Another trend in digital health M&A is startups merging with each other to bring complementary services together, Padmanabhan said. Companies such as Grand Rounds Health and Doctor On Demand, and big technology firms, are building out their offerings by acquiring digital health companies.
Provider-focused companies "dominated" M&A activity in the second quarter, comprising 43 of 73 transactions, according to Mercom. That includes Microsoft Corp.'s planned $19.7 billion purchase of Nuance Communications—the priciest acquisition so far this year—and Optum's pending $13 billion purchase of Change Healthcare, which the U.S. Justice Department is reviewing.
M&A remains the most common exit strategy for digital health startups, but initial public offerings have experienced a sizable uptick in recent years.
In 2019, a handful of digital health companies made waves when they went public within weeks of each other—ending a nearly three-year drought in digital health IPOs. Since then, these offerings have become more common, with 10 IPOs in the first half of 2021 and six in 2020.
Digital health "wasn't a business model that many folks understood," said Stephanie Davis, a senior research analyst who covers healthcare technology at investment bank SVB Leerink. The COVID-19 pandemic changed that by demonstrating that digital tools can be integrated into care delivery.
A handful of "category-creating" businesses that aren't yet part of a broader sector with many competitors, such as prescription discount provider GoodRx and clinical networking service Doximity, also have gone public. GoodRx's IPO took place late last year and Doximity went public in June.
"Investors are now showing that they are interested and willing and able to spend time ramping up on the health-tech side of the world," Davis said.
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