Another trend in digital health mergers and acquisitions (M&A) is the merging of startups with each other to provide value-added services, Padmanabhan said. Companies such as Grand Rounds Health and Doctor On Demand, as well as large technology firms, are expanding their offerings by acquiring digital health companies.
In the second quarter, M&A was dominated by service provider-oriented companies, with 43 of 73 deals, according to Mercom. This includes the planned by Microsoft Corp. Nuance Communications’ $ 19.7 billion acquisition – the most expensive acquisition this year – and Optum’s pending $ 13 billion purchase of Change Healthcare, which is being reviewed by the US Department of Justice.
Mergers and acquisitions remain the most common exit strategy for digital health startups, but IPOs have skyrocketed in recent years.
Several digital health companies made a splash in 2019 when they went public within weeks of each other, ending a nearly three-year digital health IPO drought. Since then, these proposals have become more common, with 10 IPOs in the first half of 2021 and six in 2020.
Digital health “was not a business model that many understood,” said Stephanie Davis, senior health technology analyst at investment bank SVB Leerink. The COVID-19 pandemic has made a difference by demonstrating that digital tools can be integrated into healthcare delivery.
A handful of businesses creating categories that are not yet part of the broader sector with many competitors, such as prescription discount provider GoodRx and medical networking service Doximity, have also gone public. GoodRx’s IPO took place late last year, and Doximity went public in June.
“Investors are now demonstrating that they are interested, willing and able to spend time developing healthcare technologies around the world,” Davis said.