Why Bankers Think There Will Be A Lot More Health-Tech M&A This Year

Sword bought Kaia Health for $285 million to shore up its position in the musculoskeletal market. In behavioral health, Spring Health scooped up therapist marketplace Alma. NOCD, also in behavioral health and focused on treating patients with obsessive compulsive disorder online, acquired a company in the PTSD space.  

All these deals occurred in the past few weeks, signaling one thing:

We are having a “hot healthcare M&A winter.”

But why now? After so many years of conjecture in the news about the impending wave of digital health “point solution” consolidation, we had begun to lose faith that it would happen. In 2024, Rock Health reported approximately 120 total digital health M&A deals, a relatively low number given the size of the category. 2025 saw an increase to around 200. And this year, we expect to see a lot more. 

So the theory has eventually proven correct, it just took longer than expected. As we’ll explain in this piece, market conditions are finally ripe for acquisitions, particularly for digital health companies focused on employers and health plans. Technology businesses without strong sales and marketing teams will also get scooped up. We might also see huge private equity plays. It’s still rumors, but another notable deal that could happen in the coming months involves private equity managing director Matt Holt pulling in $30 billion to combine a handful of companies in the New Mountain portfolio. That would represent the largest health-tech deal of all time. 

So… why did it take so long?

First, we’ll get into the challenges that may have slowed down M&A, before positing a few reasons why it’s accelerating now. 

1. Valuations were too high for too long: When investors were valuing care delivery startups at multiples in the 10x range or higher, these elevated valuations had a number of first and second derivative impacts that stymied M&A. Most obviously, high valuations made these assets too expensive to be bought by larger companies in the category (the most natural buyer for most of them). This created a narrower universe of potential acquirers that had both scale and an appetite for transformational deals, leading to some of the pandemic-era M&A we saw across Big Tech and healthcare incumbents. From the perspective of an acquirer, elevated valuations also made for a higher hurdle in justifying M&A, which is why many of the deals we saw during this time period fell in the transformational category. There was also an enduring impact—even when valuations rationalized, we saw many founders and investors anchored to legacy valuations, dampening the willingness of potential sellers
2. Uncomfortable board dynamics: Linked strongly to our first point is a more subtle one related to the board of directors. If an acquisition offer occurs for a startup, an associate or analyst at every venture firm is tasked with finding out, “What’s our return on investment?” There’s a “waterfall” of investors up and down the pref stack that will get varying levels of payouts or entirely lose their shirts, depending on the time they did the deal and the terms. The fund’s size also matters. To dig into why, check out this analysis from Health Velocity’s Saurabh Bhansali. All of that could squash a deal that might be a good outcome for a founder.
3. Lack of solid unit economics: Companies that can get sold more easily are profitable and still growing, or they are demonstrating extremely strong growth and continuing to accumulate revenue. It’s the companies that are oftentimes not growing and not profitable that want to sell, and there’s a limited buyer universe for those in this market. And that’s particularly true in care delivery.  
4. Lack of product or tech differentiation/IP: That’s always a sensible reason behind a sale. But many digital health companies aren’t true technology companies. It’s really a care delivery network, plus a whole lot of marketing dollars to acquire patients. Those businesses are harder to sell, unless there’s strong evidence of brand loyalty amongst the patient population. 
5. Too much capital, despite the lack of PMF: The pandemic years were so piping hot for healthcare that companies without strong product-market fit could keep raising through successive rounds. Nowadays, that is no longer possible. Companies cannot continue to limp along without really getting traction. Many are opting to take a piece of equity in a business that is working and has a higher probability of success. 

But why now?

Or as Stephanie often says: The task at hand involves landing the plane between a rainbow and a snowstorm. 

It all starts with valuation. 

What’s most notable about the recent flurry of deals is how different it looks from the prior M&A boom. The scale acquirers have been absent, with health plans like United likely indisposed for the near term as they grapple with CMS’s weak proposed MA rate hikes, and we’ve seen less appetite for digital health mega mergers. What we expect to see much more of this year: Digital health buyers and sellers meeting in the middle on valuation. 

From a seller’s perspective, we’re seeing investors/founders embrace a more levelheaded view on exit multiples, spurred by the one-two punch of the past three years’ valuation bloodbath and the current funding environment’s softness. From a buyer’s perspective, greater clarity on the macroeconomic picture (and in that, end market health) has allowed for more constructive bids. 

