Come to think of it there happen to be two contrasting trends in healthcare M&As that are seen today: one in the present, that is characterized by a reduced dealmaking, and the other in the future, wherein dealmakers go on to hold a growing positive outlook.
It is well to be noted that the deal data has seen a significant dip in its entirety since its peak in the latter half of 2021 and early 2022. This dip has been witnessed in the second as well as third quarters of 2023. It is quite significant to note that these figures could vary based on how deal data gets defined and who is going to report it.
2023 third quarter went on to see a significant decline of 44% in M&A activity within the digital health gamut, thereby hitting its lowest point in three years. The steep dip in digital health exits began in the second quarter of 2022. In the first quarter of 2023, there happened to be only 56 exits observed, followed by 36 exits in the second quarter, and another decrease to only 20 exits in the third quarter. But there is indeed a promising outlook emerging that suggests that in the coming year there is going to be a significant upswing.
The fact is that since the HLTH conference in Las Vegas in October, there has been a sense of optimism and signs of progress. These positive developments can be characterized by certain factors:
Healthcare companies happen to be facing shrinking valuations, which could go on to make them more appealing as targets of acquisitions. There are many reasons for this, which include decreased progress, alterations when it comes to market multiples, edits to regulations, or shifts in investor sentiment. Lower valuations have the capacity to attract buyers who were previously discouraged by the very high prices seen in certain healthcare landscapes. The shift in valuation presents potential choices for strategic acquisitions as well as expansions. The statement goes on to serve as a reminder that M&A activity goes on to follow a cyclical pattern, thereby presenting opportunities that come up as and when market conditions change.
Companies specific to the healthcare sector may consider to divest to non-core assets, like selling off or disposing of assets that are not necessary when it comes to core business operations. Executing strategic moves could help in terms of streamlining their operations and also elevating their focus on core business activities, which could then increase their attractiveness to acquirers that have the potential.
Notably, as the healthcare industry evolves, healthcare companies are most likely to engage in more M&As so as to adapt to these changing dynamics. Companies may go on to consider restructuring, merging, or even acquiring other entities so as to enhance their positioning within the healthcare industry that’s evolving.
New players: Based on the current trends, it is most likely that one will see a jump in non-traditional participants who enter the health care industry. These may go on to include major technology companies such as Amazon and other venture capital firms with technology being the focus, such as General Catalyst. As a matter of fact, General Catalyst made a surprising announcement on the final day of the HLTH conference, stating their intent to acquire a health care system, which is a move that’s unprecedented for a venture capital firm.
There is also a possibility of a resurgence when it comes to healthcare M&As in early 2024. The rise in M&A deals during the first half of 2024 depends on many elements. Firstly, it goes on to rely on the Federal Reserve’s decision to slash interest rates. Apart from this, the global economy, geopolitical conflicts, and regulatory hurdles will also play a major role in gauging the potential for M&A activity. CEOs as well as corporate boards will go on to feel more confident to resume dealmaking as soon as there is stability in the outlook. It is uncertain whether this is going to surge or occur in a sporadic way. It is indeed expected that there will be a growth in stock-for-stock transactions, which will help buyers to offer potential benefits to sellers.
These predictions go on to demonstrate how the healthcare sector is consistently changing and how different elements can impact M&As. But it is also important to consider that these forecasts happen to be subject to change, as the actual creations in the healthcare M&A spectrum may be influenced by real-world events as well as market conditions. It is time we discover some key factors that will influence the decisions of healthcare M&A buyers in 2024.
Stressing the significance of value-based care
The healthcare sector is heading towards making steady progress in its shift towards value-based care. It is well to be noted that the focused endeavor to offer high-quality and affordable healthcare services goes on to create excitement for digital health companies that have the capacity to facilitate this shift. As a result, these companies are anticipated to be in high demand when it comes to being potential acquisition targets.
In the M&A landscape that’s rapidly changing, buyers in 2024 will go on to prioritize a strategic shift to value-based care. In light of the major changes that are taking place in the healthcare industry, M&As are no longer just about raising market share or combining resources; they now focus on enhancing the quality of care that gets provided to patients.
Value-based care models give priority to the outcomes as well as the overall health of patient populations, thereby taking the focus away from the quantity of services which is offered by healthcare organizations. The fact is that as more M&A buyers push to adhere to such principles, one can anticipate a rise in terms of partnerships that helps the exchange of data as well as technologies with the objective of enhancing patient experiences as well as outcomes. This transition goes on to demonstrate a bent toward a healthcare approach that gives priority to patients, leading to a more cohesive along with promising future in the industry.
Remote patient monitoring is on the rise
In 2024, M&A buyers within the healthcare sector are most likely expected to display a strong interest when it comes to the growing trend of remote patient monitoring- RPM. RPM goes on to help healthcare providers remotely monitor patients’ health information by way of wearable devices or varied sensors. RPM is, in all likelihood, becoming popular in the healthcare industry as it enables healthcare providers to detect and also manage potential health issues at a very early stage, thereby resulting in patient outcomes that are enhanced.
