Healthcare Services Technology M&A Transactions and Valuations

Healthcare Services Technology M&A Transactions and Valuations

Between Q1 2020 and Q2 2024, $779 billion was deployed by acquirers in the healthcare services technology sector. Healthcare services technology involves activities and support functions that facilitate healthcare delivery. These services encompass healthcare providers and related services like medical billing, insurance processing, health information technology, administrative support, supply chain management, and facilities maintenance. They also involve healthcare consulting, medical transcription, health data analytics, and pharmaceutical logistics.

Most transactions conducted and capital invested were by US and European-based acquirers. Additionally, strategic acquirers deployed over 75% of the capital invested. Median deal size and valuation multiples have steadily increased since Q3 2023, indicating an uptick in demand for acquisitions in the sector. EBITDA multiple in the sector have ranged between 7x and 15x and vary based on enterprise value and the level of technology implemented.
Healthcare services technology company owners should be aware of exit opportunities presented by strategic acquirers from the US and Europe.
  • The valuation multiples are based on a sample set of publically listed healthcare services technology companies and M&A transactions in the sector. The data were collected on July 11, 2024.
  • The sample set trades at an enterprise value to EBITDA multiple range of between 7x and 15x, with an increase in average multiples as the enterprise value increases and with the level of technology implemented.
  • Average enterprise value to revenue multiples ranged from 2x to 6x.   
  • The median transaction size has ranged from a high of $41 million in Q1 2024 to a low of $16 million in Q4 2022. Median transaction size is a better indicator of the transaction activity than simple averages, as this accounts for outliers and large transactions.
  • Median transaction size decreased by over 50% between Q2 2021 and Q4 2022. This corresponds to a period of increased interest rates and a downward trend in capital market activity. 
  • Q2 2024 and the two prior quarters saw a notable increase in median transaction size, indicating an uptick in valuation and capital market activity. 
  • Between Q3 2020 and Q2 2024, $779 billion was deployed across 14,202 healthcare services technology acquisitions. The average transaction value was $55 million, highlighting the volume of transactions conducted in the middle and lower-middle markets.  
  • The most significant deployment of capital, $89 billion, occurred in Q3 of 2021 with the largest deal count occurring in Q4 of 2021, with 1,127 transactions. 
  • There is a negative trend in the number of transactions conducted per quarter. However, Q4 2023 and Q2 2024 saw significant capital deployment. 
  • While the deal count shows variability, it remains above 500 deals per quarter, except for the significant drop in Q2 2020. This consistency indicates a stable interest in deal-making, even as the investment amounts fluctuate.
  • Oracle’s acquisition of Oracle Cerner for $28 billion, completed on June 8, 2022, was the largest transaction in the sector. 
  • Capital invested in M&A transactions was dominated by strategic acquirers. They contributed 75% of all capital in the sectors while conducting 69% of all transactions. 
  • Large strategic acquirers in the healthcare services technology sector include UnitedHealth Group, Johnson & Johnson, and Abbott. 
  • Private equity firms and other financial acquires conducted 31% of M&A transactions and contributed 25% of capital deployed in the sector. 
  • The most active financial acquirers in the sector include Shore Capital Partners, Webster Equity Partners, and Audax Private Equity.
  • US-based healthcare services technology acquirers dominated the capital invested, with over $575 billion across 57% of the deals in the category. This could be due to a variety of factors, including a large number of acquisition targets or the demand for services that meet the unique needs of the US healthcare system. 
  • European acquirers contributed 27% of all M&A transactions in the sector but less than 15% of the capital invested. This indicates an appetite for smaller transactions and significant activity in the low and middle markets. 
  • The rest of the world exhibits a noticeable spike in the deal count, but an exceedingly small share of the capital invested. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a considerable number of healthcare services technology transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight:

Next Level Hospitality Services


The Company

Next Level Hospitality Services is an outsourced caterer to nursing homes. The company provides a range of services to nursing homes across the US, including food and dining hall operation management, staffing, procurement, cleaning, and infection prevention. 

Aramark acquired Next Level Hospitality Services for $304.6 million on June 4, 2021, with an earnout payout of $78 million based on future performance terms. The acquisition expands Aramark’s healthcare services within the senior living sector. For more information on how transaction structures impact seller liquidity, see Jahani and Associates’ article here.

Healthcare services technology includes a wide range of sectors including but not limited to healthcare consulting, medical transcription, health data analytics, pharmaceutical logistics, medical billing, insurance processing, health information technology, administrative support, supply chain management, and facilities maintenance.

Founders and shareholders of healthcare services technology companies should be mindful of exit opportunities. Median transaction size has increased steadily in recent quarters and EBITDA multiple range of between 7x and 15x. The most active acquirers in the sector are strategic acquirers who contribute the majority of capital and deal flow and are mostly based in the US and Europe.

