4. Telemedicine is coming into its own
“I think people see this as a paradigm shift,” says WilliamsMarston’s Landen Williams
As non-Covid patients avoid hospital care during the pandemic, telemedicine and other forms of digital healthcare have become favored M&A targets.
“Digital health is probably the hottest area right now,” says
Landen Williams, partner at WilliamsMarston. “Private equity firms are focusing more on companies that have a technology edge to make them unique.” That includes companies where software is a key distinguishing asset, such as for telemedicine, certain insurance or pharmacy businesses, wellness care, cancer detection or wearable technology.
“I think people see this as a paradigm shift where the whole remote medicine and technology enabled aspect to the delivery of healthcare is accelerated,” Williams says. “It’s an avenue to deliver healthcare safely, but it’s also a potential mechanism to deliver it at a much lower cost, which is obviously a huge focus right now.”
Recent deals in the digital healthcare space have included healthcare data and analytics technology provider Health Catalyst Inc. (Nasdaq: HCAT) agreeing to acquire Healthfinch Inc., provider of electronic medical records analytics software. Earlier in 2020, the company agreed to acquire Able Health Inc., which sells quality and regulatory tracking software for healthcare providers.
Also, Vancouver-based telemedicine company CloudMD Software & Services Inc. recently acquired a Mississippi clinic serving chronic care patients as a part of its plan to build a network of telemedicine clinics throughout the U.S. Earlier in 2020, the company acquired South Surrey Medical Inc., a telemedicine clinic in Vancouver, and Snapclarity Inc., an on-demand digital mental healthcare software provider.
Recent venture capital digital health deals include Grail Inc., a company developing a blood-based multi-cancer early detection test, raising $390 million in late-stage venture capital; Oscar, an insurer focused on tech-enabled healthcare, raising $225 million in late-stage VC funding; and VC-backed telemedicine provider Amwell filing for an initial public offering.
PE firms have shown more interest lately in potential acquisitions of healthcare services that are not practice-management-driven, such as telehealth, healthcare IT and homebased healthcare, says Reynolds, the Riverside principal: “Things that are really more bread and butter, and don’t go away in a pandemic.”
Telehealth has been aided by a relaxation of regulations during the pandemic to allow telehealth services to be delivered across state lines in the U.S., Reynolds says. Telehealth services have also been boosted by breaking the ice with patients who might not otherwise have had exposure to virtual healthcare, he says.
“There are a lot of tailwinds behind that,” Reynolds says. “Because of the exposure as a result of this pandemic, there’s going to be a general comfort level increase that’s going to create a higher new-normal floor for that sector.”
Healthcare services that bring care into the home or use technology to make care easier to navigate are attractive investments because of their focus on consumer engagement, Darren Black, managing director at Summit Partners. Post-acute care delivered in the home is especially attractive because it gets the patient out of the hospital, the most expensive care environment.
Worries about Covid-19 have renewed interest in home skilled nursing, home respiratory care and home intravenous drug treatment, says Plumridge, managing partner at Halifax Group. “These aren’t newfound attractive areas, but rather they’re incrementally attractive,” he says.
The runup in stock prices for home healthcare equipment provider AdaptHealth and home healthcare services provider Amedisys may signal a similar interest in the space by PE firms, Plumridge says.