- Lloyd Price
HealthTech M&A multiples: Current Trends and Variables driving valuations Mid 2024
Exec Summary:
The average revenue multiple for HealthTech companies mid 2024 is 4.8x. This is down from 6.5x in 2023 but still higher than the average revenue multiple for all technology companies, which is 3.5x.
The higher revenue multiple for HealthTech companies reflects the fact that the healthcare market is growing rapidly and there is a lot of demand for innovative digital health solutions.
The average revenue multiples for different types of HealthTech companies in 2024 are:
Telehealth companies: 5.5x to 4.7x
Wellness companies: 4.0x to 3.2x
Drug discovery companies: 7.0x to 5.5x
Medical device companies: 5.0x to 4.0x
Healthcare IT companies: 3.5x to 2.5x
As you can see, drug discovery companies tend to have the highest average revenue multiples, reflecting the high-risk, high-reward nature of the sector. Telehealth and medical device companies also command relatively high valuations due to their significant growth potential. Wellness and healthcare IT companies typically have lower multiples, but this can vary depending on their specific niche and business model.
10 Key Variables in HealthTech M&A valuation multiples today are:
Stage of the company's development: Early-stage companies are typically valued at a lower multiple than more mature companies.
Size of the company: Larger companies are typically valued at a higher multiple than smaller companies.
Intellectual property portfolio: Companies with valuable intellectual property are typically valued at a higher multiple.
Quality of the management team: A strong management team can add value to a company and may lead to a higher valuation.
Revenue growth: This is one of the most important factors in determining the valuation of a healthtech company. Companies with strong revenue growth are typically valued at a premium to those with slower growth.
Gross margin: Gross margin is a measure of a company's profitability. Companies with higher gross margins are typically valued at a premium to those with lower margins.
Customer acquisition costs: Customer acquisition costs (CAC) are the costs associated with acquiring new customers. Companies with lower CACs are typically valued at a premium to those with higher CACs.
Market share: Market share is a measure of a company's dominance in its industry. Companies with a large market share are typically valued at a premium to those with a smaller market share.
Regulatory landscape: The regulatory landscape for healthtech is constantly evolving. Companies that operate in industries with a favourable regulatory environment are typically valued at a premium to those that operate in industries with a more challenging regulatory environment.
Technology moat: A technology moat is a competitive advantage that makes it difficult for other companies to compete with a company. Companies with a strong technology moat are typically valued at a premium to those that do not have a moat.
Mergers, Acquisitions, Growth and Strategy for Healthcare Technology companies
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HealthTech M&A valuation multiples
HealthTech M&A valuation multiples are a set of metrics used to determine the value of a HealthTech company in an acquisition or merger.
These multiples are typically based on financial metrics 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.
Some of the most commonly used HealthTech M&A valuation multiples include:
Enterprise value (EV) to sales: This multiple is the most common way to value healthtech companies. It is calculated by dividing the company's enterprise value (EV) by its trailing 12-month revenue.
EV to EBITDA: This multiple is used to measure a company's profitability. It is calculated by dividing the company's EV by its earnings before interest, taxes, depreciation, and amortization (EBITDA).
Price to earnings (P/E) ratio: This multiple is used to measure a company's valuation relative to its earnings. It is calculated by dividing the company's stock price by its earnings per share (EPS).
Price to sales (P/S) ratio: This multiple is used to measure a company's valuation relative to its sales. It is calculated by dividing the company's stock price by its trailing 12-month revenue.
The specific multiple that is used to value a HealthTech company will depend on a number of factors, including the company's stage of development, growth prospects, market position, and other relevant factors. However, the multiples listed above are a good starting point for understanding how HealthTech companies are valued in M&A transactions.
It is important to note that valuation multiples are just one factor that is considered when valuing a healthtech company. Other factors, such as the company's management team, its intellectual property, and its strategic positioning, can also play a role in determining the company's valuation.
Here are some of the recent trends in HealthTech M&A valuation multiples:
Valuation multiples vary depending on the sub-sector of healthtech. For example, companies in the telehealth sector typically command higher valuation multiples than companies in the medical device sector.
Valuation multiples are also affected by the stage of development of the company. Companies that are still in the early stages of development typically command lower valuation multiples than companies that are more mature.
Valuation multiples have been increasing in recent years. This is due to a number of factors, including the growing demand for digital health solutions, the increasing investment in healthtech by venture capitalists, and the favorable regulatory environment for healthtech companies.
Current HealthTech M&A valuation multiples
In terms of valuation, the 10 Key Variables in HealthTech M&A valuation multiples today are:
Stage of the company's development: Early-stage companies are typically valued at a lower multiple than more mature companies.
Size of the company: Larger companies are typically valued at a higher multiple than smaller companies.
Intellectual property portfolio: Companies with valuable intellectual property are typically valued at a higher multiple.
Quality of the management team: A strong management team can add value to a company and may lead to a higher valuation.
Revenue growth: This is one of the most important factors in determining the valuation of a healthtech company. Companies with strong revenue growth are typically valued at a premium to those with slower growth.
Gross margin: Gross margin is a measure of a company's profitability. Companies with higher gross margins are typically valued at a premium to those with lower margins.
Customer acquisition costs: Customer acquisition costs (CAC) are the costs associated with acquiring new customers. Companies with lower CACs are typically valued at a premium to those with higher CACs.
Market share: Market share is a measure of a company's dominance in its industry. Companies with a large market share are typically valued at a premium to those with a smaller market share.
Regulatory landscape: The regulatory landscape for healthtech is constantly evolving. Companies that operate in industries with a favourable regulatory environment are typically valued at a premium to those that operate in industries with a more challenging regulatory environment.
Technology moat: A technology moat is a competitive advantage that makes it difficult for other companies to compete with a company. Companies with a strong technology moat are typically valued at a premium to those that do not have a moat.
Future HealthTech valuations on public markets in 2024
Predicting the future is tricky, but here's what we can glean about HealthTech valuations on public markets in 2024:
Possible reasons for a rebound:
Large addressable market: The global healthcare market is expected to be massive (around $10 trillion by 2024) offering a lot of room for HealthTech companies to grow
Digital health adoption: Digital health solutions are increasingly popular due to their potential to improve efficiency, patient engagement, and overall healthcare outcomes
Upward trend (as of April 2024): There has been a slight upward trend in HealthTech valuations since late 2023, suggesting a potential rebound
Potential roadblocks:
Macroeconomic headwinds: Rising interest rates and inflation make future cash flows less predictable, which can dampen investor enthusiasm
Recession fears: Investors may be more cautious and prioritize safer investments during a potential recession, reducing their appetite for riskier HealthTech ventures
Overall:
The future of HealthTech valuations in 2024 remains uncertain. While there are positive signs like a large market opportunity and increasing adoption, economic factors could create headwinds.
Mergers, Acquisitions, Growth and Strategy for Healthcare Technology companies
HealthTech M&A - Buy Side, Sell Side, Growth & Strategy services for companies in Europe, Middle East and Africa. Visit www.nelsonadvisors.co.uk
HealthTech M&A Newsletter from Nelson Advisors - HealthTech, Health IT, Digital Health Insights and Analysis. Subscribe Today! https://lnkd.in/e5hTp_xb
Healthcare Technology Buy Side, Sell Side, Growth & Strategy services for Founders, Owners and Investors. Email lloyd@nelsonadvisors.co.uk
Healthcare Technology Thought Leadership from Nelson Advisors – Market Insights, Analysis & Predictions. Visit https://lnkd.in/ezyUh5i
