This article looks at the Telehealth market and discusses the impact of COVID-19. It details merger and acquisition activity and IPOs in Australia and globally.
This article was originally published 19 May 2020.
Experts across the globe are indicating the healthcare system will be forever changed post-pandemic - with fundamental shifts in healthcare models due to COVID-19 set to attract increased interest from buyers and investors of Telehealth technology, and service providers in the coming months.
There have been macro and micro challenges for the sector in the face of the COVID-19 Pandemic, including the continued economic uncertainty and kinks from the rapid adoption of Telehealth solutions - such as commerciality issues with end-user usability – however, overall, it's expected that these issues will be overcome and the Telehealth sector is ripe for investment.
Telehealth demand was already on an upward trajectory, and COVID-19 is the impetus to propel it forward.
Like many industries adopting digital, the adaption of a new primary care model is unlikely to revert post-COVID. Additionally, with health system models changing, innovation will follow.
The following article looks at Telehealth activity at a glance, including the drivers, uncertainty, and the appetite in the market.
Telehealth is a simple concept, integrating technology and telecommunications to enable healthcare providers to consult with patients outside of the traditional facilities, allowing quality healthcare to reach a broader audience. Well-designed schemes encompass preventative measures, diagnosis and treatments and have the ability to improve healthcare outcomes especially for vulnerable groups within our society.
The Australian environment
The COVID-19 pandemic has highlighted what was already a growing space and, in light of current conditions, shows no signs of slowing down.
Despite the market uncertainty, Telehealth innovation will likely persist and the industry remains poised to nearly double by 2025. As governments and investors continue embracing the many benefits Telehealth offers, it appears that healthcare can move to a more seamless and efficient future. This will, in turn, bring about increased M&A activity in traditional healthcare institutions as they begin to consolidate.
Accepted drivers of Telehealth globally are whole of population approaches and reimbursement strategies, along with entities that can help create efficiencies with software applications.
This remains true for drivers in Telehealth in Australia and exemplified in the nation’s response to COVID-19. On 30 March 2020, the Australian Government announced $669 million to expand Medicare-subsidised Telehealth services for all Australians; plus they are providing extra incentives to general practitioners and other health practitioners. Similarly, the whole of population and reimbursement approaches during COVID-19 are being adopted worldwide, including the UK.
Over 57% of healthcare professionals are currently using a Telehealth platform, 87% of practices are prepared to deal with the changing requirements since COVID-19 and 92% are comfortable with using these new technologies.
Driving this growth trend is the proposed cost savings with the Australian CSIRO showing that full embracement of Telehealth solutions can save billions of dollars annually. This notion will likely grow in importance as Australian healthcare expenditure has currently been growing at over 4% annually for the past 15 years. This is likely to continue as the Australian population continues to age, chronic conditions continue to soar and consumerism in the sector continues to flourish. There are also opportunities to reach unmet markets – particularly in Australia’s remote communities.
Mergers and acquisition
It’s expected that increased activity to consolidate the market will occur globally under more favourable economic conditions.
Retrospectively, global M&A activity in Telehealth has remained consistent over the past 3 years averaging approximately 25 transactions per annum. Looking forward, this activity is expected to increase as economies recover from the pandemic.
Where is investor appetite?
The main areas of interest for investors in the Telehealth industry are businesses providing digital health platforms - connecting healthcare providers to patients - and businesses with remote patient monitoring capabilities.
BDO US predicts that Telehealth will increasingly be a target for Venture Capitalists and Private Equity firms, who have already spent considerable money in the space and advocate for changing old paradigms.
It’s no surprise The United States has the most active and advanced Telehealth industry in the world given their current healthcare model, which is also considered one of the most expensive in the world. Over 65% of global Telehealth deals in the past 3 years involved a US-based target or buyer.
Whilst Australia’s Telehealth industry is less mature than the US, it is anticipated that it will play a significant role in future activity as Australia is seen as an ideal location for developing and trialling medical solutions due to its vast distance, remote settlements and multicultural society.
In the past 3 years the largest transaction, which was completed in February 2019 was the circa AU$2 billion acquisition of NxStage Medical by Fresenius Medical Care. NxStage Medical is a NASDAQ listed medical technology company which amongst other things provides a Telehealth platform for the home delivery of dialysis treatments.
More recently, Teladoc Health acquired Intouch Technologies with the acquisition driven by Teladoc’s research, showing 40% of hospitals are planning to increase future spending on Telehealth.
