UK HealthTech M&A Market: What's Hot and What's Not in 2025 and looking ahead into 2026
- Nelson Advisors
- Sep 26
- 14 min read
Executive Summary: A Cautious but Resilient Rebound Defined by Bifurcation
The UK HealthTech mergers and acquisitions (M&A) market in 2025 is characterised by a "cautious yet discernible rebound". While global digital health funding has seen a decline, the European market, particularly within the UK, has demonstrated remarkable resilience, defying global trends with a significant surge in deal activity. This momentum is not uniform, however; it is marked by a profound bifurcation that separates the market into two distinct categories.
A "flight to quality" is directing a concentrated flow of capital towards high-quality, proven assets. The sub-sectors commanding the highest interest and premium valuations are those at the forefront of technological and operational transformation, particularly those focused on artificial intelligence (AI) and advanced analytics. These companies, with their strong fundamentals and clear value propositions, are attracting intense competition from both strategic and financial buyers.
Conversely, the market is also witnessing a surge in distressed M&A activity. A post-pandemic funding pullback and persistent economic pressures have created a class of smaller, unprofitable startups with unsustainable burn rates.
These firms are increasingly being acquired at "bargain-basement valuations" as a survival mechanism, rather than a growth strategy. This dynamic reshapes the ecosystem by consolidating power in fewer, stronger hands.
Looking ahead to 2026, this bifurcated landscape is expected to persist. The market's fundamental drivers, such as the UK government's ambitious £10 Billion NHS digital transformation plan and the immense private equity "dry powder" available for deployment, will continue to fuel a robust M&A environment.
The focus will intensify on companies with proven clinical validation and scalable, defensible business models, making M&A the primary and most pragmatic exit route for innovation as the IPO market remains challenged.
The 2025 UK HealthTech M&A Landscape: A Cautious but Resilient Rebound
Market Performance and Deal Flow
The first half of 2025 has established a clear trajectory for the UK and broader European HealthTech M&A markets. The European digital health funding landscape, in particular, saw an impressive 52% year-on-year increase in the first half of the year, reaching $3.4 Billion across 182 deals. This performance is particularly noteworthy because it runs contrary to the global digital health funding trend, which experienced a 13% year-on-year decline over the same period. The UK's HealthTech sector has been a key contributor to this regional strength, with the UK MedTech market alone projected to reach £15.7 Billion in 2025, and a steady growth forecast to £20.5 Billion by 2030.
Overall, deal volume for HealthTech M&A is on pace to exceed 2024's total. In the first half of 2025, there were 277 deals in HealthTech, which projects a full-year total well above the 467 deals recorded in 2024.Similarly, disclosed deal value is on a growth path, reaching $10.3 Billion in H1 2025, on pace to surpass the 2024 total of $19.2 Billion. However, it is important to note that only a small fraction (11%) of transactions disclose deal values, suggesting the actual value is significantly higher.
The resilience of this market is largely attributed to a concentration of capital in fewer but larger transactions. The first half of the year saw four mega deals of over $1 Billion globally. In Europe, a handful of large "mega-deals" valued at $100 Million or more drove a significant portion of the total venture capital investment, with seven such deals accounting for 56% of the region's total investment. This trend signifies a shift away from a "spray and pray" approach towards a more selective and strategic model of "high-conviction investment".
The divergence between the European market's performance and the global trend is a key indicator of the UK's unique value proposition. The UK's strong innovation capacity, supported by a clear governmental commitment to digital transformation, provides a more stable and predictable environment for scaling HealthTech solutions compared to other regions.
The NHS's long-term strategic plans and substantial investment create a powerful market signal and a ready customer base, which reduces regulatory uncertainty and makes the region a highly attractive destination for capital. This institutional demand and strategic clarity serve as a significant tailwind that helps to insulate the UK HealthTech sector from broader global macroeconomic pressures.
Macroeconomic and Financial Drivers
The robust deal activity in 2025 is fueled by a confluence of favorable macroeconomic and financial factors. A significant driver is the immense amount of "dry powder", unspent capital, held by private equity (PE) firms. With trillions of dollars available, PE firms are eager to make deals and are actively pursuing acquisitions, which increases competition for desirable assets.
The anticipated and realised interest rate cuts in 2025 have also played a crucial role. The expectation of falling interest rates makes financing M&A deals cheaper, further fuelling acquisition activity and helping to bridge the wide bid-ask spreads that have constrained the market in previous years. This decline in debt cost boosts the multiples that buyers are willing to pay, thereby reigniting deal flow.
