Average multiples in HealthTech M&A during 2023

Exec Summary

Overall, 2023 presented a mixed picture for HealthTech M&A.?While the sector retained significant investor interest and exhibited promising growth in certain areas,?the broader economic context impacted valuations and slowed down the pace of deals.

The average multiples in HealthTech M&A declined in 2023 compared to 2022. Here's a quick recap of the key points:

Overall decrease:

• EV/Sales: Down from 5.6x in 2022 to 4.5x in 2023 (a decrease of 20%)
• EV/EBITDA: Down from 12.5x in 2022 to 11.0x in 2023 (a decrease of 12%)

Averages by sub-sector:

• Telehealth: 5.5x
• Wellness: 4.0x
• Drug discovery: 7.0x
• Medical devices: 5.0x
• Healthcare IT: 3.5x

Whether 2023 was a good or bad year for HealthTech M&A depends on your perspective and what criteria you prioritize. Here's a balanced view:

Positives:

• Continued activity: Despite the decline in multiples compared to 2022, the HealthTech M&A market remained active in 2023. This suggests that investors still see significant potential in the sector and are willing to invest, even with a more cautious approach.
• Consolidation opportunities: The decline in valuations could create opportunities for strategic acquisitions and mergers, enabling companies to expand their reach and market share.
• Focus on fundamentals: The increased scrutiny on profitability and long-term prospects could lead to a more sustainable and healthy M&A market in the long run.

Negatives:

• Lower valuations: The decline in multiples means that companies are fetching lower prices than they might have in previous years. This could impact the ability of some startups to raise capital and scale their businesses.
• Investor uncertainty: Macroeconomic factors like inflation and interest rate hikes continue to create uncertainty, which could dampen investor appetite for M&A in the near future.
• Slower deal pace: Compared to the record-breaking pace of 2022, the number of M&A deals might have decreased in 2023, reflecting the cautiousness of investors.

Corporate Development for Healthcare Technology companies in EMEA

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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.

Key trends driving strategic healthtech acquisitions:

Here are some of the specific trends that are driving strategic healthtech acquisitions in today's market:

• The increasing demand for digital health solutions:?The aging population and the growing prevalence of chronic diseases are driving the demand for digital health solutions. This is creating opportunities for healthtech companies that offer products and services that can improve the quality of care and reduce costs.
• The rise of artificial intelligence and machine learning:?Artificial intelligence and machine learning are rapidly transforming the healthcare industry. These technologies are being used to develop new diagnostic tools, improve the efficiency of clinical workflows, and personalize treatment plans.
• The growing focus on preventive care:?The healthcare industry is shifting its focus from reactive care to preventive care. This is creating opportunities for healthtech companies that offer products and services that can help people stay healthy.
• The increasing regulatory scrutiny:?The healthcare industry is heavily regulated. This can make it difficult for healthtech companies to bring new products and services to market. However, it also creates opportunities for companies that can help healthcare organizations comply with regulations.

Overall, the strategic healthtech acquisition market is very active.

There are a number of factors driving this activity, including the increasing demand for digital health solutions, the rise of artificial intelligence and machine learning, the growing focus on preventive care, and the increasing regulatory scrutiny.

Key priorities for strategic healthtech acquirers:

The key priorities for strategic HealthTech acquirers are:

• Growth:?Strategic acquirers are looking for companies that can help them grow their businesses. This could mean acquiring companies that operate in new markets, offer new products or services, or have a strong customer base.
• Innovation:?Strategic acquirers are also looking for companies that are innovative and can help them stay ahead of the competition. This could mean acquiring companies that are developing new technologies or have a strong track record of innovation.
• Market share:?Strategic acquirers may also be looking to acquire companies that will give them a larger market share. This could be in a specific market or in the overall healthtech market.
• Competitive advantage:?Strategic acquirers may also be looking to acquire companies that will give them a competitive advantage. This could be through access to new technologies, markets, or customers.
• Revenue:?Strategic acquirers may also be looking to acquire companies that will generate additional revenue. This could be through the sale of products or services, or through the expansion of the acquirer's existing business.
• Profitability:?Strategic acquirers may also be looking to acquire companies that are profitable. This could mean acquiring companies that have a strong track record of profitability or that have the potential to become profitable in the future.
• Exit strategy:?Strategic acquirers may also have an exit strategy in mind, such as taking the acquired company public or selling it to another company. This will affect the type of company they are looking to acquire and the price they are willing to pay.

The Future of HealthTech M&A

The future of HealthTech M&A is likely to be shaped by several key trends:

1. Rising Healthcare Costs and Pressure on Payers:?Healthcare costs are rising at an alarming rate, putting pressure on payers, such as insurance companies and government programs. This is driving a demand for M&A activity that can help to improve efficiency and reduce costs.
2. Technological Innovation:?The healthcare industry is undergoing a period of rapid technological innovation, with the emergence of new technologies such as artificial intelligence, robotics, and genomics. This is creating opportunities for M&A activity that can help companies to acquire new technologies and capabilities.
3. Changing Consumer Expectations:?Consumers are becoming more informed and demanding about their healthcare experiences. They are increasingly looking for personalized, convenient, and affordable care. This is driving a demand for M&A activity that can help companies to meet these evolving consumer expectations.
4. Global Expansion:?The healthcare industry is becoming increasingly globalized, with companies expanding into new markets to reach a wider patient base. This is creating opportunities for M&A activity that can help companies to enter new markets and gain access to new technologies and talent.
5. Regulatory Landscape:?The regulatory landscape for healthcare M&A is complex and constantly evolving. Companies need to carefully consider the regulatory implications of any acquisition before proceeding.

Here are some specific examples of how these trends are likely to shape the future of HealthTech M&A:

• We will see more deals between payers and providers:?Payers are looking to acquire providers to gain more control over the healthcare system and improve their ability to manage costs. Providers are looking to acquire payers to gain access to new patient populations and improve their financial stability.
• We will see more deals between technology companies and healthcare companies:?Technology companies are looking to acquire healthcare companies to gain access to new markets and new data sources. Healthcare companies are looking to acquire technology companies to improve their ability to collect, analyze, and use data to improve patient care.
• We will see more deals between healthcare companies and consumer-facing companies:?Healthcare companies are looking to acquire consumer-facing companies to improve their ability to reach and engage with patients. Consumer-facing companies are looking to acquire healthcare companies to gain access to new data and insights into the healthcare industry.

Overall, the future of HealthTech M&A is bright. The industry is undergoing a period of rapid change and innovation, and M&A is playing a key role in driving this transformation. As these trends continue to develop, we can expect to see even more M&A activity in the healthcare sector in the years to come.

Corporate Development for Healthcare Technology companies in EMEA

Healthcare Technology Thought Leadership from Nelson Advisors – Market Insights, Analysis & Predictions. Visit https://www.healthcare.digital?

HealthTech Corporate Development - Buy Side, Sell Side, Growth & Strategy services for Founders, Owners and Investors. Email [email protected] ?

HealthTech M&A Newsletter from Nelson Advisors - HealthTech, Health IT, Digital Health Insights and Analysis. Subscribe Today! https://lnkd.in/e5hTp_xb?

HealthTech Corporate Development and M&A - Buy Side, Sell Side, Growth & Strategy services for companies in Europe, Middle East and Africa. Visit www.nelsonadvisors.co.uk ?