Technology, data and automation continued to influence investment across the Health and Education sector during the first half of 2023.
Health technology, digital healthcare and EdTech businesses attracted interest as providers and investors looked for ways to improve efficiency, expand access and respond to staffing shortages. More labour-intensive areas, including hospitals, care centres and managed care, continued to face pressure from recruitment difficulties and rising operating costs.
Polestar CF’s Health and Education Sector Review examines public-market valuations, private-company deal activity and the principal trends affecting healthcare, education and training during 2023.
Higher UK interest rates affected public and private valuations and slowed investment across the economy. Friction in trade with Europe also affected parts of healthcare, particularly the pharmaceutical sector.
Health and Education employers continued to experience difficulty filling roles. This encouraged the development of less labour-intensive services, including online screening, fitness applications, AI-led data analysis and digital learning.
Valuations varied considerably between the five subsectors examined: Health Technology and Analytics, Hospitals and Care Centres, Managed Care, EdTech and Training.
Public companies generally attracted higher multiples than private businesses because of their scale and perceived risk profile. However, this difference could be affected by the control premium paid when a buyer acquired a private company.
Health Technology and Analytics achieved the highest public-market multiples:
Demographic change and the rising cost of healthcare increased the need for greater efficiency. Data and artificial intelligence were viewed as important ways to achieve this, supporting investor demand for high-quality Health Technology businesses.
Questions surrounding AI regulation remained important to investors, although these were not expected to prevent continued investment in promising AI opportunities.
Hospitals and Care Centres were trading at:
The subsector continued to grow, but staffing remained a significant challenge. Low pay, inflation, benefits and the effect of Brexit on migration contributed to roles remaining unfilled.
Managed Care businesses were trading at:
Consumer demand for preventative healthcare and services that could be accessed from home supported opportunities within the subsector.
EdTech businesses were trading at:
EdTech solutions continued to be adopted following their rapid expansion during the pandemic. Growing international connectivity also created opportunities for UK education providers to deliver online services to overseas students.
Training businesses were trading at:
Demand remained supported by employers using online training to develop employees, improve retention and respond to recruitment difficulties.
Health and Education transaction volumes increased slightly in the second quarter of 2023 following a decline at the beginning of the year. However, activity remained considerably below the level recorded during the second quarter of 2022.
Artificial intelligence, data and automation were important drivers of value. Larger businesses continued to acquire smaller technology companies to add new capabilities and strengthen their existing services.
Consumer demand also remained high for tools allowing healthcare and education to be accessed from home, particularly while state-funded services remained under pressure.
Two principal types of transaction were evident:
Health Technology and Analytics deal activity slowed during the second quarter of 2023, following stronger activity towards the end of 2022.
Activity was expected to increase as the difference between buyer and seller valuation expectations narrowed and competition continued for the strongest assets. Lower listed-company valuations also created opportunities for public-to-private transactions.
Venture capital funding increased across Medical Technology during the quarter. This investment could support product development, commercial adoption and future M&A activity.
Larger healthcare groups were reviewing their portfolios and considering acquisitions capable of adding new technology or services.
Medtronic planned to separate its patient-monitoring and respiratory-interventions operations. The separation was intended to position both Medtronic and the new business for long-term growth while allowing Medtronic to reconsider its capital-allocation strategy.
Higher interest rates also encouraged corporate buyers to assess acquisitions more carefully against internal investment opportunities. Due diligence was becoming more detailed as buyers sought greater confidence in transaction risks.
Businesses preparing for sale therefore needed to expect increased scrutiny and potentially longer due-diligence processes.
Applications and wearable devices were becoming more integrated into mainstream healthcare.
This growth created additional considerations around data protection and legal compliance. Businesses needed to maintain current documentation and security standards to support the due-diligence process.
Digital pharmacy application Phlo secured £10 million in Series A funding, demonstrating investment in digitally enabled managed healthcare.
Managed-care software provider Person Centred Software acquired Oomph! Wellness, which provided training and support to employees in approximately 1,200 UK care homes.
The acquisition added resources designed to support the mental, physical and emotional wellbeing of older adults. It also reflected the consolidation of content and tools onto single healthcare platforms.
Hospital and Care Centre transactions remained relatively steady during the first half of 2023, following the higher levels recorded in the second quarter of 2022.
Dentistry experienced a particularly active second quarter. The physical assets supporting hospitals and care centres made the subsector less speculative than some technology-led alternatives.
Technology nevertheless offered opportunities to improve efficiency and accelerate growth.
Hospitals and Care Centres commonly use higher levels of debt because of their asset-rich models. Higher interest rates therefore placed pressure on transaction values.