Sources: Pitchbook Data, Jahani and Associates (1), (2).


Technology-Enabled Consulting Services M&A Transactions and Valuations

Technology-Enabled Consulting Services M&A Transactions and Valuations

Between Q1 2020 and Q2 2024, $115 billion was deployed by acquirers in the technology-enable consulting services sector. Technology-enabled consulting services involve hiring external experts to provide strategic advice, management, and implementation of information technology solutions. These services help businesses optimize their IT infrastructure, enhance cybersecurity, and implement new technologies without maintaining an in-house IT department, offering cost-efficiency and specialized expertise.

Most transactions conducted and capital invested were by US and European-based acquirers. Additionally, strategic acquirers deployed over 75% of the capital invested. Median deal size and valuation multiples have steadily increased since Q3 2024, indicating an uptick in demand for acquisitions in the sector.
Technology-enabled consulting services company owners should be aware of exit opportunities presented by strategic acquirers from the US and Europe.
  • The valuation multiples are based on a sample set of publically listed outsourced IT consulting services companies and M&A transactions in the sector. The data were collected on July 4, 2024.
  • The sample set trades at an enterprise value to EBITDA multiple range of between 9x and 18x, with an increase in average multiples as the enterprise value increases.
  • Average enterprise value to revenue multiples ranged from 1x to 3x.
  • The median transaction size has ranged from a high of $16 million in Q3 2021 to a low of $3 million in Q2 2020. Median transaction size is a better indicator of the transaction activity than simple averages as this accounts for outliers and large transactions.
  • Median transaction size decreased by over 50% between Q4 2021 and Q3 2023. This corresponds to a period of increased interest rates and a downward trend in capital market activity. 
  • Q2 2024, and the two prior quarters, saw a notable increase in median transaction size, indicating an uptick in valuation and capital market activity.
  • Between Q3 2020 and Q2 2024, $115 billion was deployed across 2,150 technology-enabled consulting service acquisitions. The average transaction value was $54 million, highlighting the volume of transactions conducted in the middle and lower-middle markets.
  • The most significant deployment of capital, $17 billion, occurred in Q3 of 2022 with the largest deal count occurring in Q3 of 2021, 151 transactions.
  • There is a negative trend in the number of transactions conducted per quarter. However, capital investment has increased steadily since the start of 2023 with significant capital deployed in Q2 2024.
  • While the deal count shows variability, it remains above 100 deals per quarter, except for the significant drop in Q2 and Q3 2020. This consistency indicates a stable interest in deal-making, even as the investment amounts fluctuate.
  • Hitachi’s acquisition of GlobalLogic for $9.6 billion, completed on July 13, 2021, was the largest transaction in the sector.
  • Capital invested M&A transactions was dominated by strategic acquirers. They contributed 73% of all capital in the sectors while conducting 47% of all transactions.
  • Large strategic acquirers in the technology-enabled consulting service sector include Accenture, Deloitte, and Cognizant Technologies.
  • Private equity firms and other financial acquirers conducted 53% of M&A transactions and contributed 71% of capital deployed in the sector.
  • The most active financial acquirers in the sector include NewSpring Capital, General Atlantic, and Evergreen Services Group.
  • US-based technology-enabled consulting service acquirers dominated the capital invested, with over $75 billion across 39% of the deals in the category. This could be due to a variety of factors, including a large number of acquisition targets or demand for onshore or nearshore solutions due to disrupted supply chains and rising geopolitical tension. 
  • European acquirers contributed 40% of all M&A transactions in the sector but less than 30% of capital invested. This indicates an appetite for smaller transactions and significant activity in the low and middle markets. 
  • The rest of the world exhibits a noticeable spike in deal count, but an exceedingly small share of the capital invested. This implies a wide distribution of smaller deals across various countries not individually listed. These smaller markets collectively engage in a considerable number of technology-enabled consulting service transactions, but each deal tends to be small, reflecting diverse capital market activities.

Deal Spotlight:

MAVEN WAVE


The Company

Maven Wave is a Chicago-based management and technology consulting services company that offers cloud computing services, user experience, and design consultancy. Additionally, they provide big data and outsourcing consulting services to their clients, helping facilitate the shift to digitalization.
Atos intended to supplement its cloud solutions for applications, data analytics, and machine learning in hybrid and multi-cloud platforms through the acquisition.

The acquisition, valued at $189 million in cash, is rumored to include potential additional payments based on future sales milestones. For more information on how transaction structures impact seller liquidity, see Jahani and Associates’ article here.

Outsourced IT consulting services involve external experts providing strategic IT advice, management, and implementation, and helping businesses optimize technology infrastructure and cybersecurity without maintaining an in-house IT department.

