After a pandemic-induced pause, a strong investment appetite once again abounds in the healthcare sector. As the transformation of healthcare continues, James Reed explores how this is driving M&A activity, looking at the key areas in which investors are seeking to deploy funds. On the digital-health side, he asks ORCHA how to spot the truly transformative solutions, and analyses the lifecycle of one such solution, S12 Solutions.
Following a peak of healthcare M&A activity in 2019 (see Figure 1), the early months of 2020 saw dealmaking volumes drop-off significantly, as the pandemic caused havoc for corporate decision-making. Uncertainty followed, and many transaction plans were put on hold as resources were focused on dealing with operational matters and putting in place measures to deal with the pandemic. This was true for dealmaking across almost all sectors. But with the return of postponed medical treatments and an acceleration in the trend towards digital transformation, healthcare M&A activity is rebounding strongly. Add into the mix private equity firms and other investors with accumulated capital to spend, and it is clear that appetite matches opportunity.
As recovery continues and transformation occurs, companies will have renewed confidence to spend as a means of achieving scale and growth. The importance of healthcare has clearly been reinforced during the pandemic, while the sector’s resilience throughout the economic downturn has also contributed to deal activity and valuations running high.
In terms of the sub-sectors proving popular for investors, organizations offering vaccination-related services are an obvious target, while consumer health products are in vogue due to people’s desire to take more proactive steps to protect and enhance their immune systems. The ease of marketing consumer health products – for instance, supplements and vitamins – only adds to their attractiveness.
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Biotech and life sciences remain a growing area, with big pharma retaining the interest and spending power to make major moves for biotech companies, while PwC’s ‘Global M&A Trends in Health Industries: 2021 Mid-Year Update’ points to the fact that wealthy individuals worldwide have been able to bolster their savings during the pandemic and that this could therefore prompt a spike in non-urgent procedures such as cosmetic surgery and laser eye treatment.
The digital health revolution
A large proportion of investor interest, particularly in the UK, is focused on the fact that healthcare business models are adapting to digital. Digital solutions that have brought efficiencies during the pandemic are set to stay, while the mental health legacy of Covid-19 means that personal health, self-care and wellbeing innovations, and app technologies are required more than ever to deal with surging demand. More broadly, the popularity of health tech organizations among the investor community is likely to remain high, as healthcare continues to focus on improving its digital capabilities as a means of delivering greater consumer choice.
Digital health – and investment in digital health – is a prime example of an area that was rapidly developing anyway, but which has been turbo-charged by the world being thrust into crisis mode.
Recent years have seen a strong upward trajectory in terms of technological development and capital flowing into the healthcare sector. But when you consider that every day since the start of the pandemic, between 30 and 40 new digital health products have come to market, it is clear that investor excitement has never been stronger. The digital health revolution is in full swing.
The size of the opportunity is huge, but there is a premium on finding quality. Quality is the ultimate mark of success. It is the key to adoption and uptake, and therefore provides the best return on investment, while changing the lives of end-users.
Innovators have clearly led the way in the technological revolution, but healthcare professionals have also played a role in the pandemic taking digital health from tentative consideration to solid investment opportunity. Experimenting with new methods and products has made clinicians more aware of, and open to embracing, the benefits of digital. This includes medical professionals themselves using technology to improve their working methods and facilitate the delivery of treatment and care, while also recommending other services or products for their patients to use.
The types of technology are extremely varied, from solutions that improve the patient-clinician relationship through more streamlined dialogue and efficient interface, to at-home app technologies that give people the power to take greater control of their own health and wellbeing. In disciplines such as mental health, this has been transformative. Swelling demand means that such solutions are not just beneficial, but necessary if the sector is to adequately cater to patient needs.
One such transformative solution that is helping to respond to the increased mental health demand is S12 Solutions.