Two recent reports suggest soaring investor interest in the healthcare information technology sector, citing high growth rates for its companies and rapid transformation in the industry, leaving providers in search of IT solutions.
Investor interest in healthcare information technology is higher than ever, with venture capital funding reaching $1.4 billion in the first quarter of 2016, according to data from Mercom Capital Group.
A recent Mercom report on venture funding and mergers shows that private equity and corporate venture capital in healthcare information technology and digital health sector increased 27 percent, compared with $1.1 billion in investment in the fourth quarter of 2015.
The growth is even more stunning when compared with the same quarter of first year. Mercom said investment in the first three months was 74 percent more than in the first three months of 2015.
Some 146 deals were reported in the most recent quarter, compared with 145 in the last three months of 2015.
“The health IT sector is off to an impressive start this year, with significant funding activity led by wearable’s, data analytics and telemedicine,” said Raj Prabhu, CEO and co-founder of Mercom.
“Data analytics and telemedicine companies reached a significant milestone, each crossing $1 billion in funding raised to date,” he added.
The biggest percentage increase in investment came in companies serving healthcare businesses. Healthcare practice-centric companies received 42 percent of the funding in the first quarter of 2016, raising $569 million in 49 deals; that was 58 percent more than the sector raised in the fourth quarter of 2015. Consumer-focused companies received $796 million in 97 deals, about 12 percent more than the segment raised in the fourth quarter of 2015.
According to Mercom, companies in the wearable or sensors sector raised $260 million in the first quarter; data analytics companies received $197 in VC funding; telemedicine companies got $171 million; developers of mHealth apps received $120 million; and companies in the consumer health information and education space, received $100 million.
The top VC deals in the first quarter included Flatiron Health, a cloud-based cancer research company, $165 million; Jawbone, a wearable technology company, $165 million; Healthline Media, a consumer health website developer, $95 million; and Health Catalyst, a data warehouse and analytics company, $70 million.
Mercom, which also reports on merger and acquisition activity in the sector, noted 58 M and A transactions in the healthcare IT sector in the first quarter of 2016, the highest reported number of such transactions ever reported by Mercom. By contrast, there were 53 transaction in the fourth quarter of 2015.
The Top five disclosed merger and acquisition transactions were the $2.75 billion acquisition of MedAssets by Pamplona Capital Management, the $2.6 billion acquisition of Truven Health Analytics by IBM, the $950 million acquisition of Netsmart Technologies by Allscripts, the $140 million acquisition of CenTrak by Halma, and the $119 million acquisition of MedicalDirector by Affinity Equity Partners.
Meanwhile, a report from Berkery Noyes, an investment banking firm, reported that merger and acquisition activity in the healthcare IT segment rose to $17.1 billion in 2015, up 4 percent compared with $16.4 billion in 2014. The number of transactions increased 15 percent in 2015, compared with the previous year.
“In the rapidly changing healthcare and information technology marketplace, both strategic and financial buyers are on the hunt for acquisitions of scale,” the Berkery Noyes report says. “Companies with recurring revenue, high growth rates and a large addressable market opportunity are in demand.”
Transitions caused by reform, cost pressures, changes in the roles of providers and payers, and increased regulation also are encouraging merger and acquisition activity.
“The buyer universe for healthcare IT solution providers has expanded due to the fierce battle underway from all firms along the technology curve,” the report said. “Many acquirers are looking for opportunities that increase reimbursement, ensure compliance and lower costs.”
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