Lloyd Price
- Mar 24

Virtual Care M&A multiples and trends

Exec Summary:

Virtual care M&A multiples have seen some fluctuations in the last 12 months, following a general trend in the broader HealthTech sector:

Peak valuations in H1 2021: During the height of the pandemic, virtual care companies saw skyrocketing valuations, with multiples reaching up to 7.5 times Last-Twelve-Months (LTM) revenue
Gradual decline and stabilisation: As the pandemic situation normalised, valuations started to decline in H2 2021 and settled around 3 times LTM revenue by the end of 2022
Slight rebound in H1 2023: The first half of 2023 witnessed a small uptick in valuations, with EV/revenue multiples for public companies in the sector increasing by 20% compared to 2022.

Current range: Virtual care M&A multiples for the last 12 months have averaged between 2.6 times and 3.1 times LTM revenue. Key factors influencing current M&A valuations in the virtual care market are:

Company-Specific Factors:

Revenue growth: Companies with strong and consistent revenue growth, especially recurring revenue from subscriptions, command higher valuations. Investors see them as having a more predictable future cash flow.
Profitability: While not always the main driver in the early stages, companies with healthy gross margins and a clear path to profitability are more attractive to acquirers seeking a sustainable business model.
Customer base and market share: Virtual care companies with a large and engaged patient base or a strong foothold in a specific market segment (e.g., chronic disease management, mental health) are more valuable due to their established customer loyalty and potential for growth.
Technology and Intellectual Property (IP): Companies with proprietary technologies, innovative virtual care platforms, or unique telehealth solutions can attract a premium valuation due to their competitive edge and potential for future licensing or development.
Management team: A strong and experienced management team with a proven track record in the virtual care industry inspires confidence in investors and potential acquirers, leading to higher valuations.

Market-Driven Factors:

Overall growth of the virtual care market: A rapidly growing virtual care market signifies a promising future for the industry. This optimism translates to higher valuations for companies positioned to capitalise on this growth.
Demand for consolidation: Fragmentation in the virtual care market can drive M&A activity as established players seek to expand their offerings and market reach through acquisitions. This can lead to bidding wars and higher valuations for attractive targets.
Strategic fit: If a virtual care company complements an acquirer's existing business (e.g., a health system acquiring a telehealth platform), the strategic benefits can justify a higher valuation.
Investment climate: The overall health of the investment climate and investor appetite for healthcare technology can significantly impact M&A valuations. During periods of high investor interest, valuations tend to be higher.

Growth and M&A for Healthcare Technology companies

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How attractive is the Virtual Care market?

The virtual care market holds significant attractiveness for M&A activity due to a confluence of factors that make it a promising space for growth and investment:

Strong Market Growth:

The virtual care market is experiencing significant growth, driven by factors like:
Increased patient adoption and preference for convenient healthcare access.
Rising healthcare costs pushing for more cost-effective solutions.
Technological advancements enabling seamless virtual consultations.
Growing acceptance by insurers and healthcare providers.

This robust growth trajectory suggests a large and expanding market for M&A players to capitalise on.

Fragmentation and Consolidation Opportunities:

The virtual care landscape is currently fragmented, with numerous players offering diverse solutions.
This fragmentation presents opportunities for consolidation through M&A, allowing established companies to:
Expand their service offerings and cater to a broader patient population.
Achieve economies of scale and improve operational efficiency.
Gain a larger market share and brand recognition.

Strategic Acquisitions and Synergies:

M&A can be a strategic tool for companies to:
Acquire complementary technologies or patient bases.
Integrate virtual care solutions into existing healthcare ecosystems (e.g., hospitals acquiring telehealth platforms).
Enhance their competitive advantage and reach new markets.

Technological Innovation:

Virtual care platforms are constantly evolving, incorporating new technologies like AI, wearables, and remote monitoring.
Companies involved in M&A can gain access to these innovations, accelerating their development and propelling them to the forefront of the industry.

Investment Climate:

The healthcare technology sector, including virtual care, generally attracts significant investor interest.
This translates to a potential for high valuations and lucrative exits for companies involved in successful M&A transactions.

Overall, the virtual care market presents a compelling combination of strong growth potential, consolidation opportunities, strategic synergies, and a dynamic technological landscape. These factors make it a highly attractive space for M&A activity.

Potential virtual care M&A mega deals (exceeding $10 billion):

Tech giants entering the healthcare space:

Apple or Amazon acquiring a leading European virtual care platform: Both Apple and Amazon have shown interest in the healthcare sector, and acquiring a well-established European virtual care platform could be a strategic move. This would grant them immediate access to a large patient base and established infrastructure within the European market.
Microsoft acquiring a European telemedicine company with a strong enterprise focus: Microsoft has a strong presence in the enterprise software space, and acquiring a European telemedicine company with a focus on B2B solutions could be a strategic fit. This would allow them to offer a comprehensive suite of healthcare solutions to their existing enterprise clients.

Consolidation among existing players:

Two large US-based virtual care companies merging: A merger between two large US virtual care companies, like Teladoc Health and Amwell, could create a dominant player in the global market. This would allow them to achieve greater economies of scale and potentially expand their service offerings.
European virtual care unicorn acquiring another European player: "Unicorn" refers to a private company valued at over $1 billion. If a leading European virtual care unicorn like Kry or Livi were to acquire another major European player, it could solidify their market leadership position and expand their reach across the continent.

Merger of a virtual care company with a traditional healthcare provider:

A large European health insurer acquiring a leading virtual care platform:This type of deal would allow the insurer to offer integrated virtual care services to its policyholders, potentially improving patient engagement and reducing healthcare costs.

Important factors to consider:

Regulatory hurdles: Regulatory differences between countries, particularly regarding data privacy and reimbursement policies, could complicate these mega-deals.
Antitrust concerns: Regulators might scrutinize mega-deals to prevent excessive market concentration and ensure fair competition.
Integration challenges: Merging different virtual care platforms and company cultures can be complex and time-consuming.

Overall, the virtual care market is ripe for mega-deals as established players seek growth and new entrants see the potential for disruption. However, regulatory hurdles, antitrust concerns, and integration challenges could pose significant obstacles.