Why the Series A fundraising process is becoming an M&A exit route for HealthTech companies

Why the Series A fundraising process is becoming an M&A exit route for HealthTech companies

Nelson Advisors are seeing a new trend in 2025, the Series A funding process is increasingly becoming an M&A (mergers and acquisitions) exit route for healthtech companies. This is due to a combination of market dynamics, financial pressures and strategic shifts in the healthcare technology sector.

Below we outline the key reasons driving this trend, based on our current industry insights:

Tight Venture Capital Environment:

The healthtech sector in Europe, including the UK, saw a significant funding slowdown after the 2020–2022 boom, driven by higher interest rates and a post-COVID market correction. In 2023, digital health funding in Europe dropped by 48% compared to 2022, making it challenging for Series A companies to secure follow-on funding (eg. Series B). This funding scarcity pushes early-stage firms toward M&A as a viable exit strategy.

Many Series A healthtech startups, often with high cash burn rates and unproven revenue models, struggle to meet investor expectations for growth or profitability in a risk-averse VC climate, leading to acquisitions by larger players seeking innovative technologies at lower valuations.

Preference for M&A Over IPOs:

The IPO market for healthtech in Europe has been nearly non-existent, with all 18 healthtech exits in Europe in 2024 being M&A transactions, none via IPOs. High interest rates and cautious public markets make IPOs a less feasible exit route for Series A companies, which typically lack the scale or financial stability for a public listing.

M&A offers a faster, less risky way for founders and investors to realise value, especially as venture-to-venture acquisitions (27% of M&A activity) allow established startups to acquire younger firms, consolidating innovation within the ecosystem.

Consolidation by Strategic Buyers:

Larger healthcare organisations, including European health systems, big Pharma, and global tech firms, are actively acquiring Series A healthtech companies to enhance their digital capabilities or enter high-growth areas like AI, telehealth, and digital diagnostics. For example, the UK and Europe have seen strong M&A activity in health management solutions and medical diagnostics, with 70% of 2024 exits in these subsectors.

Series A companies, with innovative but resource-constrained solutions, are attractive targets for strategic buyers looking to integrate cutting-edge technologies into existing platforms or expand into new markets like personalised medicine or remote monitoring.

Distressed M&A Opportunities:

Many Series A healthtech companies in the UK and Europe are distressed due to unsustainable business models, staffing challenges, or high operational costs (e.g., cybersecurity breaches costing millions). These firms are prime candidates for distressed M&A, as larger companies acquire their assets or technologies at discounted valuations.

The trend mirrors broader healthcare M&A patterns, with distressed deals becoming more common as weaker players face financial pressure or closure, particularly in a region with fragmented healthcare systems and regulatory complexities.

Regional Market Dynamics:

UK-Specific Factors: The UK’s healthtech sector benefits from a strong innovation ecosystem (e.g., NHS partnerships, London’s tech hub) but faces challenges like Brexit-related regulatory hurdles and limited domestic VC funding compared to the US. Series A companies often turn to M&A to access global markets or secure resources, with buyers like US-based firms or European conglomerates acquiring UK startups to tap into their talent and NHS-aligned solutions.

Europe-Wide Trends: Europe’s fragmented healthcare market, with diverse regulatory and reimbursement systems, makes scaling difficult for Series A companies. Acquirers, particularly in countries like Germany or Switzerland with strong pharma presence, see M&A as a way to consolidate solutions across borders, especially in high-demand areas like AI-driven diagnostics or digital therapeutics.

Focus on High-Growth Sub-Sectors:

Series A healthtech firms in the UK and Europe often specialise in high-growth areas like AI, remote patient monitoring, and health management solutions, which are highly sought after by acquirers. For instance, AI and analytics focused startups accounted for significant M&A activity in 2024, as buyers aim to integrate these technologies into broader healthcare ecosystems.

The emphasis on patient solutions (18% of US exits in 2024, with similar trends in Europe) and diagnostics reflects regional demand for cost-effective, scalable innovations, making Series A companies in these areas prime M&A targets.

Why Series A Specifically?

Early-Stage Vulnerability: Series A companies in the UK and Europe are at a critical stage, with developed products but limited resources to navigate complex regulatory landscapes or achieve market traction. This makes them susceptible to acquisition by larger firms seeking to absorb innovation without further development costs.

Lower Valuations: Series A firms typically have lower valuations than later-stage startups, making them cost-effective targets for strategic buyers, especially in a market where funding constraints have depressed valuations.

Strategic Alignment: Many Series A healthtech's focus on niche solutions that align with regional priorities, such as NHS interoperability in the UK or GDPR-compliant digital health platforms in Europe, making them attractive to buyers looking to enhance their offerings.

In the UK and Europe, Series A is becoming an M&A exit route for healthtech companies due to a constrained VC funding environment, a dormant IPO market, and strong demand for early-stage innovations from strategic buyers. Distressed firms, regional market complexities, and a focus on high-growth subsectors like AI and diagnostics further drive this trend. As consolidation continues, M&A will likely remain the dominant exit path for Series A healthtechs struggling to scale independently in a competitive and financially cautious landscape.

Nelson Advisors > HealthTech M&A

Nelson Advisors specialise in mergers, acquisitions and partnerships for Digital Health, HealthTech, Health IT, Healthcare Cybersecurity, Healthcare AI companies based in the UK, Europe and North America. www.nelsonadvisors.co.uk

We work with our clients to assess whether they should 'Build, Buy, Partner or Sell' in order to maximise shareholder value and investment returns. Email lloyd@nelsonadvisors.co.uk

Nelson Advisors regularly publish Healthcare Technology thought leadership articles covering market insights, trends, analysis & predictions @ https://www.healthcare.digital

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