The Big Healthcare Startup Buyers Have Left The Building

While healthcare hopes for more M&A this year, investors told BI they aren't expecting many big M&A deals in the industry this year.

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• The outsize returns VCs depend on might be out of reach through healthcare M&A this year.
• VCs told BI they don't see much appetite for big deals among healthcare's historical mega-buyers.
• Healthcare startups looking to sell may have to settle for lower prices from their peers.

Healthcare startups are hoping for more M&A in the market this year after a three-year drought of company combinations. But most VCs aren't expecting to reap blockbuster returns through big healthcare deals anytime soon.

The industry's historical mega-buyers — from Big Tech and retail to health plans and private equity — don't seem to have much of an appetite for big digital health deals this year, according to nearly a dozen VCs and investment bankers Business Insider spoke to.

Big Tech companies like Amazon and retailers like Walgreens have already made multibillion-dollar buys in healthcare and, in some cases, been burned by their losses. Insurers like United Healthcare are facing mounting scrutiny, said these investors. While private equity seems increasingly interested in healthcare technologies, many of PE firms' recent big healthcare buys have been public companies, and often those already demonstrating stable revenue and profitability, rather than high-growth startups.

Many healthcare startups are looking to get bought or raising down rounds to extend their lifespans, sometimes offering discounts on their last-round valuations to make a deal happen, BI reported in November. Better-performing startups, especially later-stage players, may not want to sell as investors hope for a reopening in the IPO markets that could help them recoup their returns, VCs told BI.

On the bright side, those descending valuations offer plenty of opportunities for late-stage digital health startups flush with cash and looking to grow. Healthcare startups like Transcarent have already announced acquisitions this year, while others like Datavant have signaled they're ready for an M&A spree.

Still, the outsize returns VCs depend on might be out of reach through healthcare M&A for the time being.

"M&A can be a great outcome. It just feels like there's not a lot of buyers that can do the kinds of deals that we would hope for for that big outcome," said IVP partner Yuri Lee.

Tech and retail's healthcare struggles

2024 brought a reckoning for retail healthcare as a number of large companies looked to downsize, sell off, or shut down their healthcare bets.

Walmart shut down its entire Walmart Health division in April, including its 51 health centers and its virtual care services. Walgreens closed at least 160 of its VillageMD primary care clinics throughout the year; the pharmacy retailer said in an August securities filing that it was considering selling part or all of its controlling stake in VillageMD, which Walgreens paid more than $6 billion for.

CVS, which owns a number of healthcare businesses, including the insurer Aetna and the primary care clinic chain Oak Street Health, swapped out its CEOs in October after undergoing a strategic review, where the company reportedly considered splitting up its retail and insurance businesses as it faced rising costs from Medicare Advantage claims, according to Reuters. (For its part, CVS has forged on with its expansion of Oak Street Health, which it bought for $10.6 billion in 2023. The pharmacy business continued opening new clinics throughout the year as other retailers backed off their own in-person healthcare bets.)

A CVS Health spokesperson declined to comment for this story but said the company is "focused on executing on our integrated care strategy." Walmart declined to comment. Walgreens didn't respond to a request for comment.

CVS Health forged ahead with its plan for expanding Oak Street Health's footprint through its strategic review.

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Some of Big Tech's healthcare investments underwent their own struggles last year. While Amazon's pharmacy business is drawing more consumer interest, its primary care business One Medical, which Amazon said in 2022 it was acquiring for $3.9 billion, lost Google as a large enterprise client in 2024 and faced an ongoing wrongful death lawsuit. Amazon also scrapped its telehealth business, Amazon Care, in 2022.

Amazon declined to comment on its M&A strategy. A spokesperson said the company is committed to One Medical's continued growth and plans to expand next to New Jersey, Northeast Ohio, and Westchester County, New York. The spokesperson said One Medical has contracts with around 10,000 employers and growing.

Investors said that while players like Amazon may look around for smaller acquisitions to tack onto their existing offerings — especially those they can get at a discount — those buyers aren't likely to take another big swing anytime soon.

"I think it's fair to say that they've had a lot of large-scale failures in trying to buy nationally scaled assets that would impose consistency on the system. It just doesn't work like that," said Dan Mendelson, the CEO of JPMorgan's healthcare fund Morgan Health, of large tech and retail companies like Amazon. "As soon as you move to more of a national system, you lose the quality control and a lot of the economic viability."

Steadier buyers may snub startups

For the likely buyers among health insurance's top players, federal scrutiny and a public reckoning could hamper megadeals this year.

UnitedHealth Group's Optum spent more than $31 billion on acquisitions between 2022 and 2024. UnitedHealth is currently trying to close a $3.3 billion deal to acquire home-health company Amedisys. But the Department of Justice sued to block the merger in November, citing antitrust concerns.

