The Covid-19 pandemic fueled rapid expansion by healthtech companies, and new post-pandemic market realities meant it was only a matter of time before some consolidated. In fact, in recent years investors predicted increased M&A activity, but never saw it materialize in either 2024 or 2025.
But 2026 may be the year the predictions come true. Consider the offers announced in just over a month:
- Musculoskeletal products provider Sword Health acquired Kaia Health, another musculoskeletal products company, for $285 million.
- Spring Health acquired Alma, both mental health companies
- OCD provider NOCD acquired Rebound Health, a trauma-focused provider
- Women’s health company Wisp acquired TBD Health, a sexual health startup
- OpenAI acquired Torch, a health data company, for $60 million
According to one investor, the increase in deals indicates a maturation of the sector.
“The acquirers are venture-backed digital health companies,” said Neil Patel, chief venture officer at Redesign Health. “These are not health systems or payers playing defense. That’s a sign of category maturation. It’s tempting to compare this to the wave of telehealth seven or eight years ago, when video technology became a commodity and became a land grab for distribution. We’re not there yet. There’s still real product differentiation. These deals are more surgical. Each has its own logic: geographic expansion, category expansion, supply-side acquisition.”
Investors expect to see more M&A activity throughout the year. However, the IPO market, which saw a slight resurgence last year with announcements from Hinge Health and Omada Health, will likely be a less popular route this year.
Why companies are combining
Keith Figlioli, managing partner at LRVHealth, believes there are two main reasons.
Many digital health companies are merging in an effort to scale or broaden their financial runway after struggling to grow quickly, raise more capital or reach cash flow breakeven, he said. Meanwhile, larger, more established players “are starting to see real value in integrated acquisitions that expand their platform with unique capabilities or talent, typically on the AI front.”
This appears to follow the Sword and Spring Health acquisitions. A Sword spokesperson told MedCity News that the company acquired Kaia to strengthen its leadership in AI care and allow it to enter the German market.
For Spring Health, the acquisition of Alma brings established relationships with health plans and in-network provider infrastructure, allowing the company to reach more patients.
“In mental health care, demand continues to outpace supply, and access alone is not enough,” said Adam Chekroud, president and co-founder of Spring Health. “Quality and continuity are equally important. As people transition between coverage types or levels of care, many people experience disruptions. Bringing together complementary strengths allows us to build a stronger infrastructure that supports consistent, high-quality care across those transitions.”
Define Ventures partner Chirag Shah echoed this, saying that mental health companies will benefit the most from scale “because our persistent imbalance between supply and demand means that larger companies disproportionately benefit from differential relationships with payers.”
Flare Capital Partners co-founder Michael Greeley noted that he has been expecting this surge in M&A activity in digital health for some time now, and this move is positive as liquidity in this segment has been absent for a long time.
He noted that the industry is starting to see a separation of the “winners” from the rest of the pack. The most successful deals occur when companies that already have significant scale purchase smaller assets. He pointed to the Sword deal as an example.
However, a less successful deal is when two subscale companies combine, although Greeley declined to cite examples.
“Those are really difficult transactions to do,” he said. “In 2021, we started about 900 companies. A more normalized rate of new companies in the sector should be 300 to 400. So consolidation is to be expected, but combining two companies that are struggling doesn’t mean you’re going to have a company that’s thriving. You might just have a slightly larger company that’s still struggling. And when I say distressed, their growth is slower and they still need to raise a significant amount of capital.”
He added that as payers face increased financial pressure, particularly after it was recently announced that Medicare Advantage plans will see essentially fixed payment rates in 2027, digital health companies that want to partner with them will need to be in a stronger position.
“Payers are going to have to repurpose a lot of their benefit designs, and that means they may have to cut back, eliminate some of these capabilities that digital health companies are bringing to market or pay less for them,” Greeley said. He added that consolidation will create stronger companies that will have more influence in negotiating with partners.
Another accelerator of M&A activity is the “hyperkinetic” pace of change in the technology space, Greeley stated. Companies that launched three to five years ago with technology that was previously considered cutting-edge, such as traditional SaaS models, may now struggle to compete with the latest AI capabilities. Like others, Greeley anticipates more mergers to create comprehensive solutions that can be brought to market.
What to take into account
So which sectors could see further consolidation?
Primary care, post-acute care, ancillary services and the technology that supports those areas are the markets that would benefit the most, according to Define Ventures’ Shah. Figlioli also mentioned revenue cycle management, imaging/radiology, robotics and consumer health as areas to consider.
Meanwhile, the IPO market that showed signs of life last year may see less activity. Greeley expects more exits through mergers and acquisitions this year, rather than through the public markets.
“I think it’s less a reflection of the category, but more of the geopolitical turmoil we’re all going through,” he said.
When it comes to IPOs, Abundant Venture Partners senior vice president Katie Edge expects them to be “specific and well-validated exits” amid the lack of headline-dominating IPOs.
But for IPOs or mergers and acquisitions, the same fundamentals apply.
“Companies with strong execution, clinical impact and economic clarity remain best positioned for IPO windows or strategic sales,” he said.
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