Founders and shareholders of outsourced IT consulting services companies should be mindful of exit opportunities. Median transaction size has increased steadily in recent quarters and EBITDA multiple range of between 9x and 18x. The most active acquirers in the sector are strategic acquirers who contribute the majority of capital and deal flow and are mostly based in the US and Europe.

Sources: Pitchbook Data, Jahani and Associates (1), (2).


Learn How to Accelerate Through Due Diligence During an M&A or Private Placement

Learn How to Accelerate Through Due Diligence During an M&A or Private Placement

Learn How to Accelerate Through Due Diligence During an M&A or Private Placement

Due diligence commences after a signed letter of intent (LOI) for an M&A or term sheet for a private placement. Due diligence can be the most time-consuming and burdening process of selling a business, buying a business, raising capital, or deploying capital. For this reason, issuers should always have a due diligence package prepared for buyers and investors before the process begins. This gives the issuer control over the conversation while saving time for the buyers and investors. A data room should always be available and well organized prior to the commencement of due diligence.

This will serve as a resource for getting started, but make sure to customize your lists depending on your objectives.

Enhance Your Company’s Strategic Assets to Increase Value

Enhance Your Company’s Strategic Assets to Increase Value

What are a Company’s Strategic Assets?

A company’s strategic assets sit at the intersection of tangible and intangible assets and create recurring benefits, are unique, and difficult to imitate. Such strategic assets can include intellectual property, customer relationships, proprietary business processes and algorithms, novel revenue streams, and brand value.

Why focus on strategic assets?

The definition of strategic assets is related to the accounting term goodwill, which is an intangible asset that results from the acquisition of a company at a premium value. The premium is the amount an acquiring company pays for a target company in excess of the target company’s book value. Strategic assets have historically been difficult to quantify, but are known to make a company more valuable.

Corporate buyers have been placing increased emphasis and value on strategic assets compared to tangible assets like property, equipment, and manufacturing facilities. Corporate resources applied to build a robust set of a company’s strategic assets are increasingly providing a higher return on investment than those focused strictly on earnings growth.

High-profile transactions such as Facebook’s acquisition of WhatsApp, AT&T’s purchase of DirecTV, and Campari’s acquisition of Wild Turkey all demonstrated the high percentage of purchase price allotted to goodwill due to the seller’s strong set of strategic assets.

According to research by Carol Corrado, “companies put far more money into non-physical assets, such as customer databases, than in building new factories. In 2014, companies invested the equivalent of 14% of the private sector’s gross domestic product in intangible/strategic assets. The investment in physical assets was about 10% of that sum, which is essentially the reverse of 40 years ago when 13% of the private sector GDP went to tangible/physical assets and only 9% to intangible/strategic assets.”

There is currently more than $2.5 trillion in goodwill on corporations’ balance sheets (source: Time magazine). Why? As corporate awareness of intangible asset value is increasing, fewer companies are pursuing acquisitions to add production facilities and other tangible assets. For example, when Microsoft bought LinkedIn, it was almost exclusively for their intangible and strategic assets, such as their brand, website platform, user/customer data, and perhaps the management team and their connections (e.g., Reid Hoffman!).

How to determine which company’s strategic assets to pursue?

Over the past few months, Gates and Company, in conjunction with Jahani and Associates, have been working to determine the strategic assets that help companies achieve premium valuations that can be identified and developed. Knowing that the concept of strategic assets would not benefit every business, and would certainly vary sector by sector, the team began by reviewing M&A deals in the tech sector. Over 500 transactions that closed between 2010 and 2016 were analyzed to determine strategic asset characteristics and goodwill drivers.

Some of the tech M&A deals reviewed for this initiative included:

  • Google acquired Waze for $969 million and allocated $843 million to goodwill
  • Yahoo! paid $990 million for Tumblr, with $750 million going toward goodwill, including $182 million for customer contracts and relationships
  • Facebook’s $17.2 billion acquisition of WhatApp had an astonishing $15.3 billion recorded as goodwill
  • Microsoft acquired LinkedIn for $27 billion and allocated $16.7 billion of its purchase price to goodwill; and when it acquired Skype for $8.6 billion, $7.1 billion went to goodwill

In each of these examples, the target company’s strategic assets (IP, customer relationships, brand, etc.) were valued significantly higher than their tangible/physical assets (plants, property, equipment, etc.). Results from the tech sector analysis indicated that companies with recognizable strengths in social media, web advertising, and data analytics consistently received valuations above market. Additionally, an active user/subscriber base was a driver in over 60% of the acquisitions.

Corporate leaders, business owners, and investors face a critical issue: in order to maximize value, they must enhance the set of strategic assets in their company and/or portfolio of businesses. A thorough analysis of transactional data to identify strategic asset characteristics and goodwill drivers must be considered in conjunction with corporate core competencies, market dynamics, and economic trends to build out the most relevant value-enhancing strategic assets.

