Interest in HIT mergers and acquisitions remains very high, although buyers are becoming more selective in the companies they’re considering.

Potential buyers include software vendors, consumer product companies and new entrants into the HIT market, says Christopher McCord, managing director at Healthcare Growth Partners, an HIT investment and merchant bank which publishes an annual study of the status and future of health information technology.

Purchasers’ appetites for the type of targets haven’t changed substantially, primarily focusing on companies in eight sectors: wellness/fitness; revenue cycle management; population health/data analytics/clinical decision support; care coordination/telemedicine; infrastructure; specialty applications, EHR/clinical documentation; and benefits management.

McCord, however, offers some caveats to the study. Healthcare Growth Partners surveyed 400 companies and got 80 responses, so the size of the sample is small. Those who responded definitely have an interest in HIT, and those with less interest generally don’t respond. But HIT was a core interest for most respondents.

One notable difference from last year is that respondents now are being more selective in buying small companies that generate $5 million or less in revenue. Some 70 percent of respondents said they would look at these companies, compared with 85 percent a year ago. When targeting startups, buyers are looking at those with more revenue that can contribute to top-line revenue for the acquiring company.

This shows a shift in focus, as acquiring companies appear to be valuing performance more and targeting companies that can deliver a solution that can scale, McCord says. Buyers of newer companies have learned that some level of maturity matters, and their appetite for risk is lower than it was previously, he adds.

Some have bought a very small company and found it was much harder to scale than first believed, so now they prefer to buy one that’s more mature, even if the purchase price is higher because of the lower risk. “Buyers are looking at how the market receives a platform, not just a concept,” notes Amit Aysola, a principal at Healthcare Growth Partners.

Some vendors and investors are making strategic entries into the market by making investments to get exposure and learn the market without going all-in, McCord says. Examples of these collaborations include Cerner, Cedars Sinai, Providence Health & Services, University of Pittsburgh Medical Center, Optum, Aetna, Highmark and other Blues plans, and Kaiser, among others.

In the investment arena, many experts wonder whether healthcare IT is too highly valued, and that could result in falling share prices and loss of investor interest. McCord isn’t sure either and is hedging his bets. “The market is strong, but there is a lot of naïve capital coming in with unrealistic expectations”

However, there has been little change in investment activity, as HIT M&A continues at a healthy clip, and overall metrics are strong, McCord adds. “Policy programs driving healthcare reform require a lot of HIT to address issues, and they’re just going to continue to hit the market.”

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