An increasingly important factor in deal financing is the growth of private credit. The retreat of traditional banks from non-investment grade leveraged lending has created a gap that has been filled by a maturing private credit market, which has become a "critical and permanent solution". The flexibility and certainty of execution offered by private credit are particularly appealing to dealmakers operating in volatile market conditions where full controlling-interest buyouts are less frequent. This synergistic relationship between private equity and private credit is providing the necessary capital to propel the rebound in M&A activity.
What's Hot: The Drivers of Premium Valuations
The "hot" sub-sectors in the UK HealthTech M&A market are defined by their ability to address fundamental challenges within the healthcare system, such as cost reduction, efficiency, and access to care. These companies are commanding premium valuations due to their proven technologies and alignment with the industry's strategic priorities.
The AI and Advanced Technology Revolution
Artificial intelligence (AI) has emerged as the single most dominant force in HealthTech M&A, moving from a novel tool to a "strategic imperative". The UK government's commitment to making the NHS the "most AI-enabled care system in the world" provides a powerful and well-funded tailwind for this sector. AI is being applied across the healthcare value chain, transforming diagnostics, drug discovery and patient care through predictive analytics and imaging AI. The widespread adoption of technologies such as large language models (LLMs) and purpose-built models is shifting the industry from augmenting human capabilities to enabling "autonomous execution".
Companies with proprietary AI algorithms, scalable platforms, and proven solutions are attracting heightened interest from buyers and commanding the highest multiples in the market.
While the average revenue multiple for HealthTech companies is between 4-6x, firms with proven AI solutions are seeing multiples rise to 6-8x or more, as buyers pay a premium for innovation and future revenue potential. This is because AI's ability to cut costs and improve patient outcomes directly aligns with healthcare's biggest challenges.
A key factor amplifying the appeal of UK-based AI firms is the proactive regulatory environment. The UK's Medicines and Healthcare products Regulatory Agency (MHRA) has taken a leading role in this area by becoming the first country to join the new HealthAI Global Regulatory Network.
The MHRA's "AI Airlock," a regulatory sandbox for AI medical devices, allows companies to test new tools under regulatory oversight before wider NHS roll-out. This action provides a clear regulatory pathway that reduces risk for acquirers and boosts confidence, which in turn lifts multiples by 0.5-1x for compliant firms and is a critical driver of M&A premiums.
Strategic Consolidation and the "String of Pearls" Strategy
Strategic consolidation is a core driver of M&A activity, with healthcare organisations merging to enhance efficiency, gain market share, and address challenges such as workforce shortages and regulatory complexities. This consolidation is often executed through a "string of pearls" strategy, where larger healthcare players, including hospitals and big Pharma, acquire smaller, innovative companies to fill strategic gaps and enhance their core platforms. An example of this is the acquisition of ImplantBase by Surgimate to create a unified platform for surgical management, aiming to enhance efficiency from pre-op to post-op procedures.
This trend has a significant ripple effect that creates M&A opportunities in ancillary sectors. When hospital systems merge, they often have incompatible legacy systems, which creates cybersecurity vulnerabilities that hackers can exploit. This heightened need for data security is stimulating M&A deals among tech companies that can provide effective cybersecurity and IT services to the newly formed, consolidated entities. A deal exemplifying this is the merger of IT and cybersecurity managed service provider Abacus Group with healthcare IT services company Medicus IT in H1 2025.
The Shift to Value-Based Care and Patient-Centric Models
The healthcare industry's ongoing shift from a fee-for-service model to a value-based care model, which prioritizes patient outcomes over volume, is a significant driver of M&A. Technologies that enable this shift, such as remote monitoring, population health analytics, and chronic disease management platforms, are gaining significant traction with payers and providers. Companies aligned with value-based care are attracting premiums, with multiples climbing to 5.5-7x revenue, as buyers are willing to pay more for technology that delivers measurable cost savings and improved patient outcomes.
Telehealth, a cornerstone of this shift, has matured beyond its pandemic-era boom into a stable sub-sector. It is evolving beyond standalone platforms into integrated, hybrid care models. While growth has slowed from its peak, adoption remains strong, and profitable firms with hybrid offerings are sustaining high valuations, often in the 5-7x revenue range.
