With more money flowing into the health IT sector than ever before, technology has emerged as a primary driver behind mergers and acquisitions across the industry.
Larger healthcare players have recognized the value of innovative technology, data analytics and clinical decision support, and in many cases, they are looking to acquire firms that can bolster those efforts rather than building their own tools. That digital revolution was a big influence on merger and acquisition activity over the last year, according to a report by Bain & Company, and it’s likely to be one of five industry disrupters throughout 2018.
“The larger companies within a healthcare segment are best positioned to take advantage of digital advances, while smaller firms that can’t afford these improvements risk falling behind,” analysists wrote in the report. “Small companies anxious to avoid missing out on digitalization can make attractive acquisition targets for funds pursuing a buy-and-build strategy that merges small assets with large, digitally enabled platforms.”
Purchasing health IT assets that could reduce costs was an influential factor in the $332 billion corporate deals in 2017. Healthcare providers accounted for the majority of equity buyout activity, totaling $18.9 billion last year.
Jeff B. Swearingen, managing director of Edgemont Capital Partners, told FierceHealthcare earlier this year that technology demands were likely to drive physician practice mergers and acquisitions. Dignity Health CFO Dan Morissette also noted that increasing the system’s scale increases its data collection capabilities.
There was particular interest in health IT firms in the biopharmaceutical industry, where companies are leaning on data and analytics to develop drugs more efficiently. Bain analysts also pointed to EHRs and practice management tools serving small ambulatory care providers where private equity firms see an opportunity to consolidate IT vendors.
Revenue cycle management, clinical decision support and population health management are other areas of interest for investors.
Meanwhile, a new report (PDF) from PwC shows the healthcare industry outpaced telecommunications and software sectors, bringing in $5.3 billion in venture funding during the first quarter of 2018. While digital health funding is down compared to last year’s Q1, more money has gone to early-stage and expansion-stage funding.