- Slower digital health investments this year are positioning startups to be more welcoming of M&A proposals, according to a Rock Health report published on Monday.
- As digital health funding reached its lowest level in the third quarter since 2019, M&A activity is expected to increase in the coming quarters, the report said.
- Some of the biggest deals this year include Amazon’s $3.9 billion purchase of One Medical and CVS snapping up home care company Signify for $8 billion.
M&A activity in the digital health sector is expected to continue into 2023 as companies explore tie-ups during an unfavorable fund-raising period. Buyers that want to capitalize on the current market fit four categories, according to Rock Health.
Some of the more prominent transactions involved buyers seeking to cause a disruption by transforming their current digital health services to drastically differentiate themselves in the market, the report said.
“Although we have yet to see whether these deals have proven to be truly disruptive, we’re keen to see how their ripples turn to waves in the coming quarters,” the authors wrote.
Other buyers are looking to consolidate for inorganic growth, and that’s especially the case amid inflation and rising customer acquisition costs, according to the report.
“Organic growth can be difficult — but acquiring competitors with additive customer bases grows their audience and secures market share, better positioning the acquirer for when the market rebounds,” it added.
Some businesses may look to acquire digital health startups that enhance or streamline their own operations. The final type of buyer could look to buy digital health companies with features that complement their own to capture market share in neighboring categories, the report said.
M&A activity in the digital health sector in 2021 averaged about 23 deals per month and an annual total of 273 transactions.
That momentum continued into the first two months of 2022, which averaged 23 deals per month. However, they dropped to an average of 13 per month by the second quarter
Transactions picked up the third quarter, with an average of 15 deals per month and a total of 144 deals so far this year.