The acquisition of the UK startup Surgery Hero by the US-based telehealth company Sword Health illustrates the continued strategic interest in this space, as buyers seek to improve postoperative outcomes through digital solutions.
The Resurgence of Behavioural Health
Investor interest in behavioural health platforms, particularly for autism, addiction, and outpatient psychology, has reignited in 2025. This sub-sector saw a jump in deal flow of over 35% year-on-year in the first quarter, with autism deals doubling to their highest quarterly count since 2020. This trend is driven by surging societal demand and a renewed investor focus on these high-growth, high-impact areas.
Valuation Multiples and Market Trends.
What's Not: The Headwinds and Challenges
Despite the overall market rebound, significant challenges persist, creating a class of companies and sub-sectors that are struggling to attract investment and are experiencing compressed valuations.
The Surge in Distressed M&A
A key feature of the 2025 HealthTech M&A landscape is the surge in distressed M&A activity. This trend is a direct result of the "economic squeeze and funding drought" that has impacted the sector.
Following a post-pandemic funding pullback, venture capital has tightened, leaving "cash-hungry startups" with unsustainable burn rates and over-leveraged balance sheets. This forces many firms to seek M&A as a "survival mechanism" rather than a growth strategy.
This financial distress is creating a buyer's market. Distressed firms are trading at steep discounts, with multiples sometimes as low as 1-3x revenue compared to 5-10x for healthier peers. By year-end 2025, distressed deals could comprise 20-30% of HealthTech M&A activity , presenting a significant opportunity for opportunistic buyers, particularly private equity firms, to acquire innovative technology at "cut rates".
The increase in distressed M&A, while boosting deal volume, can have a detrimental effect on the broader innovation ecosystem. When early-stage, cash-strapped companies are absorbed or shut down before they can fully mature and prove their value, it can stifle the pipeline of future breakthroughs needed by the NHS and other healthcare systems. This dynamic highlights a paradox: a market that is active but also potentially less innovative due to the financial pressures on early-stage firms.
UK Specific Bottlenecks
UK-based MedTech and HealthTech innovators face specific, structural barriers that impede their growth and make it more difficult to secure domestic investment.
UK Specific Market Headwinds and Their Impacts
The Decline of Certain Sectors
A notable trend in 2025 is a decline in deal volume within the pharma and life sciences sector, which has historically been a superstar of M&A activity. Private equity firms, in particular, are pulling back from areas like contract research organisations (CROs) and contract development and manufacturing organisations (CDMOs) because many of these businesses, acquired in the 2021-2022 cycle, have underperformed expectations.
This shift is not a lack of interest in the industry as a whole, but rather a re-evaluation of the investment thesis. The initial boom in these sectors was based on an assumption that large pharmaceutical companies would continue to outsource non-core functions. However, the reality has proven more complex, with some pharmaceutical companies showing discomfort with outsourcing and a global pullback in drug research.
As a result, private equity firms are now shifting their focus toward a more direct involvement in the profits from selling drugs and are "all looking for the next Ozempic". This maturation of their approach reflects a move away from services and toward high-impact, direct-profit opportunities, which are often technology-enabled, as seen in the rising interest in biosimilars.
The Driving Forces: Financing and Policy Dynamics
The Evolution of Private Equity's Role
Private equity firms are the primary engine of M&A activity in the UK HealthTech sector. The PE playbook in 2025 has shifted from a "spray and pray" approach to a more disciplined model of "concentrated, high conviction investment".
With immense dry powder to deploy, PE firms are under pressure to find high performing assets. The target companies they now prioritise have strong recurring revenue models, proven clinical efficacy, and defensible IP.
A common strategy is the "buy-and-build" approach, which is well-suited to the fragmented UK HealthTech landscape. In this model, a PE firm acquires a platform company and then makes a series of smaller "bolt-on" acquisitions to enhance its core capabilities, expand its geographic reach, and achieve economies of scale. To address the long investment horizons often required by HealthTech's complex regulatory and adoption cycles, PE firms are also increasingly utilising continuation funds to "hold and grow" high-performing "crown jewel" assets beyond the typical 10-year fund life.
The Impact of UK Government Policy
The UK government's long-term strategic initiatives are a major catalyst for M&A activity, providing a clear and well-funded market direction. The government's 10-year health plan aims to make the NHS the "most AI-enabled care system in the world" and has committed up to £10 Billion to digitise the NHS by 2028-29. This substantial investment creates a powerful market signal and a stable customer base for HealthTech companies.