The usage of wearable tech and sensors has altered the healthcare industry by letting healthcare providers to remotely monitor patients’ health data on a consistent basis. RPM solutions are becoming more exciting to potential investors because of their ability to help early problem identification as well as greatly improve outcomes in patients. Healthcare experts as well as industry reports underscore the growing demand for RPM-driven solutions, which stresses the growing significance of preventive as well as proactive healthcare. This, in turn, goes on to help in reshaping the healthcare M&A spectrum.
RPM happens to be a service that gets covered by Medicare, Medicare Advantage, most commercial health plans, as well as many state Medicaid programs. Besides remote monitoring services, there are certain other services that are mostly covered, like chronic care management, remote therapeutic monitoring, transitional care management, principal care management, behavioral health integration, as well as chronic pain management.
Starting January 2024, Medicare will go on to extend reimbursement in terms of remote monitoring so as to include federally qualified health centers as well as rural health clinics. These healthcare facilities were at a time not eligible to get separate payments when it came to remote monitoring services. In the near future, there is most probably going to be high demand when it comes to digital health companies that develop as well as sell RMP solutions.
Mental health: the focus
The focus when it comes to mental health is rising, and there happens to be a growing interest in digital health companies that go on to provide solutions in order to address this issue. Buyers are most likely to give out significant interest when it comes to teletherapy platforms, mental health apps, and tools for managing mental health.
In the last few years, society’s perception as well as prioritization of mental health have gone through a significant shift. The focus when it comes to mental health has become a topic of interest in public discussions because of this cultural shift. It is indeed having a major impact on individual well-being as well as transforming the healthcare industry along with the digital health sector. This shift has created a decent environment for digital health companies so as to develop innovative approaches when it comes to addressing mental health challenges.
Teletherapy platforms, along with mental health applications, have become mandatory elements of mental health care. It is well to be noted that teletherapy platforms have majorly raised the availability of mental health services by way of offering convenience, accessibility, as well as affordability to individuals. Telehealth services not only offer a solution for individuals who may encounter issues pertaining to distance or logistics, but they also go on to cater to a wider audience seeking accessible as well as confidential mental health assistance. There has been a growth in the number of mental health applications that are available in the market, thereby giving out a wide range of services so as to address different elements of mental well-being. These apps offer a variety of features, which include mood tracking, self-help resources, meditation, as well as stress management tools. They help individuals take control of their mental health by giving them a customized approach to self-care. Apparently, many applications utilize AI as well as machine learning- ML to personalize their content and recommendations as per the specific needs of each user.
Notably, the reimbursement for telemental health services has expanded with time, especially post the public health emergency. Beginning in January 2024, Medicare will go on to extend coverage for telehealth-based therapy so as to include marriage as well as family therapists and mental health counselors. This means that these professionals will be eligible to get payment for their services offered by way of telehealth platforms. New payments go beyond therapy as well as counseling to encompass numerous other social factors. For example, Medicare has gone on to broaden its coverage to have in it virtual health and well-being coaching services. Apart from this, they now cover risk assessments of evidence-based social determinants when it comes to health.
With the rising impact of mental health, investors as well as healthcare organizations are now recognizing the potential of digital health companies that are functional in this field. Venture capital firms happen to be investing major amounts of money into innovative startups that are focused on mental health. Moreover, healthcare providers that are established are actively looking for partnerships and acquisitions so as to incorporate these technologies into their existing services that are existing. The digital mental health sector is at present receiving a lot of attention as well as investment because of its widespread belief that it has the capacity to completely shift the delivery when it comes to mental health care.
Embracing the AI Revolution
The digital health spectrum is being revolutionized through AI, which is playing a very important role when it comes to the development of innovative solutions. Some instances of these technologies have in its diagnostics powered by AI, platforms for drug discovery, as well as virtual assistants. Companies that happen to be developing AI-driven health technology are being focused upon by those who want to keep themselves ahead in the digital transformation of healthcare.
There may be growth in the M&A’s in the digital health sector since the companies that are leading in the integration of AI go on to become highly sought-after by strategic buyers who are looking to stay ahead in the continuously changing healthcare industry. Apart from this, the White House announced in October 2023 that an executive order will be put in place so as to introduce regulations when it comes to AI. They have already gone on to release an initial framework that outlines the content of these regulations. The AI community has gone on to respond in a positive way to the announcement, thereby appreciating its thoughtfulness and, at the same time, recognizing that regulation goes on to add credibility when it comes to emerging technologies. If the regulation is not burdened and that too excessively, it will promote transparency along with accountability in the new AI digital health tools. This, in turn, will fill in confidence in the end users of such tools, like clinicians and patients. Simultaneously, this will also instill confidence in the investors with regards to the sustainability, scalability, as well as value of the AI tools.
The rise in significance of AI-powered solutions will soon go on to drive M&As in the digital health sector. Established healthcare companies, technology giants, as well as pharmaceutical firms are anticipated to actively participate when it comes to the acquisition spree as they look to enhance their portfolios with the help of AI-driven capabilities that are innovative. Companies from numerous sectors are indeed taking into account the profound impact that AI can have when it comes to healthcare, and this trend may even extend to cross-sector acquisitions. Due to this, digital health enterprises that make use of AI’s potential are anticipated to be in high demand. Their expertise as well as technology will become critical elements of wider healthcare strategies.