Why Digital Health is Ripe for a New Wave of M&A, Including More 'Disruptive' Deals

The next big wave of mergers and acquisitions in the digital health industry can’t come at a better time. The market conditions are certainly ripe for it.

According to Rockethealth, 2023, M&A volume was 23% lower than in 2022, with 146 total announced mergers/acquisitions of US-based digital health companies, compared to the previous year’s 190.

With VC funding becoming scarcer and IPOs less attractive, many startups are finding themselves in need of alternative sources of capital. That's where M&A comes in, offering digital health companies the opportunity to expand their product offerings, reduce costs, and provide liquidity to investors.

There are several factors driving this trend. For starters, some startups may be facing a cash crunch and need additional funding to stay afloat. 

Also, in today's environment, going to the private markets for capital may result in lower valuations, making M&A an appealing alternative. 

Additionally, digital health organizations that anticipate a capital shortfall before reaching profitability will need to explore various options to bridge that funding gap.

We've already seen some significant M&A deals in the digital health space, and the trend is expected to continue.

For instance, recently, three major players in kidney care joined forces to create a new value-based care company valued at $2.4 billion. 

Similarly, some startups are opting for inorganic growth by acquiring their competitors. This consolidation is particularly evident in sectors like digital mental health and telehealth, where innovation and adoption have been rapid.

Looking ahead, we can expect to see more consolidation in the digital and telehealth sector, with leaders expanding their services beyond primary care and urgent care. The shift towards end-to-end integrated platforms is also driving M&A activity, as companies seek to deliver care in a more integrated manner.

Additionally, disruptive innovation will play a key role in shaping future M&A deals, as healthcare evolves into a hybrid model of providing care. For struggling public establishments, M&A may offer a lifeline.

While those unable to access capital through the public markets, will turn to acquisitions as a way to pivot and adapt to changing circumstances. With cash-rich players like large insurance giants and even retail giants like Amazon in the mix, the M&A landscape in digital health is poised for further transformation.

So, keep an eye out for potential deals in the coming months—they could reshape the industry in significant ways.