Key elements of this plan, such as transforming the NHS App into a "digital front door" and creating a "single patient record," are directly creating institutional demand for solutions in patient engagement, data analytics and care coordination. This alignment between government policy and technological innovation reduces market risk for investors and makes the UK an attractive destination for capital.
Innovative Deal Structures
To bridge persistent valuation gaps and navigate market uncertainty, dealmakers are increasingly turning to flexible and creative deal structures. One such structure is the earn-out, where additional consideration is paid based on future performance milestones. While prevalent in life sciences M&A, with over 90% of biopharma deals including them, the achievement rate is low, with only about 25% of earn-outs actually paid out. This highlights a growing tension between sellers, who see earn-outs as a way to secure a higher valuation, and buyers, who are increasingly seeking robust protections to mitigate litigation risk.
Another key trend is the growth of private credit as a source of financing. As traditional lenders have pulled back from leveraged lending, private credit funds have filled the void, becoming a "critical and permanent solution" for financing deals. This provides borrowers with greater flexibility, certainty of execution and more tailored funding solutions than traditional syndicated lending, which is particularly appealing to both financial and strategic acquirers in a competitive market.
Outlook for 2026: Navigating a Bifurcated Future
Forecast for Deal Activity and Valuations
The outlook for the UK HealthTech M&A market in 2026 remains robust. The underlying drivers of the market, the ongoing need for innovation, efficiency, and better patient care are fundamental and not subject to short-term cyclical fluctuations. The market is expected to remain active, with continued M&A activity driven by both strategic and financial buyers.
The market bifurcation seen in 2025 will likely persist. High-quality assets will continue to command premium valuations, with AI-enabled and clinically validated firms maintaining multiples in the 6-8x revenue range and higher. The UK digital health market's projected compound annual growth rate (CAGR) of 22.8% from 2025 to 2030 provides a strong, long-term macroeconomic rationale for this trend. Conversely, the distressed segment will continue to see opportunistic acquisitions at depressed valuations, as capital remains focused on proven winners.
Key Themes for the Year Ahead
AI's Inevitability: AI will move beyond being a trend to becoming a fundamental necessity. The focus for buyers will shift from acquiring companies experimenting with AI to acquiring those with proven, working technology that can be integrated to achieve a competitive edge.The UK's proactive regulatory stance on AI will further reduce risk for acquirers and incentivise investment in compliant solutions.
The Primacy of Clinical Validation: The "flight to quality" signifies a new level of maturity in the market. Investors will no longer be captivated by aggressive expansion at all costs but will instead prioritise companies that can demonstrate "clinically validated datasets, clear reimbursement pathways and robust, defensible AI pipelines". Speculative ventures with unproven models will continue to struggle and will be relegated to the distressed category.
Continued Consolidation and Ecosystem Reshaping: The market will continue to reshape as power consolidates in fewer, stronger hands. Larger HealthTech players and Integrated Care Systems (ICSs) will continue to scoop up distressed assets to bolster their digital capabilities. This will create a streamlined ecosystem with a more concentrated pool of dominant players.
Strategic Recommendations for Market Participants
For Sellers: To command a premium valuation, focus on demonstrating a clear path to profitability, securing recurring revenue streams, and obtaining clinical validation for your technology. Prepare for due diligence by ensuring all financial and compliance records are meticulous and accessible, as this signals maturity and reduces deal friction.
For Buyers: Leverage the bifurcated market by being opportunistic. For high-growth assets, be prepared to compete with strategic buyers and PE firms with large capital reserves. For distressed assets, conduct thorough due diligence to ensure the target's underlying technology and talent are truly valuable and not just a symptom of operational overreach. Consider flexible deal structures, like private credit, to gain an edge in competitive situations.
For Investors: Align investment theses with the UK government's long-term digital transformation plans, as this provides a stable, long-term market tailwind. Focus on companies that enable the shift to value-based care and can demonstrate a quantifiable impact on patient outcomes and cost savings. Consider opportunities in the maturing biosimilars market, which is now attracting significant PE interest due to its high-margin potential and technology-enabled development pathways.
Nelson Advisors > MedTech and HealthTech M&A
Nelson Advisors specialise in mergers, acquisitions and partnerships for Digital Health, HealthTech, Health IT, Consumer HealthTech, Healthcare Cybersecurity, Healthcare AI companies based in the UK, Europe and North America. www.nelsonadvisors.co.uk
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