Digital health’s acquisition adjustment

Mirroring a slow-down in digital health funding this year, acquisitions in the sector also fell during the first half of the year, per a recent Rock Health report.

Why it matters: The volatile market is having a chilling effect on M&A activity in the health tech sector, which was supposed to heat up this year.

Flashback: Investors across the sector predicted that health tech consolidation — which peaked in 2021 — would continue to rule in 2022.

• There were 574 M&A deals in the health tech sector last year —including Ginger and Headspace's $3 billion tie-up — up 44% from 2020, according to a CB Insights report.
• We — and many others — thought the trend would continue, but we may have been wrong.

By the numbers: Last year saw, on average, 23 digital health mergers and acquisitions each month.

• That dropped significantly during the first half of this year: While Q1'22 averaged just under 20 monthly M&A exits, Q2'22 averaged just 13.

What they're saying: Rock Health researchers say several factors are putting a damper on digital health M&A, including:

• Buyer anxiety: "With public and private markets in choppy waters, enterprises are likely to respond by conserving cash, trimming non-essential projects, and avoiding any decisions (including M&A) that could ruffle their shareholders’ feathers."
• Mismatches between high 2021 valuations and performance and profitability in 2022.

• "We wouldn’t be surprised if some acquirers that planned to close a deal in H1 2022 are choosing to extend their diligence process given marketplace sentiment," the report's authors write.

Yes, but: It's possible that M&A activity for the year is just off to a slow start, the researchers note.

• "As 2022 continues, we expect to see digital health’s pace of acquisitions in the private markets rise once acquirer confidence buoys in the market," write Rock Health researchers Ashwini Nagappan and Adriana Krasniansky.