Covid-19 led to many new entrants in the digital health space. But it’s difficult for all of them to succeed, creating opportunities for consolidation and roll-ups — and this is natural, one investor said Sunday during a panel discussion at Engage at HLTH in Las Vegas.
“I take actually a more provider-centric point of view where I question how many of these niche solutions can exist. In my mind, consolidation is a byproduct of you already figuring out which company has been able to demonstrate the most impact, has seen the most penetration happen,” said Anuradkhika A., system vice president of strategic partnerships and innovation at CommonSpirit Health Ventures.
One area that has an opportunity for consolidation is mental health, which especially saw the limelight during Covid.
“There are only so many mental health [direct-to-consumer] companies we can take on and work with. It’s great that when mental health got its positioning at the beginning of Covid, the entrance led to a lot of innovation, which is amazing,” she said. “You want that at the onset. But eventually, such is the lifecycle that you have to start figuring out a more platform-centric approach. … There’s no health system I can tell you that will be able to refer and manage and monitor patients across 90-100 different mental health platforms. For us, we almost take a pragmatic view that consolidation is meant to happen.”
Roll-ups and consolidation are already starting to happen, said Maria Toler, founding partner of SteelSky Ventures and a panelist of the session.
“We had predicted at SteelSky that companies would roll up this year just because they weren’t able to raise or for various other reasons,” she said. “We’ve definitely seen that happen — especially across women’s health — but in the larger digital health landscape as well.”
Toler noted that companies are being sold for much cheaper right now, creating more opportunities for consolidation.
“[Companies] are being sold for pennies on the dollar and we are starting to see so many companies [being sold] — not bad ones, good ones that we would have paid top-dollar for last year or the year before. But now, they may have 30 days of runway, two months of runway, they don’t have the right people around the table to jump in and save them,” Toler said.
And companies are being more open to roll-ups, she added.
“When you start your own business, it’s your baby. You think it’s going to be the billion-dollar company of your dreams,” Toler said. “Most of the time, that’s not going to happen. You’ll either have to merge or sell or you are ringing the bell at the stock exchange. And that’s not a bad thing. Sometimes it’s better: two companies coming together can be stronger.”
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