Digital health M&A to peak later this year, experts say

Consolidation activity among local digital health startups is poised to accelerate the rest of this year, even as private financing is getting hit, experts said during a NYC Health Business Leaders panel discussion last Wednesday on how mergers and acquisitions are reshaping the sector.

Jon Swope, senior managing director of investment banking at SVP Securities, where he leads the firm’s digital health and health-tech practice, said he expects M&A activity to peak later this year. The current market environment, however, will result in cuts to valuations and more “mergers of equals,” or deals between firms of roughly equal size, he said.

That kind of deal has traditionally ended in disaster—primarily because of issues with governance, relative valuation and the decision of who will serve as chief executive, Swope said—but the current market environment is making buyers and sellers anxious to the point that such mergers will pick up.

Because of the climate, deals may also include a greater share of equity and more milestones, panelists said.

Many startups are still flush with money after a record-breaking year of fundraising and will be acquisitive throughout the year, panelists said. New York-based digital health and life science startups raised $9 billion in 2021, up 150% from the previous year, NYC Health Business Leaders found in a report released earlier this year.

“We’ll likely see strong, fundamentally sound digital health companies acquiring assets throughout 2022 to increase market share and drive revenue growth,” said Bunny Ellerin, co-founder of NYC Health Business Leaders and its CEO.

Kindbody, a NoMad-based fertility startup, announced in February that it would acquire Vios Fertility Institute, doubling its national footprint of fertility clinics to 26 and propelling its valuation to $1.15 billion—hitting unicorn status. 

Shilpa Patel, Kindbody’s co-founder and chief business and legal officer, said Wednesday that the deal hastened its path to profitability by several quarters. She said the startup is in the process of acquiring companies in the genetics and surrogacy spaces.

CEO Gina Bartasi previously told Crain’s that Kindbody planned to go to market with a Series D funding round after the Vios acquisition closed.

But the speakers, who included Thirty Madison CEO Steve Gutenberg and RubiconMD co-founder and CEO Gil Addo, said startups might want to retool and wait to get in on the game—or at least adjust expectations for their valuation.

“My advice is to sell at the top of the market,” Addo said to a hearty laugh from the audience.

NYC Health Business Leaders was founded in 2009 to bring together local leaders in the health care industry.