The Covid-19 pandemic spurred a rapid expansion of health tech companies, and new market realities post pandemic meant it was only a matter of time before some consolidated. Indeed, investors in recent years predicted greater M&A activity only to never see it materialize either in 2024 or 2025.
But 2026 may be the year the predictions do come true. Consider the deals announced in just over a month:
- Musculoskeletal provider Sword Health acquired Kaia Health, another musculoskeletal company, for $285 million
- Spring Health acquired Alma, both of which are mental health companies
- OCD provider NOCD acquired Rebound Health, a provider focused on trauma
- Women’s health company Wisp acquired TBD Health, a sexual health startup
- OpenAI acquired Torch, a health data company, for $60 million
According to one investor, the uptick in dealmaking signals a maturation of the sector.
“The acquirers are venture-backed digital health companies,” said Neil Patel, head of ventures at Redesign Health. “They are not health systems or payers playing defense. That’s a sign of category maturation. It’s tempting to compare this to the telehealth wave seven or eight years ago, when video tech commoditized and became a land grab for distribution. We’re not there yet. There’s still real product differentiation. These deals are more surgical. Each has its own logic: geographic expansion, category expansion, supply-side acquisition.”
Investors anticipate seeing more M&A activity throughout the year. However, the IPO market, which saw a slight resurgence last year with announcements from Hinge Health and Omada Health, will likely be a less popular route this year.
Why companies are combining
Keith Figlioli, managing partner of LRVHealth, believes there are two main reasons.
Many digital health companies are merging in an effort to scale or extend their financial runway after struggling to grow quickly, raise more capital or reach cash-flow breakeven, he said. Meanwhile, larger and more established players “are starting to see real value in tuck-in acquisitions that broaden their platform with unique capabilities or talent usually on the AI front.”
This seems to track with Sword and Spring Health’s acquisitions. A spokesperson for Sword told MedCity News that the company acquired Kaia to strengthen its leadership in AI care and allow the company to enter the German market.
For Spring Health, the acquisition of Alma brings established health plan relationships and in-network provider infrastructure, allowing the company to reach more patients.
“In mental health care, demand continues to outpace supply, and access alone is not enough,” said Adam Chekroud, president and co-founder of Spring Health. “Quality and continuity matter just as much. As people move between coverage types or levels of care, too many experience disruption. Bringing together complementary strengths allows us to build stronger infrastructure that supports consistent, high-quality care across those transitions.”
Define Ventures Partner Chirag Shah echoed this, stating that mental health companies stand to benefit the most from scale “because our persistent supply demand imbalance means that larger companies disproportionately benefit from differential payer relationships.”
Flare Capital Partners’ co-founder, Michael Greeley, noted that he’s been expecting this increase in M&A activity in digital health for sometime now, and this movement is positive as liquidity in this segment has long been absent.
He noted that the industry is starting to see a separation of “winners” from the rest of the pack. More successful deals are when companies that already have significant scale buy smaller assets. He pointed to the Sword deal as an example.
However, a less successful deal is when two subscale companies combine, though Greeley declined to cite examples.
“Those are really hard transactions to pull off,” he said. “In 2021, we set up something like 900 companies. A more normalized rate of new companies in the sector should be like 300 to 400. So it’s fully expected that you’d see consolidation, but combining two companies that are struggling doesn’t mean you’re going to have one company that’s thriving. You may just have a slightly larger company that’s still struggling. And when I say struggling, its growth is slower, and they still need to raise significant capital.”
He added that with payers facing more financial pressure — particularly after it was recently announced that Medicare Advantage plans will see essentially flat payment rates in 2027 — digital health companies that want to partner with them will need to be in a stronger position.
“Payers are going to have to kind of repurpose a lot of their benefit designs, and that means they may have to cut, drop some of these capabilities that the digital health companies are bringing to market or pay less for them,” Greeley said. He added that consolidation will create stronger companies that will have more leverage in negotiating with partners.
Another accelerant for M&A activity is the “hyper kinetic” pace of change in the technology space, Greeley declared. Companies that launched three to five years ago with technology once considered state-of-the-art, such as traditional SaaS models, may now struggle to compete with the latest AI capabilities. Like others, Greeley anticipates more mergers to create comprehensive solutions that can be brought to the market.
What to watch out for
So which sectors could see more consolidation?
Primary care, post-acute care, ancillary services and the technology that supports those areas are markets that would benefit the most, per Shah of Define Ventures. Figlioli also called out revenue cycle management, imaging/radiology, robotics and consumer health as areas to watch.
Meanwhile, the IPO market that showed signs of life last year may see less activity. Greeley expects more exits via M&A this year, rather than through the public markets.
“I think it’s less a reflection of the category, but more of the geopolitical turmoil that we’re all going through,” he said.
When it comes to IPOs, Abundant Venture Partners Senior Vice President Katie Edge expects them to be “targeted and well-validated exits” amid the lack of headline-dominating IPOs.
But IPO or M&A, the same fundamentals hold true.
“Companies with strong execution, clinical impact, and economic clarity remain the best positioned for IPO windows or strategic sales,” she stated.
Photo: designer491, Getty Images
