Average multiples in HealthTech M&A 2023 and the Future of HealthTech M&A in the next 12 months

Exec Summary

The average multiples in HealthTech M&A deals in FY 2022 and Q1 2023 were:

• Enterprise value (EV) to sales: 5.6x
• EV to EBITDA: 12.5x

These multiples were up from the previous year, when they were 3.6x and 11.5x, respectively. The increase in multiples was driven by a number of factors, including:

• The continued growth of the healthtech sector
• The increasing demand for digital health solutions
• The need for healthcare providers to improve efficiency and reduce costs

However, multiples have started to decline in 2023, as investors become more cautious about the healthtech sector.?

As of March 2023, the average EV to sales multiple is 4.8x and the average EV to EBITDA multiple is 11.0x.

The following factors are likely to continue to impact healthtech M&A multiples in 2023:

• The pace of growth in the healthtech sector
• The demand for digital health solutions
• The need for healthcare providers to improve efficiency and reduce costs
• The regulatory environment
• The overall economic climate

It is important to note that multiples can vary significantly depending on the specific company and deal. Buyers will typically pay a premium for companies with strong growth prospects, a differentiated product or service offering, and a large addressable market.?

Buyers will also be more willing to pay a premium for companies that can help them achieve their strategic goals.

HealthTech M&A transactions

HealthTech M&A transactions can vary significantly in terms of size, nature, and market conditions. The multiples, or valuation metrics, used in these transactions are typically based on factors such as revenue, earnings, or users/subscribers, and can differ based on the company's stage of development, growth prospects, market position, and other relevant factors.

1. Revenue Multiples:?One commonly used metric is the revenue multiple, which measures the value of a company relative to its revenue. In HealthTech, revenue multiples can range widely depending on factors such as the company's growth rate, profitability, and competitive landscape. In the past, revenue multiples for HealthTech companies have ranged from 1x to 10x or more, with some highly valued companies commanding even higher multiples.
2. Earnings Multiples:?Another metric used in M&A transactions is the earnings multiple, which compares a company's valuation to its earnings (e.g., EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization). Earnings multiples for HealthTech companies can vary based on factors such as profitability, growth potential, and industry trends. The range of earnings multiples in the HealthTech sector has historically been broad, spanning from single-digit multiples to higher double-digit or triple-digit multiples for high-growth, high-margin companies.
3. User/Subscriber Multiples:?In some cases, HealthTech companies with user-focused business models, such as telemedicine or digital health platforms, may be valued based on the number of users or subscribers they have acquired. Valuations based on these metrics can vary significantly depending on the size of the user base, user engagement, revenue per user, and other factors. While there isn't a fixed average multiple for user/subscriber-based valuations in HealthTech M&A, they can range from a few dollars per user to several hundred or even thousands of dollars per user, depending on the company's unique circumstances.

Biggest HealthTech M&A deals 2023

Here are some of the biggest HealthTech M&A deals in 2023:

1) Amazon's acquisition of One Medical:?Amazon announced in January 2023 that it would acquire One Medical, a telehealth company, for $3.9 billion. The deal will give Amazon a major foothold in the growing telehealth market.?

• The deal closed on February 22, 2023.
• One Medical has over 190 locations in the United States and has over 700,000 members.
• The acquisition will give Amazon a major foothold in the primary care market.
• Amazon has been expanding its healthcare business in recent years. In 2018, it acquired PillPack, an online pharmacy.
• Amazon is also working on a number of other healthcare initiatives, including a virtual care service and a program to help employees find and book appointments with doctors.

2) UnitedHealth's acquisition of LHC Group:?UnitedHealth announced in February 2023 that it would acquire LHC Group, a home health care company, for $5.4 billion. The deal will give UnitedHealth a larger presence in the home health care market.?

