Digital Health’s M&A Deals Rising

Credit Suisse’s https://www.credit-suisse.com reports that the Digital Health Consolidation Wave is showing no signs of slowing down after 64 M&A deals were made in 2020 excluding SPAC transactions. Now with just 2.5 months into 2021, the industry has already witnessed some interesting M&A deals.

Some of the interesting deals that have taken place include Accolade-2ndMD, Cigna-MDLive, Optum-Change Healthcare, PatientPoint-Outcome Health, DarioHealth-Upright Technologies, Hinge Health-Enso, Nuance Communications-Saykara, Grand Rounds-Doctor on Demand, etc. The drivers that accelerated healthcare consolidation in 2020 have continued in 2021 and are likely to continue for the near future.

Credit Suisse analysts are relatively more positive on the consolidation among digital health vendors versus an insurer or provider acquiring a digital health entity. The analysts believe there are a lot more synergies to be captured when two entities offering different point solutions combine. Either way, the continuing consolidation will continue to enable digital health vendors to obtain the scale and efficiencies required to succeed in the emerging healthcare paradigm.

Interestingly, of  the major telehealth vendors, Teladoc, MDLive, and Doctor on Demand, each have made a big splash in M&A over the past nine months or so. Amwell, however, has been actively focused on some innovative partnerships that include Google, Cleveland Clinic on expert opinion services, and  with UNH on virtual primary care, etc.

Additionally, analysts continue to see Amwell as a potential acquirer, with the most logical expansion to be RPM/choice care management entities which is similar to the TDOC/LVGO combination.

Doctor on Demand, a telehealth company and Grand Rounds, an employee navigation and expert opinion service, are set to merge in an all-stock combination without any new capital from outside investors. The two companies claim to have hundreds of millions of dollars in combined annual revenue. Both companies will continue to operate under their existing brands for the time being.

Grand Rounds’ CEO, Owen Tripp will lead the combined company while  Hill Ferguson will continue to run Doctors on Demand and will join the board. The two companies began discussing a potential deal in the early days of the pandemic with the transaction finally started coming together in December.

Grand Rounds was last valued at $1.34 bin in a mid-2020 financing round, while Doctor on Demand was valued at ~$875 min around the same time. The transaction is expected to close in 1H21. Terms of the deal, however, have not be disclosed.

As Credit Suisse analysts discussed in their most recent meeting with Grand Rounds in June 2020, in early April, the company unveiled a telemedicine solution which was the first step towards a more developed & integrated virtual care strategy. Grands Round’s own telemedicine solution initially was offered to their largest customers but expanded to other companies as well.

As to whether employers see Grand Rounds’ telemedicine offering as complementary to other telehealth vendor contracts, Mr. Tripp thought it was too early to tell, but believed employers are likely to gravitate towards one integrated vendor to reduce complexity which is something that a Grand Rounds/Doctor on Demand solution may accomplish.

In terms of the three offerings (telehealth, second opinion & employee navigation,) the combined company Grand Rounds and Doctor on Demand  will have some client overlap with TDOC on (expert opinion and telehealth), and ACCD on (employee navigation and expert opinion). For example, American Airlines currently leverages Doctor on Demand for telehealth, Accolade for employee navigation, and TDOC (Advance Medical) for second/expert opinion services).

However, Credit Suisse analysts believe more significant opportunities from the mergers will come from capturing the greenfield opportunities versus displacing a competing vendor. While market penetration of telehealth among large employers might be high, significant opportunities still exist in the employee navigation and second/expert opinion areas.

For prior notes Credit Suisse published on Grand Rounds (June 1, 2020), for details on the Virtual HCDT&I Conference to be held May 27/28, for more information, ask questions, provide feedback, or provide news, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.

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