During the Pandemic in Australia, those companies that had the infrastructure in place were best positioned to quickly evolve Telehealth applications in the market. In particular, I.T providers of management systems - namely providers of platforms for video conferencing - have been able to pivot quickly and embed Telehealth into operations such as hospitals. For Melbourne's Royal Children's Hospital (RCH) their move to a WebRTC platform based on Healthdirect Australia's video call service, has seen them deliver almost 70 per cent of their average 1200 patients specialist clinic appointments via Telehealth, during the Pandemic.
Given this, over the next few months Telehealth infrastructure will be key in driving the sector forward, as they pivot, scale, synergise and meet new demands quickly.
For Australian players looking to capitalise on the market in the current conditions, taking advantage of decreased competition from foreign buyers while the market is subdued, could be a chance to gain a competitive edge. Looking for other Australian companies that can create synergies, especially where infrastructure-meets-service providers will be key.
Mental Health and wellbeing applications are also expected to grow, with recent activity showing them being highly valued, and an increased corporate interest being observed due to the after-effects of COVID-19.
Within the Australian market, some companies to watch for future expansion include Global Health, HealthBank and Medinet who have recently noted they would be open to discussions from potential investors - believing they can capitalise on the current environment.
Recent M&A transactions
While uncertainty across the globe due to trade wars and market volatility continued, this did not halt M&A activity for the USA who were buoyed by confidence in their domestic economy. This was highlighted in the deals of the first quarter of 2020, where the US was the target company in four out of the five deals for Telehealth, and domestic M&A activity dominated transactions over cross-border transactions. Domestic deals are a trend which is likely linked to increased regulation in the US market for foreign direct investment, with the Committee on Foreign Investment in the United States (CFIUS) now widening its scope when reviewing transactions - particularly where technology, critical infrastructure or sensitive data is concerned.
The only other M&A activity for Telehealth was by German leading eHealth company CompuGroup Medical SE (CGM), who made an outbound deal in Italy by acquiring 100% of telemedicine solutions and Information Communication Technology (ICT) services firm.
Telehealth IPOs were showing strong growth pre-COVID-19, and whilst listing activities currently remains subdued in comparison to 2019, activity is expected to increase once a light appears at the end of the proverbial tunnel and investors and governments continue to embrace the Telehealth revolution.
The boom of IPOs in 2019, saw more than a doubling of the listings seen during 2018, as businesses capitalised on the strong sentiment in the digital health sector. Similar to M&A activity, the US has been the most active market for IPO’s accounting for approximately one-third of all initial listings in the past 3 years. Australia has been the fourth most active market, with two IPO’s occurring on the ASX.
The largest IPO in the past 3 years was the AU$1.5 billion offering by Ping An Healthcare and Technology Company on the Hong Kong Stock Exchange in April 2018. The company offers an internet health platform in the Peoples Republic of China, offering online consultations, referrals and appointments. The company recently noted that they have experienced a jump in users amidst the current pandemic and have performed better than expected.
In recent transactions, Schrodinger (a software-based drug discovery company) raised approximately AU$300m on the NASDAQ in early January 2020. The shares opened 53% above IPO price on their NASDAQ debut, signifying the strong market sentiment towards Telehealth companies. In the Australian market, Intelicare Holdings opted to go ahead with the listing of their aged care monitoring company against the backdrop of the global pandemic. The virus and the way it has wreaked havoc in various aged care homes has highlighted the importance Intelicare’s products in allowing our aged population to remain in their own homes and providing conviction to press on with the listing.
BDO ASX listing guide: IPO handbook 2023
In this guide, BDO’s team of experts outline some of the key points to consider in a company’s decision to list and the key components for a successful ASX IPO.
Overall, Telehealth is an exciting sector to watch. After a lag in adopting digital, the COVID-19 event has brought an opportunity to the market to disrupt the industry and bring new models of care that will impact large sections of society.
At BDO, we offer a full suite of Corporate Finance services for the Telehealth sector. If you’re a buyer or investor of Telehealth technology; or a service provider requiring support to advance in the Telehealth industry, contact Daniel Coote, or your local partner today.
How can we help?
Our key M&A services include:
- Deal initiation
- Buy/sell side lead advisory
- Management buy-outs/management buy-ins
- Corporate restructuring
- Sourcing private equity
- Financial re-engineering
- Information memorandum preparation
- Pre-IPO structuring and preparation
- Industry rationalisation
- Business consolidation.