Mergers and Acquisitions in the digital healthcare space have increased dramatically during the past 18 months as the COVID-19 pandemic created a crisis for the healthcare industry, resulting in the acceleration of virtual care delivery, speaker at a recent Norton Rose Fulbright LLP webinar were recently told.
“Businesses found that they unprecedented access to capital,” said Deloitte Canada partner Jason Ding, who heads up the firm’s National Life Sciences & Healthcare M&A practice from Edmonton. The share prices and valuations of firms in this sector also created “valuable equity” that could be used as currency to acquire companies.
Ding noted in the late September webinar that of more than 400 closed transactions that Deloitte studied from the past five years, one-third of those happened in the past 18 months, about the same time that the pandemic reared its head. However, he noted that even before COVID-19, there was a shift in capital towards healthcare tech that favoured sellers.
As well, Ding said there had been 11 Health tech innovators that went public in the United States over the past two years, and in 2020, almost 20 SPAC transactions were focused on the healthcare industry.
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Ding said that valuations have risen over the past five years. The average enterprise value-to-EBITDA multiple over that period is 7.7, but it has grown from 5.5 in 2016 to 11 today.
Many of these acquisitions were strategic deals made by players in the sector instead of financial players. Specifically, Ding said, “we are seeing two scenarios” – consolidation among innovators that saw COVID as an opportunity to merge or acquire other innovative businesses and larger incumbents acquiring innovative firms to help with their shift in strategies.
Venture funding for health tech companies is also setting new records, Ding said, pointing to the US414 billion spent in the first half of 2021, a number that almost surpasses the US$14.6 spent in all of 2020. There were 212 transactions involving VCs in the healthcare sector in 2020, compared with 100 five years ago.
Ding’s examples pointed to the U.S. or North American number, but he also spotlighted Canadian digital healthcare M&A activity. He noted the “tremendous shift” in the focus of private equity towards healthcare, with both health tech-focussed funds and diversified funds adding healthcare-related firms to their portfolios. Strategic players in Canada have also been “on an acquisition tear” over the last few years. Valuation multiples have also been in the high single digits or lower double digits.
Source: Canadian Lawyermag