Solganick & Co. has issued its latest M&A update for the Healthcare IT industry sector for Q4 2017 and 2018 Outlook. You can download the complete report here: Solganick Co Healthcare IT Q4 2017 Update
The following highlights the report:
- M&A activity in healthcare technology decreased in 2017 to 119 deals, down 18% from 2016 and 36% from 2015. Regardless, venture funding for the industry reached new heights, as the average funding round hit an all-time high of $16.7 million. Outcome Health and Peloton Interactive raised the largest digital health investments on record at $500 million and $325 million, respectively.
- Despite strong public company performances in 2017, the number of IPOs in the last period was zero.
- Nonetheless, increasingly savvy healthcare technology investors have continued to deploy capital into a private company pipeline that seems likely to deliver some IPOs to public markets where high growth and eventually profitable business models can attract strong valuations.
- The average Healthcare IT public company revenue and EBITDA multiples stayed nearly the same from Q4 2016 to Q4 2017. EV/Revenue and EV/EBITDA multiples averaged 4.0x and 15.9x, respectively.
- Annual funding of digital health companies sets a new record of over $5B.
2018 Healthcare IT M&A Trends & Drivers
New Tax Reform Incentivizes Repatriation of Healthcare Profits
In a Wall Street Journal analysis, 311 U.S. based companies reportedly have over $2.5 trillion in offshore (non-U.S.) foreign profits at the end of their most recent fiscal years. By sector, healthcare has over $582 billion in cash to bring back to the U.S. This has already proved to be significant for M&A, as we’ve seen a number of sizable deals in early 2018 thus far:
January 7th: “Celgene to buy Impact Biomedicines for up to $7 billion” (Reuters)
January 21st: “Sanofi to buy Biogen Hemophilia Spinoff for $11.6 billion” (Bloomberg)
January 22nd: “Celgene Is Paying $9 Billion for Juno Therapeutics in Blockbuster Cancer Drug Deal” (Fortune)
Additionally, Johnson & Johnson chief executive Alex Gorsky recently asserted the company’s plans to repatriate $16 billion in cash. These recent events demonstrate the potential for increased deal flow as a product of increased domestic cash stockpiles due to new tax reform.
Potential Entrance of Tech Giants Threatens Incumbents
Wary of colossal software players like Amazon, Apple and Microsoft preparing to test the waters of healthcare, existing incumbents are bundling their service offerings and consolidating through M&A. In technology, many companies are developing their healthcare strategies by working with federal regulators, filing health patents, and attracting top healthcare executives. Examples of this include Apple’s new FDA approved band for Apple Watch and Microsoft’s patent for smart glasses aimed at tracking nutrition. Even so, these developments are dwarfed by Amazon’s recent announcement of plans to collaborate with Berkshire Hathaway and JPMorgan Chase to form an independent healthcare company for their employees in the U.S.
Altogether, tech penetration of healthcare is on the horizon. Further, as software becomes a point of differentiation in healthcare, tech giants have an advantage with expertise in the area as well as direct relationships with consumers.
Cloud Computing: Cutting Costs & Retaining Reliability
Although the healthcare sector has displayed its apprehensions regarding the reliability of transitioning to cloud-based offerings, IT units are increasingly moving in that direction nonetheless. This is in part due to the availability of common applications such as email, productivity, and commodity applications that steer away from sensitive patient data. CIOs are being forced to weigh the upfront capital costs of onsite IT infrastructure investments against the monthly service fees of cloud subscriptions that may provide more efficient business solutions.
Artificial Intelligence, Machine Learning, and Analytics: The Balance of Insight & Caution
As healthcare data has accumulated rapidly due to the implementation of electronic health records, healthcare entities have mountains of new data sets to comb through. New artificial intelligence and machine learning applications allow users to extract unprecedented health insights for patients. While this improvement in healthcare delivery is obvious, the FDA assembled a team earlier this year to oversee the impact such technology has on treatment decisions and ensure that companies conduct due diligence of these technological offerings in order to protect patients.
In relation to technology’s entrance into the space, IBM recently acquired private companies Explorys, Phytel and Merge Healthcare, giving it access to millions of patient records and data points for its Watson cloud. The IBM Watson group, which has been expanding its reach through partnerships with hospitals across the world, has also funded private companies including Pathway Genomics. Google acquired startup DeepMind in 2014, and started the DeepMind Health Initiative in 2016, and also partnered with UK’s National Health Service.
The Potential for Blockchain In Healthcare
The rise of interconnected healthcare and the increasing availability of data has spurred the need for a new model. The full utilization of patients’ medical data requires data portability and the interoperability of records between systems. As a result, many healthcare firms are reaching out to blockchain developers to make use of data, and the modern blockchain infrastructure could unlock new channels to improve interoperability across the continuum of care while increasing security. Applied to healthcare, blockchain enables healthcare professionals to have a single, real-time, verified copy of the patient’s medical information, which could serve to increase the accuracy and speed of diagnosis.
Digital Health Interventions and Virtual Care
Health and wellness “wearables” are becoming one of the most sought-after innovations in digital health. The market is quickly diversifying as clinical wearables gain importance and as several renowned organizations integrate with each other. Not only wearables- there are several apps and biosensors that can assist providers with remotely tracking patient health, engage patients, interact with them, and streamline care operations. As technology becomes central to healthcare, 2018 will be the year when these apps and wearables boost the patient-physician interaction.
About Solganick & Co.
Solganick & Co., Inc. is an independent investment banking and M&A advisory firm focused exclusively on the global technology and digital media industry sectors, including an active practice within healthcare IT and digital health. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with entrepreneurs, companies and leading private equity firms within the sectors we cover.
For more information, you can download the complete report here: Solganick Co Healthcare IT Q4 2017 Update
To discuss this report or an M&A transaction, please contact us.