Healthcare IT Market Update – May 2023

M&A Persists in Healthcare IT Market as Venture Capital Financing and IPO Markets Struggle

Capstone Partners’ latest Healthcare Information Technology (IT) Market Update reports that Healthcare IT M&A has continued at a strong pace through Q1 2023 as strategic and financial buyers look to incorporate innovative technologies and capitalize on digital health tailwinds, a trend Capstone heard echoed at the 2023 ViVE conference.

Consistent disruption in capital markets has proved worrisome for Healthcare IT sector participants seeking an exit via initial public offering (IPO). Although sector demand has remained strong with healthcare services providers looking to remedy inefficiencies through technology, the collapse of Silicon Valley Bank and Signature Bank has placed liquidity pressures on many venture capital-backed healthcare IT businesses. Disruptions in the Banking sector have also caused volatility in the public equity markets, and the Healthcare IT IPO market has remained closed without a single IPO filing in Q1 2023. This has forced many venture capital-backed businesses to look to M&A as their primary exit strategy, namely transacting with strategic buyers to gain access to sufficient growth capital and ensure longevity of the business.

M&A transaction multiples in the Healthcare IT sector have remained healthy, with the average M&A revenue multiple from 2020 through Q1 2023 amounting to 6.4x EV/Revenue, outpacing the average sector multiple from 2017 through 2019 and 2014 through 2016. Sector targets with a high degree of recurring revenue and interoperability have continued to garner healthy multiples despite a modest slowing of sector deal flow. Throughout 2023, the Technology, Media & Telecom (TMT) and Healthcare industries are expected to capture the highest M&A valuations, as noted by 55.6% and 53.4% of M&A advisors surveyed in Capstone’s 2022-2023 Global M&A Trends Survey. Sitting at the intersection of the TMT and Healthcare industries, Healthcare IT sector M&A valuations are slated to remain robust relative to historical averages.

Also included in this report:

• Key themes discussed at the 2023 ViVE conference that are expected to impact sector participants through year end and beyond.
• How Healthcare IT sector transaction multiples have fared through Q1 2023 and what criteria buyers have prioritized in the space.
• A breakdown of active acquirers in the sector, highlighting recent notable M&A transactions.
• Why venture capital firms investing in the space have become more risk-adverse amid economic uncertainty.