M&A Expert Talks 4 Trends Emerging from the Health IT M&A Market

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As Managing Director of SC&H Capital, an investment banking and advisory firm, Chris Helmrath knows M&A opportunities when he sees them. And in today’s HIT M&A market, he sees a rapid shift from mega mergers to middle-market acquisitions.

In our interview, Chris—a 30-year veteran of buy- and sell-side healthcare transactions—discusses four key trends emerging from the evolving health IT M&A market, as well as what they mean for consultants and their clients.

Trend No. 1. A More Defined Window of Value-Focused Opportunities

Q

With the shift to more middle-market acquisitions, are the types of M&A opportunities also changing in the healthcare IT space?

Definitely. While the slowdown in megamergers is opening a window of opportunities for middle-market healthcare IT companies, the opportunities are not like those of years past. Many segments of today’s industry are becoming saturated, forcing potential M&A targets to bring more unique value to the market.

For instance, consider electronic health records (EHR). While the market is expected to grow to $29.8 billion by 2020, there are now 26 different EHR systems being used in accountable care organizations (ACO). Would a new EHR system present unique value? Probably not.

 Similarly, the picture archiving and communication systems (PACS) market is growing, but also fast approaching saturation. In fact, a recent HIMSS Analytics survey of industry customers found that 100 percent of provider organizations now use PACS. As a result, companies developing PACS technology will need to present distinctive solutions to stand apart from the crowded field of M&A targets.

Trend No. 2. A Rise and Fall of “Me Too” Growth Strategies

Q

Have any other industries experienced a similar evolution that healthcare IT companies can reference?

Yes.  Cybersecurity is a great industry to compare with healthcare IT based on parallels in industry evolution.

As anyone who attended the recent RSA Conference can attest, the cybersecurity industry has become extremely crowded. While the conference attendance set record highs, nearly every company represented among the 40,000 attendees had multiple competitors offering nearly identical solutions.

Simply, the market has become mired in “me too” growth strategies, making it difficult for acquiring companies to identify truly unique, viable solutions providers.

Trend No. 3. Emerging Opportunities in Secure, Individual Wellness

 Q

Given the parallels to cybersecurity, when and where do you see growing middle-market M&A opportunities in healthcare IT?

As far as when, the timing is now. With healthcare IT inching closer to resembling the growing, yet overcrowded cybersecurity market, middle-market companies should be applying lessons learned, resisting a “me too” strategy, and pursuing forward-looking solutions.

In particular, the companies best positioned for tomorrow’s M&A opportunities will be those that advance the industry to an individual patient’s wellness focus—namely through solutions that allow consumers to engage, access, control, and secure their complete health data.

For instance, among the most viable middle-market targets will be companies that change the consumer experience by connecting people with their data. By increasing data portability and access, overall patient knowledge and accountability will rise.

Further, these companies will drive the Big Data environment to shift from volume to value. Consumer engagement will be enhanced via wearable and mobile technologies that are grounded in the Internet of Things, thereby improving adoption rates, population health, research, and clinical decision support. Cloud infrastructure technologies will be critical in this area by increasing access and reducing complexity and operational costs.

Through each of these solutions, the best-positioned companies will also address widespread security and interoperability challenges. Information must be both protected and accessible by the patient and multiple secondary sources. Also, systems and data must eventually be accessible across platforms, allowing for true health information exchanges.

Trend No. 4. Moving Beyond Regulations and Trend-Chasing

Q

When you describe these solutions as “forward looking,” what do you mean?

By “forward looking,” I mean seeing beyond the current tendencies and industry parameters to what will ultimately improve healthcare in this country. In the long run, the ideal M&A targets will produce proactive solutions that allow organizations to stay one step ahead of regulatory actions and industry trends.

For example, industry growth in recent years has been driven in part by government requirements and corresponding penalties in areas such as EHR and HIPAA. However, as we look to the future, long-term growth opportunities will be in solutions that move beyond—not satisfy—these requirements.

Over the coming years, we will see technology solutions converging in ways that align with consumer-preferred devices, bringing individualized data to people’s fingertips at any time. We will see patients able to track their information. And most importantly, we will see a single destination where every person can easily and securely access their longitudinal healthcare record.

Ultimately, those companies and consultants with the right innovations—married with mobile technologies that leverage data for patients and providers in a secure and accessible fashion—will become the new healthcare IT leaders.