CVS Health’s nearly $8 billion acquisition of Signify Health, the Dallas-based home health risk assessment company, is the latest high-priced digital health acquisition. Earlier in the quarter, tech giant Amazon acquired One Medical for nearly $4 billion in cash.
Experts said they’re not anticipating a slowdown in digital health merger and acquisition activity any time soon.
“We’ve seen a lot of IPOs in the healthcare space,” said Matt Wolf a director and senior healthcare analyst at consulting firm, RSM. “Many of these companies are viable. They might need to just be folded into a strategic buyer to be more economically viable or taken private.”
Despite posting a $490 million net loss in Q2, Signify Health remained bullish on growth after its February acquisition of Caravan Health. The company said that the acquisition would allow it to provide more home-visit consultations to at-risk patients in a value-based arrangement. This mentality is present throughout digital health.
“Time and time again in the past few years we’ve seen if as a provider if you’re able to meet patients when its convenient [for] them they will engage in healthcare,” Wolf said.
Andrew Bab, a partner at law firm, Debevoise & Plimpton’s M&A practice, said companies focused on improving the patient experience, offering efficiency gains to payers, and decentralizing clinical trials may be at the center of future moves.
“Healthcare is such a fertile area,” Bab said. “These [larger] companies want to be part of it.”
Despite both Signify and One Medical posting significant second quarter losses and enduring prolonged stock price decreases, they were still viewed as worthy investments. Sandy Draper, a senior managing director at Guggenheim Partners, a global investment and advisory firm, said the pandemic accelerated adoption of telehealth and made digital health a viable acquisition target for larger companies.
“We were forced to change the way we distributed care,” Draper said. “IT changed the way not just consumers, but physicians and employers [engaged]. This seismic shift is taking place. It is going to take a lot of dollars—that’s why you’re seeing big companies interested.”
Nathan Ray, a partner at consulting firm West Monroe’s healthcare M&A practice, said many digital health companies can grow stronger with a strategic partner.
“These core businesses need economics that improve with scale,” Ray said. “All of these companies that are getting invested in—particularly provider-wise—are what we call roll up plays.”
Ray described those as companies that improve as economies of scale increase. While the public market has been less than kind to many digital health companies, Wolf remains optimistic.
“Change can take longer than a quarter in healthcare,” Wolf said.
While not referring to any specific deal, experts speculated on which companies could follow in the footsteps of Signify and One Medical in M&A activity. Here were five potential companies that came up in conversations.
Despite posting a net loss of $3.1 billion in the second quarter, experts said the Purchase, New York-based telemedicine and virtual healthcare company could be an attractive option for a large partner. The company boasts a large, established suite of services and a strong membership base, but saw its adjusted earnings before interest, taxes, depreciation, and amortization dip 30% last quarter. After trading at nearly $300 per share last year, the company is trading around $32 per share at press time. Teladoc said it has no intentions to sell the company.
Earlier this month the Boston-based company announced it was working with CVS Health on its new virtual care platform that will roll out to Aetna and CVS Caremark members next year. Amwell posted a 7.1% increase in revenue from the year-ago quarter. In 2020, its CEO, Dr. Ido Schoenberg said the company plans to transition away from providing healthcare services, to being a company that primarily sells tools to healthcare providers. The company did not have a comment.
Following a trend of public companies which faced Wall Street skepticism, multiple experts said New York City-based health insurtech Oscar Health could be the next large digital health company to be acquired. The company has seen its stock price fall by more than 80% since going public last year. A spokesperson for Oscar Health said, "Any speculation around an acquisition of Oscar by another party is just that - speculation."
After media reports revealed the London-based Babylon Health, which offers AI-enabled virtual diagnosis and medical appointments, was courting buyers, the company took the unusual step of issuing a press release dispelling it. In an interview with Digital Health Business & Technology last month, Ali Parsa, the company’s CEO said it was on track for profitability in the next couple of years. He admitted broader economic conditions have stunted the company’s growth.
“Markets that were fueling that growth are in a different place today. The money that we need to grow fast is kind of not where it used to be,” he said. “So now, we're only focusing on deals that can be profitable on the first year, or at least break even on its first year and then be profitable after that.”
The consumer-facing digital health platform company, based in Atlanta, has struggled to appease Wall Street since it went public at the end of 2022. With many established companies investing in patient solutions, experts say Sharecare’s platform could offer intriguing integrations with potential strategic buyers. Sharecare said it had begun a strategic review of non-enterprise businesses, but did not specifically address plans for M&A.