Reflecting on the health tech M&A slowdown: should we be concerned?
By Lloyd Price, Silver Buccaneer
During the past year, there was an undeniable slowdown in health tech mergers and acquisitions (M&A) activities. After a flurry of investments and deals in the preceding years largely driven by Covid-19, the industry hit the pause button for reflection. The pace of growth that characterised the last three to four years took a breather as stakeholders scrutinized their business models, funding strategies, and the overall health of the market.
Catalysts of the slowdown
Several catalysts contributed to the market slowdown. The increase in interest rates played a role, making borrowing less favourable for investors. Post-COVID, digital fatigue set in, leading to a realisation that technology alone couldn’t solve healthcare challenges. Staff shortages and the need for a diverse workforce became apparent, emphasising the human element needed for effective change. Additionally, heightened scrutiny on evidence, reimbursement models, and the sheer number of companies offering similar solutions contributed to a more discerning market.
Correction vs. downturn
Is this slowdown a cause for concern, or was it a necessary correction? While correction stopped a bubble bursting and allowed for introspection, it feels like the industry categorised companies too quickly, such as labelling them as telehealth or digital therapeutics, which oversimplifies their multifaceted nature. The health tech landscape is nuanced, and companies often serve multiple roles, making it challenging to pigeonhole them into one category.
Driving factors for 2024: AI, big tech and regulation
That said, there will inevitably be strong drivers for the health tech market particularly in an aging population grappling with chronic diseases. The role of AI and is pivotal, with a focus on large language models to predict, prevent, and personalise healthcare pathways. Big tech giants like Amazon, Microsoft, and Google are making significant inroads into healthcare, reshaping the industry landscape.
Regulation, particularly in the form of assessments by institutions like the National Institute for Clinical Excellence (NICE), is expected to play a crucial role. Companies investing in evidence, data privacy, and adherence to regulatory requirements are likely to instil confidence and drive market growth but they also need to get that evidence infront of a wider target audience by investing in communications.
Trends to watch in 2024: Roll-ups, platforms, and global expansion
We’re likely to see a rise in roll-ups, where companies merge to increase scale, efficiency, and market reach. This strategic move aims to consolidate resources and streamline operations, eliminating redundancies and maximizing impact. We’re also going to see the emergence of more comprehensive platforms that offer end-to-end solutions is expected, catering to the growing demand for efficiency in healthcare delivery.
Global expansion is another trend on the horizon, especially for UK-based companies. Drawing inspiration from stories like Babylon and Touch Surgery, more companies are likely to explore international markets.
Candidates for acquisition: Virtual care, mental health, and data platforms
In the race for acquisitions, certain segments stand out as prime candidates. Virtual care companies, encompassing telemedicine, remote patient monitoring, and virtual wards, are likely to attract attention due to their proven models and government support.
Digital health data platforms, vital for AI companies requiring live datasets, and precision medicine companies focusing on genetic testing and personalised medicine, are anticipated to draw interest for their potential to drive innovation and improve patient outcomes.
Securing an acquisition: Building a competitive edge
For companies eyeing acquisition, building and maintaining a strong reputation is key. A track record of delivering value, evidence-based solutions, and partnerships with academic institutions contribute to a positive perception. Competitive edge come from strong intellectual property (IP), a commitment to interoperability, and continuous investment in product development. Awareness, or mindshare, within the industry, and a well-established brand backed by strong health tech marketing are crucial factors influencing potential acquirers.
Diverse buyers in the market
The landscape of buyers includes strategic, financial, and consolidators. Strategic buyers, already established in the industry, seek market share and diversified product sets. Financial buyers, encompassing private equity, focus on optimising and scaling companies for financial gains. Consolidators are driven by the desire to acquire and build a portfolio of companies, leveraging synergies and expanding market reach.
2024: A year of pain or opportunity?
While challenges persist, there is definitely optimism. Each year offers new challenges and opportunities and opinions vary on whether 2024 will be the biggest health tech M&A year of all time. Arguably, 2025 holds greater promise and confidence, a crucial factor in market dynamics, is expected to gradually return, setting the stage for a robust 2025.