DC Discusses: Accelerating assets in a pandemic-proof market

Consumer methodology: Accessible, easy and inexpensive

The healthcare sector has traditionally had higher barriers of adoption when it comes to technology, given the sensitive and risk averse environment of patient treatment [2]. In recent years, however, there has been a greater emphasis on developing and incorporating technology into the infrastructure of the sector. In light of the pandemic, there has been a huge increase in the need for healthcare solutions that are accessible, easy and inexpensive to consumers. There has been clear acceleration in key areas such as:

• Telemedicine: the usage of which has increased 100 x times [3] in the US from March to April, and across the EU, regulations are changing, making it more readily available
• Remote patient monitoring (Rpm): with a transition to value-based healthcare, 88% of healthcare providers are now investing in RPM solutions [4]

These, coupled with other areas of IT, are providing a diverse range of opportunities for investment, with particular emphasis on innovative technological solutions that bring value to consumers.

While the market has been growing for some time, the increased demand for remote access to healthcare during the pandemic has meant a huge acceleration in investment activity. In the first quarter of 2020 there was as much deal activity for telehealth start-ups as there was for all of 2019 and digital health companies gained 5% of sector deal share with VCs in the same quarter [5]. This increase in appetite, originally motivated by Covid 19, looks to continue as the market has been changed irrevocably, with technology and healthcare going hand in hand.

Given the clear appetite and resilience of healthcare and HIT in particular, valuation in this area has not only maintained pre-Covid figures but there has been uptake to those assets unaffected, with the average deal size increasing in the US by 46% [6]. This performance demonstrates the resilience of HIT investment in this time, but also the future proofed aspect of these assets.

Risk mitigation

Whilst this new-found momentum is both socially and economically beneficial, it does come with new areas of risk, including;

• Data protection: with a clear focus on data management and analysis, we believe that there is a real need to mitigate against data leaks and there will be a need for strong privacy policies. This should also vary from country to country with particular disparity between the US and EU
• Traditional healthcare: We expect that new technological developments will ultimately impact more traditional healthcare companies and it will be key for them to develop or acquire technological skill sets, or risk obsolescence
• IT strategy: As traditional healthcare and HIT come together, we believe that IT strategy including smooth adoption and integration will be an essential part of the process. With as much as 40% of value in healthcare tied directly to IT strategy, it is a crucial aspect to consider for M&A success [7]

With this in mind, the M&A process will need to carefully weigh the potential for post-closing issues in relation to both data privacy and IT systems. This should be taken into account when considering both price and post-close integration [8].

Government endorsement

A key aspect of overcoming barriers to adoption for HIT will be government support. From Covid alone, we can see key policy changes that help further embed and advance areas of HIT - Germany, for example, adjusted its Digital Healthcare Act to allow for reimbursement for telehealth usage [9]. France, similarly, enacted reimbursement across a range of digital healthcare initiatives, with particular focus on AI [10].

This support and solidification from governments opens the market for software and HIT platforms, which had previously been addressing smaller, more complementary areas of medicine [10]. The changing regulatory landscape from governments can also have huge influence on healthcare systems and may help to mitigate risk around the data processing and handling when it comes to technology [11].

We expect that regulation will continue to change at pace in order to match the climate, resulting in likely heightened levels of scrutiny and focus on HIT platforms. Compliance and regulatory representatives will therefore need to be even more closely involved in each phase of M&A, in order to ensure there are no policy or process disconnects [12].

Conclusion

Overall Covid-19 has been a catalyst for an already growing HIT arena - the essential need for healthcare on a new platform has meant that the subsector has grown rapidly in H1 2020. Technology is becoming more and more integrated in how healthcare services are delivered and investors should watch for key innovations in the space in order to capitalise on this movement.

Whilst the uncertainty and instability remains in many industries, it is clear that not only is HIT providing short term value, but it is also helping solidify future asset groups and trends in the sector. We anticipate new investment opportunities in varied and innovative areas as we move towards a more technological approach to a traditional sector.

References

[1] Opportunities and challenges in an evolving market, KPMG, 2020

[2] 5 barriers to IT adoption in healthcare, Becker's Hospital Review, 2020

[3] Digital Health Investment Landscape: Telemedicine Takes The Lead For Now, CrunchBase, June 2020

[4] Study find 88% of providers investing in remote patient monitoring tech, TracPatch, March 2020

[5] How 2020 Impacted Healthcare Investment Trends, Ignition Financial, June 2020

[6] 2020 Midyear Digital Health Market Update: Unprecedented funding in an unprecedented time, Rock Health, 2020

[7] The Reality of Healthcare M&A in 2020, VMWare, February 2020

[8] 2020 Data Privacy Trends to Watch in M&A, Law.com, May 2020

[9] Germany's digital health reforms in the COVID-19 era: lessons and opportunities for other countries, NPJ, July 2020

[10] e-Health in France: Spotlight on the National Healthcare Digitalization Strategy, Health Advances Blog, March 2020

[11] 2020 global health care outlook, Deloitte, 2020

[12] 2020 Life Sciences Regulatory Outlook, Deloitte, 2020