Ed Ort, Contributing Writer
2020 was a year scarred by a pandemic that affected almost everyone. The resulting impact on economies worldwide was dramatic. Almost every economy in the world shrank, with accompanying rises in unemployment, as reported by BBC News.
Despite a downward trending global economy, Healthtech companies remained attractive targets for equity investors and strategic buyers, leading to a jump in the number of M&A deals compared to 2019 and a record high in disclosed deal value, as reported in Corum Group’s Healthtech Exits Report .
Much of the interest in Healthtech was driven by the adoption of innovative technology solutions that helped healthcare systems respond to the demands of the pandemic.
The move to virtual care
The stress COVID put on healthcare systems was enormous. On the one hand, hospitals were overwhelmed with an influx of patients. On the other, COVID-related restrictions meant that many people could not or would not leave their homes for medical appointments. As a result, virtual healthcare approaches such as telemedicine were adopted in a big way.
Telemedicine, the interaction between healthcare provider and patient through a telecommunications approach such as videoconferencing, allows medical staff to remotely offer care and advice to patients as well as monitor their progress. In addition, it often reduces the cost of providing that care. Those two factors spurred a remarkable growth in telemedicine adoption during the pandemic. According to Amwell's 2020 Physician and Consumer Survey, 22 percent of patients now use telemedicine for some of their healthcare, up from 11 percent in 2019. And the percentage of physicians that do virtual visits through telemedicine grew from 22 percent to 80 percent.
This transition to telemedicine has developed almost overnight according to Corum Executive Vice President Dave Levine. "One of the things that surprised me was the speed with which the market turned on a dime once people could no longer go to the clinic, and the home became the clinic. The healthcare system is typically very slow to change. But it has transformed instantaneously as the market shifted."
Levine also sees telemedicine becoming standard practice in the future. "I think consumers will just demand telehealth. I think the prices will come down because there are a lot of platforms are out there and the big players are fighting it out. It's just a matter of time before it becomes a commodity.”
Government legislation has also smoothed the way toward telehealth adoption. The COVID-19 pandemic compelled policymakers to remove restrictions on and expand reimbursement for telehealth and virtual care. In the United States, 43 states and the District of Columbia currently have parity laws that mandate private payer reimbursement for telemedicine services. And in countries such as Australia, various legal and regulatory reforms have led to expanded coverage of telemedicine services.
The global telemedicine market is growing rapidly. As reported by Fortune Business Insights, the market size was $79.79 billion in 2020, up from $41.63 billion in 2019, and will grow to $396.76 billion in 2027‒ a CAGR of 25.8% for the 2020-2027 period. Watching the rapid adoption of telemedicine, Meg Barron, the AMA’s vice president of digital innovation, said "More physicians than ever have recognized digital health tools as an advantage for driving efficiency and safety in health care."
The dramatic market growth in telemedicine led to some megadeals in that space. In the biggest deal, virtual care provider Teladoc picked up diabetes coaching company Livongo Health Inc. for $18.5 billion, at nearly 90 times trailing twelve months revenue, creating a giant consumer-centered virtual care platform.
Growing dependence on data analytics and AI
The exigencies of the pandemic also forced healthcare systems to look for ways to become more efficient as the pandemic put more constraints on medical staff and equipment availability. And that led to a growing dependence on data analytics, that is, the process of analyzing large amounts of data to distill useful information. For example, healthcare analytics provider Definitive Healthcare partnered with geographic information system company ESRI to launch an interactive data platform that allows people to analyze and monitor hospital bed capacity in the United States. This also drove acquisitions in the Healthtech space as seen with healthcare workforce solutions provider HealthStream’s acquisition of healthcare technology company Change Healthcare’s staff scheduling business for $67.5 million.
Data analytics can lead to efficiencies in ancillary services, such as laboratory processes, in addition to clinical care ‒ driving acquisitions like Labcorp's purchase of Corum client Visiun, a provider of performance analytics software. Visun's laboratory analytics give hospitals and health systems data- enabled insights that enable them better serve their patients.
Like the telemedicine market, the global healthcare analytics market grew sharply, reaching $27.7 billion from a 2019 size of $25.9 billion.
An important element in the data analytics ecosystem is the growing use of personal health monitoring devices such as Fitbits and Apple Watches. These devices are part of a growing remote patient monitoring (RPM) market. According to data analytics and consulting company GlobalData, COVID-19 is accelerating the growth of this market, which was estimated to be more than $950 million in 2020. RPM devices allow people to monitor their health status and enable better management of chronic conditions such as high blood pressure. These capabilities are leading to a future where most day-to-day health monitoring will be conducted by the individual. Healthcare providers are looking to take advantage of the data recorded by these devices to make more informed decisions about patient care.