Deal values were expected to remain below their pre-pandemic levels. Valuation multiples could improve as businesses adopted Health Technology solutions and increased profitability, or if interest rates began to moderate.
Anchor Hanover acquired Halcyon Care Homes in a £59 million transaction.
Managed Care had the potential to experience increased activity during the second half of 2023 as consumers showed interest in preventative medical services.
Further consolidation was expected as private equity and corporate buyers brought specialist services together within platform investments.
However, shortages of skilled employees and rising operating costs had the potential to affect transaction activity. Greater use of digital services could help providers improve efficiency, streamline operations and unlock additional value.
Churchlake Care acquired Crystal Care in a £16 million transaction.
EdTech M&A activity increased following the rapid growth experienced during the pandemic and the subsequent easing in demand.
Interest was supported by the need for more interactive and engaging education both at home and in classrooms. The reputation of UK education also created opportunities for private schools to use technology to provide courses to international students.
EdTech remained attractive to investors because of its potential for strong adoption with relatively low physical-asset requirements.
Digital applications were being developed to transform traditional teaching and marking.
Online grading tools could reduce teachers’ administrative workloads, allowing more time for lesson development. Gamification was also being used to encourage learning outside the classroom through platforms such as Duolingo and Codecademy.
The demand for personalised learning was demonstrated by Veritas Capital Fund Management’s $3.2 billion acquisition of HMH in February 2022.
IDP Education acquired The Ambassador Platform for £9 million.
Training transactions declined sharply at the beginning of 2023 but were expected to increase as businesses continued to allocate budgets to employee development and retention.
Online training remained popular because employees could access it from either the workplace or home. Office-based training activity also increased, demonstrating the continued value placed on accessible upskilling.
Selected transactions included:
Three principal themes were expected to continue shaping the sector: developments in Health Technology, the legal framework surrounding digital healthcare and the use of health data.
AI was becoming an important source of healthcare innovation because of its ability to analyse large datasets more quickly than humans.
This could support earlier identification and diagnosis of medical conditions, allowing healthcare providers to use lower-cost preventative treatments rather than relying solely on reactive care.
AI could also improve pharmaceutical research by reducing the time and cost associated with discovering new treatments. Analysis of genomic and bacterial data supported the development of more personalised medication plans.
The speed of AI development was beginning to exceed the pace of the legislation intended to govern it.
Remote treatment and digital surgery raised questions surrounding data protection, cybersecurity, professional licensing, liability and intellectual-property rights. Businesses operating in these areas needed to consider how future regulatory frameworks could affect their services.
Health data offered significant opportunities, but public confidence depended on information being protected and used appropriately.
Proposed European regulation sought to give individuals greater control over their electronic health data and allow it to be used across member states. This could support a more integrated European market for health services and encourage collaboration between providers.
Changes to data-protection rules would also affect how information was stored and transferred. Companies capable of ensuring consistency between different data sources could therefore provide important infrastructure for the sector.
Growing use of digitally accessed healthcare encouraged more businesses to develop new services.
Commercial success depended on turning technological ideas into services that customers would adopt and continue to use. Speed, quality, choice and a straightforward customer journey were all important to this process.
Healthcare providers were also combining multiple services within single virtual platforms. Continued consolidation and the use of cloud-based services were expected to support further market activity and improve how healthcare resources were allocated.
Health Technology and Analytics achieved the highest public-market valuations, at 6.8 times historical revenue and 34 times historical EBITDA.
Transaction volumes increased slightly in the second quarter following a decline at the beginning of the year, but remained considerably below the level recorded in Q2 2022.
Artificial intelligence, data analysis, automation and demand for more efficient healthcare services encouraged larger organisations to acquire specialist technology companies.
Higher financing costs increased the level of risk considered by buyers. The growing use of applications, wearables and health data also created additional legal, data-protection and cybersecurity requirements.
Staffing shortages and higher interest rates affected the subsector. Its asset-backed nature continued to support activity, while the adoption of Health Technology offered opportunities to improve efficiency.
EdTech offered the potential for high adoption with relatively low physical-asset requirements. Demand was also supported by online learning, international education and technologies designed to make teaching more interactive and efficient.
Employers continued to invest in training to develop employees, improve staff retention and address recruitment difficulties. Online delivery made training accessible from both home and the workplace.
Remote treatment, digital surgery and AI created questions surrounding data protection, cybersecurity, licensing, liability and intellectual-property rights.
The sharing and analysis of health data could support more efficient services, collaboration and innovation. This created opportunities for businesses capable of securely storing, transferring and maintaining consistent data.
