and not just do one thing,” she said in a Zoom interview.
It’s still yet to be determined how these combinations will fit together. For example with a maternal health startup, Greeley said he would want to integrate behavioral health services as part of that core offering rather than refer patients to another company.
In other cases, he could see different specialty platforms operating as “storefronts” on a broader platform, like Teladoc or Amwell.
Covering a broader range of acuity
Another trend in tie-ups has been to expand into higher acuity conditions through mergers. For instance, Headspace, a well-known meditation app, recently combined with Ginger Health, which provides behavioral health coaching, therapy and psychiatry sessions.
While Headspace would cater to a broader group of users, Ginger can provide more in-depth services, bringing in revenue from health plans and insurers.
“Those kinds of mergers end up being really lucrative and attractive,” Jaffee said. “It’s a piece of pie you’re able to capture at a reimbursement level.”
She and other investors expect to see more consolidation among behavioral health companies, with the breadth of solutions that exist and the funding that those companies have raised.
Farr also predicted that musculoskeletal care companies will consolidate as they look to reach new markets, such as health plans, workers’ compensation programs, and directly to consumers. Several that have raised funds recently include Kaia Health, Hinge Health and Sword Health, which offer virtual physical therapy and self-guided exercises.
“All of these things require different teams,” Farr said. “It may be faster to buy something versus try to build it yourself.”
She also expects to see virtual physical therapy programs start to expand more into in-person services and rehab before or after surgical procedures, an area that MSK startup Kaia Health has started to get into through partnerships.
“A lot of the MSK players are focused on virtual physical therapy,” she said. “There’s a world in which they’re going to need to open up physical clinics at some point, because not everybody wants to be seen virtually, which is going to be the story of 2022.”
Their predictions
MedCity News asked four experts for their M&A predictions in digital health. Here’s what they said:
- Farr expects to see more consolidation in women’s health as more funding starts to flow into the sector and employers take stock of their benefits for parents. For instance, Maven Clinic is now valued at $1 billion after a recent funding round, and has some money to spend. She also wondered if Amazon will buy another healthcare company, and if Peloton could find an acquirer in Apple.
- Murad said among the various navigation companies, such as Accolade, Castlight, and Included Health, “something’s got to give there.” He pointed out that Quantum Health could be complementary to Accolade, as Warburg Pincus recently led a private equity round in the company.
- Jaffee expects to see continued M&A activity in behavioral health and women’s health. She noted the large amount of investment in care around fertility, pregnancy and postpartum care, as well as a growing number of companies focused on menopause and specific conditions, such as PCOS and endometriosis.
“In 2022, we will have additional M&A activity in those two markets really to serve broader populations with the goal of extending reach and the spectrum of care,” she said. - Greeley didn’t name specific companies that he thought would get acquired, but noted that one place to look would be for companies that had raised series B or C rounds about a year ago, and aren’t actively raising now. For instance, these companies might not have scaled fast enough or raised capital at very high valuations that they didn’t grow into.
“My prediction is that we will see a number of companies raise even larger rounds (‘anoint the winner’ financings) and also a large number of other companies explore private-to-private combinations (or simply sell to large public companies in the sector),” he said.
Photo: Dmitrii_Guzhanin, Getty Images