Closely aligned with data analytics is artificial intelligence (AI), that is, the use of computer systems and other devices to perform tasks that normally require human intelligence. The pandemic has spurred growing interest and use of AI in healthcare. This is happening in areas such as patient diagnosis according to Levine, who sees it enhancing the ability to detect disease in radiographs. Levine says this dependence on AI in healthcare will accelerate. "Certainly, it's going to accelerate in research. I also think that as technology becomes faster and less expensive, the ability to detect disease using AI is going to increase."
Interest in AI’s application in healthcare led to a number of deals in 2020, such as digital patient engagement company Sharecare's acquisition of WhiteHatAI, a company that focuses on the use of artificial intelligence to address healthcare payments.
Opportunities along the continuum of care
The pandemic also put greater emphasis on the continuum of care, something Gina Stanhope, Executive Vice President at Corum, sees as a more holistic view of patient care. She said, “This last year highlighted that traditional in-patient health systems needed a unified view of patients across the continuum of care ‒ both before and after they entered the facilities. This requires integration with telemedicine and patient engagement on one hand, and distributed services in post-acute and palliative care settings on the other.”
An effective response to COVID does not begin and end with treatment at a hospital or outpatient setting. It includes other facets such as research and clinical trials aimed at drug discovery, post-care rehabilitation, as well as information sharing between doctors and patients ‒ leading to opportunities for companies that provide solutions along the continuum. For example, remote cardiac diagnostics and monitoring provider BioTelemtery Inc. was purchased by Netherlands-based health technology company Royal Philips for $2.5 billion, adding to its cardiac care portfolio and strategy to transform care delivery along the health continuum with integrated solutions.
Two other deals of note applied to the continuum of care. Corum client Carenity, the developer of a social platform supporting patients and caregivers, was acquired by private equity firm BID Equity. The PE firm merged two of its portfolio companies with Carenity to create a new data science company that delivers end-to-end coverage of the clinical development process. And CarePort Health, a provider of care coordination software solutions, was purchased by global health and community care technology company WellSky for $1.35 billion to enhance care coordination across the acute, post-acute continuum.
Rising M&A activity in Healthtech
As reported in the Healthtech Exits Report, M&A volume in the Healthtech sector climbed to 310 deals in 2020, nearly a record high, with Private Equity investment a big part of it. PE firms accounted for 36 percent of total deals in 2020. The disclosed value of these deals also climbed, reaching a record high of $34.1 billion.
A prime example of PE's interest in Healthtech is Veritas Capital's $5 billion purchase of the healthcare services division of B2B IT services provider DXC technology to form a new standalone company Gainwell Technologies. Gainwell then did a megadeal in acquiring HMS for $3.5 billion. HMS is a technology, analytics and engagement solutions provider helping organizations reduce costs and improve health outcomes.
There were also two major mergers in the Healthtech sector by SPACs (special purpose acquisition companies). In one, GigCapital2 agreed to merge with UpHealth Holdings and Cloudbreak Health LLC to create a digital healthcare company valued at $1.35 billion. In the other, Hims & Hers, a multi-specialty telehealth platform, merged with Oaktree Acquisition Corp. The combined company has an implied initial enterprise value of approximately $1.6 billion. The merger will enable further investment in growth and new product categories that will accelerate Hims & Hers’ plan to become the digital front door to the healthcare system.
And in a deal to be completed in 2021, Varian Medical Systems, a developer of cancer care solutions, announced an agreement to combine with medical imaging solutions Siemens Healthineers AG, a subsidiary of Siemens AG, for $16.4 billion in an all-cash deal. The combination will add a number of cancer treatment technologies to Siemens Healthineers’ offerings.
M&A interest in Healthtech is also starting to spread beyond North America. Although most buyers and sellers in 2020 were based in the United States and Canada, more than ten percent of Healthtech deals were based in Europe followed by a smaller percentage in Australia, New Zealand, and India.
The Healthtech sector’s future is positive, driven by continued innovation and a robust infusion of venture capital funding. A Deloite Insights report indicated that venture funding for Healthtech innovators doubled in 2020, hitting $14 billion. In addition, Private Equity activity in the Healthtech market has steadily increased over the last ten years. In fact, the four top buyers in number of Healthtech acquisitions in 2020 were PE firms.
These trends are expected to continue in 2021. Even as the world turns the corner on the COVID pandemic, the need for effective and cost efficient approaches to healthcare will continue to drive M&A activity in Healthtech companies that provide creative, cutting edge solutions. Ann Huston, chief strategy officer at healthcare provider Cleveland Clinic, put it this way, "As we anticipate intensified financial pressures, organizations cannot afford to ignore any opportunity to realize efficiencies and economies of scale."