Healthcare is in a really fascinating place right now especially given some of the craziness that’s happening in the world. We see a lot of things happening and they are often hard to reconcile. This is particularly true in the world of healthcare M&A. Plus, this applies to healthcare organization M&A and also health IT company M&A.
Ed Marx, CEO at Divurgent, offered this perspective on what’s happened and is going to happen with M&A on the healthcare provider side of things.
M&A is here to stay. Our team are former hospital leaders who have lived M&A and can partner with you as need to ensure success. https://t.co/SQo8ftLHze
— Edward Marx (@marxtango) August 10, 2022
I agree with Ed. M&A on the provider side of things is here to stay. I wondered if we’d reach a point that healthcare organizations were just too large to acquire each other, but we’ve seen that even some of the largest healthcare organizations are happy to merge. Hard to see anything that points to why this will stop. In fact, if the economy starts hammering some healthcare provider organizations that aren’t on good financial footing, that’s an opportunity for the larger health systems with billions in the bank to come in and acquire them on the cheap. Beyond these large organization acquisitions, we’re going to see plenty of health systems continue to buy up practices, surgery centers, etc.
On the health IT company side of things, we’re seeing some very different dynamics at play. Many are saying that we’ve entered a health IT funding “winter” where the cash isn’t flowing like it was even 3-6 months ago. There are some charts that show this decrease and it mirrors a lot of the charts you see for funding in a lot of other industries. We also see many health IT companies cutting staff to lower their burn rate and extend their cash runway for when they’ll need money again. Of course, if you run out of runway, that’s the perfect time for a larger health IT company with cash to come acquire you on the cheap as well.
While it’s hard to argue the raw numbers, it’s hard for me to reconcile this supposed “winter” we’re in versus the number of healthcare IT fundings and healthcare IT M&A announcements we’re sharing here on Healthcare IT Today. It’s not quite as hot and heavy as it was at the start of 2022, but it’s not that far off either. It still seems like there’s plenty of cash available for health IT companies that are having success in healthcare. Plus, health IT companies are still getting acquired as part of other company’s strategic plans.
The real question is will this continue? I think it will when you see how successful health IT companies have been. Plus, there are a lot of other companies that want to get into the healthcare space that have cash. Also, all of those companies that have raised money over the last 4-5 years are now going to be looking to their future. After a number of health IT IPOs that have gone south, my guess is that many health IT companies will be looking the M&A route vs going public.
One word of caution is that I see some people out there saying that healthcare is somewhat immune to recession. I think it’s fair to say that’s true for some parts of healthcare. I’m still going to the hospital if I have a heart attack. However, that’s not true for elective or semi-elective procedures that don’t have an emergent need. For example, I may put off that profitable knee surgery if I’m having economic issues. Plus, the unknown is often a reason healthcare pulls back on spending. I expect we’ll see that more than many realize.
What’s your view of what’s going to happen with M&A in healthcare? Are we going to see a slowdown or will it continue on its current pace? Let us know in the comments or on social media.