Some other health plan mergers fell through last year, including early talks between Anthem and Cigna about a potential combination, per Bloomberg. Blue Cross Blue Shield of Louisiana also called off plans to sell itself to Elevance Health in February after facing regulatory pushback.

For health plans, the elephant in the room is the December murder of former UnitedHealthcare CEO Brian Thompson, which ignited a public outcry over how health insurers pay for patient care, or, more accurately, how frequently they deny paying for it. PitchBook senior healthcare analyst Aaron DeGagne said insurers may seek to lay low for the next few months as criticism mounts — "A lot of things could be misinterpreted," he said.

Flags fly at half mast outside the United Healthcare corporate headquarters on December 4, 2024 in Minnetonka, Minnesota

Stephen Maturen/Getty Images

Despite those headwinds, DeGagne noted that health plans are hoping to tap into recent advancements in healthcare AI technologies to make their prior authorization and claims processes more efficient. He said he thinks health plans will notch more startup partnerships this year, and likely make their own investments in the sector, before they turn to acquisitions.

UnitedHealth Group didn't respond to requests for comment for this story.

Private equity firms have remained active in healthcare and shelled out billions of dollars on a handful of deals last year, like R1 RCM's August take-private by two private equity firms for $8.9 billion, the second biggest US healthcare deal in 2024, according to PitchBook.

Private equity's healthcare interest could certainly continue through 2025, especially as firms hope for falling interest rates and less regulatory scrutiny under a new presidential administration.

However, private equity firms often require acquisitions to be profitable or nearly profitable. In VC, investors aren't exactly itching to sell off their late-stage profitable healthcare bets — since many of those could be candidates for IPOs once the public markets reopen, Mendelson said.

"It is definitely the case that private equity buyers are attractive to middle-market companies. But the larger companies have to be thinking about an IPO," he said.

Moreover, private equity's healthcare playbook has historically relied on buying up individual healthcare practices, like medspas or home health centers. Those models generally bring in slower but more reliable revenue streams rather than explosive growth potential. Healthtech, a VC favorite, wasn't significantly represented in the top megadeals last year — of the 25 biggest US healthcare and life sciences deals in 2024, R1 RCM was the only true healthtech deal, with most of the other deals being in healthcare services or biopharma, per PitchBook.

So while private equity could certainly look to buy more healthcare companies this year, they may not be the sexy deals VCs are looking for, said Krish Ramadurai, a partner at AIX Ventures.

"A lot of the boring services companies with great margins and great product market fit are prime takeouts right now. And if you have the AI angle, even better," he said.

M&A-hungry healthcare unicorns

This year, some of the most active buyers of venture-backed healthcare startups may just be other startups.

Several healthcare startups have signaled their intentions to look for M&A in 2024. Datavant CEO Kyle Armbrester told Business Insider in January that the $7 billion health data startup plans to make more acquisitions this year, a strategy that could help the company continue to grow its revenue ahead of a potential IPO. Other startups approaching public market debuts may use a similar playbook, like Hinge Health, which has been open about its plans to make more acquisitions for its physical therapy business.

Kyle Armbrester, CEO of Datavant, told BI in January that Datavant is planning at least "one or two" more acquisitions in early 2025.

Datavant

Venture capital firms may also work to combine multiple companies within their portfolios to minimize their losses, as healthcare firm 7wireVentures did in selling mental health investment Caraway to its pediatric healthcare investment Summer Health. General Catalyst has taken the same approach for numerous healthcare deals over the years; most recently, its health software bet Commure acquired care navigation platform Memora Health in December.

In fact, a number of General Catalyst's portfolio companies look poised to make acquisitions this year. One of its investments, health benefits platform Transcarent, already made a big bet with its $621 million acquisition of healthcare navigator Accolade in January. Commure has taken an M&A-forward strategy to drive its growth, with seven acquisitions to date, including two in 2024. Care enablement startup Fabric has made four acquisitions since launching out stealth in early 2023, and CEO Aniq Rahman told Business Insider in September that the company was still looking for deals.

"A lot of the companies that are struggling to go raise capital right now, or some of these larger businesses that are reevaluating their position in the market, are creating opportunities for us as well," Rahman said. "Pretty much every week, there's inbound coming in from investors that are like, we have assets in our portfolio that may be accretive to what you're doing with Fabric."

All told, there may yet be options for digital health startups hoping to get acquired and for the investors desperate for returns, even if billion-dollar deals aren't on the table.

"Founders and investors are getting impatient over exit timelines, and they can only stay impatient for so long," Pitchbook's DeGagne said.