The math on this has always been a little murky. But what’s become clear is that most care delivery businesses are services fundamentally, so they should not be valued as pure software plays with extremely high margins. All of this valuation math is getting even more complicated this year with the AI bubble and software’s broad-based de-rating. SaaS is trading at meaningfully lower multiples now (~5x revenues vs. the historical 10x-15x range), and services are considered more human-intensive and therefore lower multiple/margin. What remains to be seen is how investors will contemplate valuations for AI-native care delivery businesses, which might look very different from their predecessors. 

Standing on the Shoulders of (Increasingly Disheartened) Giants

Today’s founders are also learning from yesterday’s public comps and IPOs to be. 

For most of the last decade, an IPO was often viewed as the key milestone for a successful health tech company. There were myriad fuel sources driving this default ambition: liquidity, legitimacy when selling to enterprise clients, recruiting, and (sometimes) the ego boost that comes with ringing the bell. 

Given the turmoil in the public markets, this narrative has changed. Looking at the publicly-traded health-tech companies that came out via IPO (vs. SPAC or spin), a little over half (10 out of 19) trade above their initial offering price. 

When considering the health-tech companies that went public in the past decade, this metric flips– over 60% of these names currently trade below their IPO levels. As the industry has gone through its boom and bust cycle during a backdrop of shifting investor preferences from growth to profitability, being public often meant less flexibility to course correct. At the same time, a cohort of late-stage companies has been sitting in IPO limbo for years, unable to find a viable window as public market appetite for health tech remains selective at best.

The result is a notable shift in founder psychology. M&A has become a far more appealing exit path and often the target in mind, with even scaled assets that were exploring the public markets instead opting to transact. Clario’s October 2025 sale to Thermo Fisher likely echoes this trend; to put this in perspective, if the company were public, the $8.875B deal valuation would have made Clario a top three health tech name by market cap.

A sale to a strategic company also aligns with many of the previously mentioned motives for an IPO. Becoming part of a larger platform offers liquidity, breadth, credibility with enterprise clients, and something even bigger than an IPO can offer: distribution.

The Power of the Channel

Let’s set aside direct-to-consumer healthcare deals. They sell for very different reasons than health-tech companies that sell into enterprise (health systems, employers, payers, and so on). Direct-to-consumer health deals are really about a simple calculus. Per Stuart Blitz, co-founder and COO of Hone Health, a telehealth company focused on hormone health and longevity, the core question he asks when he looks at a potential acquisition is this: “What is the cost relative to acquiring these patients on our own?” 

It’s actually quite rare that the calculus pencils out. 

“If you take the customer acquisition cost per patient and the number of patients, that is often a far lower number than the company is looking to get acquired for,” he explained. 

Meanwhile, enterprise is a little different. Companies can be attractive to buyers when they offer them a distribution advantage. Take Sword and Kaia, for example. There are some factors here that may have been driven by geography, as Kaia can give Sword an edge in markets like Canada and Germany. But the major reason Sword bought another, smaller MSK player is this: United. The United ASO channel, which we’d surmise is linked to Kaia’s investment from Optum Ventures. Without that relationship with United, it would have been challenging for Sword to sell into a subset of jumbo employers. Again, distribution. 

There’s a similar rationale for why Spring bought Alma in the behavioral health space. Spring sells into self-insured employers; meanwhile, Alma brings therapists in network and makes it easier for patients to use their insurance to access care. It’s a way to access Alma’s insurance contracts. It’s highly strategic for Spring. On the provider side, reimbursement remains low, and competition for therapists is driving up costs. That makes sustainable profitability near impossible to achieve. Plans are seeing outpatient behavioral health utilization as a huge cost driver, and they can’t gate access due to mental health parity. So they are continuing to drive down rates. 

All in all, this is about survival for behavioral health. That’s true for the health-tech industry writ large. Getting big is a path to leverage. 

A Healthcare M&A blizzard, or simply flurries in the forecast?

Looking forward, the endurance of this deal trend will largely depend on the return of deeper-pocketed buyers that are less reliant on external capital raising to fund deals. 

This may present a sizable roadblock– given the market moves of the past week, it’s unlikely that Big Tech or the MCOs will be taking those reins. The health tech names with more software-leaning business models may be in the same boat. 

Absent that, the forecast may call for more strategic digital health M&A flurries. It’s hard to know what will happen in the future, but we’re placing a strong bet that the kind of M&A that we’ll see the most of in the next 12 months will involve health-tech companies buying other health-tech companies. Consolidation is coming, and in our opinion, it’s what the industry needs. 

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