About Gates and Company

With offices near Philadelphia and Munich, Germany, Gates and Company is an investment banking and management consulting firm dedicated to helping companies grow. With an impressive track record of helping numerous companies reach their goals, Gates and Company specialize in M&A, market research/analysis, growth strategy formulation, business plan development, product/venture launch, and financial advisory services.

Gates and Company’s management consulting team has invested significant time and resources to refine and validate its methodology of determining strategic asset characteristics and goodwill drivers in the tech sector. Current efforts are underway in the health IT sector. By reviewing market dynamics and hundreds of M&A deals on a sector-by-sector basis, Gates and Company offer these insights to their clients so they can better understand how to identify and develop an optimized set of strategic assets. Gates and Company’s investment banking team helps companies seeking liquidity with comprehensive M&A services to sell businesses or business units, including identifying and assessing those potential buyers most likely to be attracted to a company’s current and developing set of strategic assets.

For more information about Gates and Company, visit gatesandcompany.com.

Company’s Strategic Assets to Increase Value Articles


Identify, Develop, and Monetize Your Intangible Assets

Identify, Develop, and Monetize Your Intangible Assets

Jahani and Associates utilize a proprietary Intangible Asset Methodology™ (IAM) to help our clients identify, develop, and monetize their most valuable intangible assets. We recently led a Cornell Seminar on the same topic.

Intangible assets take work and time to develop into the premium commanding, goodwill-driving assets that maximize value in capital raises, M&As, and other scenarios. Think about a platform that boasts an above-average amount of time users spend on the technology per day. Such an intangible asset will command a premium, but only if it is identified and measured. Being able to measure this intangible asset (users spending more time on your platform than others) is work in and of itself. Some technological sophistication is required.

Developing the intangible asset takes the longest time out of the three steps:

Sticking with the same example of time spent on a platform per day, the theoretical firm in question must determine why users are spending more time on their platform, and then they must find ways to increase the user’s positive experience inside this intangible asset. Does the user want more videos? More pictures? Will the user share more on your platform when the colors are brighter? All these questions require testing. They require a rigorous process of engineering and business acumen.

Developing intangibles inside the IAM™ is done with consideration of those that generate the highest premium. This is always determined as part of the preceding identify phase. These two phases build on each other to empower the third and final phase: monetize.

Monetizing intangibles is done through investment banking scenarios. This can be done when bringing a company to market for an M&A, when performing investor relations for publicly traded companies, when raising capital from VCs, or a variety of other scenarios. This is when J&A takes its powerful, data-driven story to command a premium in the marketplace.


M&A Insights: Use the Power of Intangibles to Maximize Your Value

M&A Insights: Use the Power of Intangibles to Maximize Your Company Value

M&A Insights: Two kinds of intangible assets

In the world of investment banking, there are two kinds of intangible assets. The first is known as “identifiable” intangibles. These are things like patents, trademarks, copyrights, and customer relationships. In short, these are intangibles that GAAP and FASB have determined are consistent enough to be subject to specific valuation rules. When valued these assets are referred to as “intangible assets.”

The second category of intangible assets is known as “unidentifiable” intangibles. These are essentially everything else. Examples include selection algorithms (Netflix, Amazon, and Hulu), operational synergies, talent, and other business combination advantages. When valued these assets generally fall under goodwill. Goodwill is defined as the amount over fair market value an acquirer pays for a target company.

These two kinds of intangibles play a significant role in the valuation of a company. In fact, Jahani and Associates analyzed over 500 M&A transactions among tech giants such as Apple, Alphabet, Facebook, and Microsoft to determine exactly how much value was placed in these categories. The results were astounding.

Intangible assets represented 22% of the money spent on acquisitions for these tech giants. Goodwill accounted for 77% of the money spent on acquisitions from 2010 – 2016. Together, identifiable and unidentifiable assets made up 99% of the purchase price for all acquisitions made by tech giants from 2010 – 2016.



M&A Insights: Maximizing a company’s value

These results are astounding, to say the least. They are astounding for two reasons: 1) They provide a clear and measurable path to maximizing a company’s value and the likelihood of being acquired by a tech giant and 2) they provide insight into why a tech giant will buy targets based on their business model.

M&A Insights: The way a company uses this information, and the unique value Jahani and Associates brings to our clients’ business, is based on three factors:

  1. The industry vertical of the target
  2. The specific business processes that are congruent with those of selected acquirers
  3. A proprietary and data-driven investment banking process

Owners of candidate businesses must consider these factors when building their business. The considerations play a significant role well outside of the traditional investment banking timeline. Meaning the business owner must identify, develop, and implement these intangible assets more than 12 months before they plan to sell their company.

Read our next article: Identify, Develop, and Implement Intangible Assets to Maximize Your Value


Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Youtube
Consent to display content from - Youtube
Vimeo
Consent to display content from - Vimeo
Google Maps
Consent to display content from - Google