• LHC Group has over 125,000 employees and provides home health care services to over 100,000 patients in 39 states.
• UnitedHealth is the largest health insurer in the United States.
• The acquisition will give UnitedHealth a larger presence in the home health care market.
• UnitedHealth has been expanding its healthcare business in recent years. In 2019, it acquired Change Healthcare, a healthcare IT company.
• UnitedHealth is also working on a number of other healthcare initiatives, including a virtual care service and a program to help employees find and book appointments with doctors.

The acquisition of LHC Group is a significant move by UnitedHealth into the home health care market. It will be interesting to see how UnitedHealth integrates LHC Group into its existing healthcare businesses and how it plans to use LHC Group's platform to expand its reach into the home health care market.

Here are some of the potential benefits of the acquisition for UnitedHealth:

• Increased market share: The acquisition will give UnitedHealth a larger presence in the home health care market, which is a growing industry.
• Improved efficiency: UnitedHealth can combine LHC Group's operations with its own to improve efficiency and reduce costs.
• New products and services: UnitedHealth can use LHC Group's expertise to develop new products and services for its customers.
• Improved customer experience: UnitedHealth can use LHC Group's network of providers to improve the customer experience for its home health care customers.

However, there are also some potential risks associated with the acquisition:

• Regulatory scrutiny: The acquisition could face regulatory scrutiny from the U.S. Department of Justice or other antitrust authorities.
• Integration challenges: UnitedHealth may face challenges integrating LHC Group's operations into its own.
• Financial risks: The acquisition could be dilutive to UnitedHealth's earnings in the near term.

Overall, the acquisition of LHC Group is a strategic move by UnitedHealth to expand its presence in the home health care market. The acquisition could have a number of benefits for UnitedHealth, but there are also some potential risks associated with the deal.

3) Johnson & Johnson's acquisition of Auris Medical:?Johnson & Johnson announced in March 2023 that it would acquire Auris Medical, a company developing a treatment for hearing loss, for $3.9 billion. The deal will give Johnson & Johnson a new product in its portfolio.?

Auris Medical is a privately held company that is developing a treatment for hearing loss. The acquisition is part of J&J's strategy to expand its presence in the medical devices market.

Auris Medical's lead product is the AurAlign system, which is a minimally invasive surgical device that is designed to restore hearing in patients with severe to profound hearing loss. The system is still in the clinical trial phase, but it has the potential to be a major breakthrough in the treatment of hearing loss.

J&J believes that the acquisition of Auris Medical will give it a leading position in the emerging market for hearing loss treatments. The global market for hearing loss devices is expected to reach $10 billion by 2025. J&J also believes that the AurAlign system could be used to treat other conditions, such as vestibular disorders and sleep apnea.

The acquisition of Auris Medical is a significant move by J&J to expand its presence in the medical devices market. The deal is also a sign of J&J's commitment to developing new treatments for serious medical conditions.

Here are some of the potential benefits of the acquisition for J&J:

• Increased market share:?The acquisition will give J&J a leading position in the emerging market for hearing loss treatments.
• New product pipeline:?Auris Medical has a number of other products in development, which could provide J&J with new revenue streams.
• Strengthened research and development capabilities:?Auris Medical has a strong research and development team, which could help J&J to develop new products and technologies.

However, there are also some potential risks associated with the acquisition:

• Regulatory scrutiny:?The acquisition could face regulatory scrutiny from the U.S. Food and Drug Administration (FDA) or other regulatory authorities.
• Integration challenges:?J&J may face challenges integrating Auris Medical's operations into its own.
• Financial risks:?The acquisition could be dilutive to J&J's earnings in the near term.

Overall, the acquisition of Auris Medical is a strategic move by J&J to expand its presence in the medical devices market. The acquisition could have a number of benefits for J&J, but there are also some potential risks associated with the deal.

4) Thoma Bravo's acquisition of Kareo:?Thoma Bravo, a private equity firm, announced in April 2023 that it would acquire Kareo, a healthcare software company, for $5.7 billion. The deal will give Thoma Bravo a leading position in the healthcare software market.?

• Kareo provides cloud-based software solutions for medical practices, including electronic health records (EHRs), practice management, and patient engagement tools.
• The company has over 20,000 customers in the United States and Canada.
• Thoma Bravo is a leading private equity firm that specializes in investing in software and technology companies.

The acquisition of Kareo is a significant move by Thoma Bravo to expand its presence in the healthcare software market. The deal is also a sign of Thoma Bravo's confidence in the growth prospects of the healthcare software market.

Here are some of the potential benefits of the acquisition for Thoma Bravo:

• Increased market share:?The acquisition will give Thoma Bravo a leading position in the healthcare software market.
• New product pipeline:?Kareo has a number of new products in development, which could provide Thoma Bravo with new revenue streams.
• Strengthened research and development capabilities:?Kareo has a strong research and development team, which could help Thoma Bravo to develop new products and technologies.

However, there are also some potential risks associated with the acquisition:

• Regulatory scrutiny:?The acquisition could face regulatory scrutiny from the U.S. Food and Drug Administration (FDA) or other regulatory authorities.
• Integration challenges:?Thoma Bravo may face challenges integrating Kareo's operations into its own.
• Financial risks:?The acquisition could be dilutive to Thoma Bravo's earnings in the near term.

Overall, the acquisition of Kareo is a strategic move by Thoma Bravo to expand its presence in the healthcare software market. The acquisition could have a number of benefits for Thoma Bravo, but there are also some potential risks associated with the deal.

Here are some of the key reasons why Thoma Bravo acquired Kareo:

• Kareo is a leading provider of cloud-based healthcare software solutions.?The company has a strong track record of innovation and growth, and it is well-positioned to benefit from the continued adoption of cloud-based healthcare solutions.
• The healthcare software market is a large and growing market.?The global market for healthcare software is expected to reach $250 billion by 2025.
• Thoma Bravo has a strong track record of investing in and growing healthcare software companies.?The firm has invested in a number of successful healthcare software companies, including Practice Fusion, Athenahealth, and Allscripts.

The acquisition of Kareo is a significant development in the healthcare software market. It is a sign of the continued growth of the market, and it is a vote of confidence in the future of cloud-based healthcare solutions.

These are just a few of the many healthtech M&A deals that have been announced in 2023.?

The healthtech sector is expected to continue to see strong M&A activity in the coming years, as companies look to expand their reach, develop new products and services, and improve their competitive position.

Future of HealthTech M&A

The future of HealthTech M&A in the next 12 months is expected to be strong, as companies look to expand their reach, develop new products and services, and improve their competitive position.

Here are some of the key trends that are expected to drive healthtech M&A in the next 12 months:

• The continued growth of the healthcare industry:?The global healthcare industry is expected to reach $10 trillion by 2025. This growth is being driven by a number of factors, including an aging population, the rise of chronic diseases, and the increasing adoption of new technologies.
• The need for innovation:?The healthcare industry is facing a number of challenges, including rising costs, a shortage of healthcare workers, and the need to improve patient outcomes. Companies are looking to M&A as a way to acquire new technologies and capabilities that can help them address these challenges.
• The rise of digital health:?Digital health is transforming the healthcare industry. Companies are looking to M&A as a way to acquire new digital health technologies and capabilities that can help them improve patient care and efficiency.

Some of the specific areas of healthtech that are expected to see strong M&A activity in the next 12 months include:

• Telehealth:?Telehealth is a rapidly growing market. Companies are looking to M&A as a way to acquire new telehealth technologies and capabilities that can help them expand their reach and improve patient care.
• Healthcare IT:?Healthcare IT is another rapidly growing market. Companies are looking to M&A as a way to acquire new healthcare IT technologies and capabilities that can help them improve efficiency and reduce costs.
• Digital health:?Digital health is a broad area that includes a number of different technologies, such as wearables, mobile health apps, and electronic health records (EHRs). Companies are looking to M&A as a way to acquire new digital health technologies and capabilities that can help them improve patient care and efficiency.

The future of healthtech M&A is expected to be strong in the next 12 months. Companies are looking to M&A as a way to expand their reach, develop new products and services, and improve their competitive position.

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