Digital health investors predict uptick in M&A for 2025

There is a growing consensus among digital health investors that 2025 will bring them returns on their portfolio companies. 

Over the past two years, digital health companies have resorted to taking smaller funding rounds, keeping those rounds open longer or accepting convertible notes, a type of debt financing that could convert into equity for investors. Investors have had to keep their portfolio companies afloat during a period when cash and exit opportunities were scarce.

Related: Salesforce, Epic and the rise of CRM programs

But many investors and executives are optimistic about the potential for mergers, acquisitions and initial public offerings in 2025. Julie Yoo, general partner at venture capital firm Andreessen Horowitz, said the digital health sector has matured.

"It was actually a new motion that our industry had to learn—[To] purchase cloud-based technology solutions, contract with virtual care providers and use artificial intelligence in ways that are equivalent to labor versus a technology spend area," Yoo said. "So, there's a lot more of these new behaviors that I think are becoming mainstream [and] give us a ton of optimism."

Yoo's optimism was shared by other investors. There was a general view that incoming President Donald Trump would be more favorable to M&A. Digital health companies are also building more durable businesses that focus on profitability over top-line revenue growth, said Steve Kraus, partner at venture capital firm Bessemer Venture Partners.

"It feels like we are rebounding as we get into 2025," Kraus said. 

Venture capital firms invested a lot of capital during the 2021 funding boom and many emerging companies received ‘unicorn’ valuations of more than $1 billion. But economic headwinds forced a lot of those same companies to lay off employees, sell lagging businesses and even file for bankruptcy. 

Despite these recent struggles, venture capital firms say they're not feeling pressure to return capital on their portfolio company investments. Limited partners—those who invest in venture capital firms in hopes of making a return—understand it will take time for an investment to yield a return, Kraus said. 

Many investors are predicting increased M&A activity and initial public offerings in 2025. In recent months, activity has picked up. Health Catalyst signed a definitive agreement in November to acquire cybersecurity provider Intraprise Health for roughly $43 million. In October, General Catalyst-backed Commure acquired AI documentation company Augmedix for $139 million.

“I fully believe, and we’re seeing this in our portfolio, that the M&A market is going to come roaring back in 2025," said Keith Figlioli, managing partner at healthcare venture capital firm LRVHealth.

IPOs saw some initial movement in 2024. After digital health companies were at a near two-year standstill in going public, healthcare payments company Waystar and precision medicine company Tempus both had IPOs in June. Waystar has seen its stock price go from $21.50 per share at its debut to around $36.90 per share on Dec. 20. Tempus, which recently inked agreements for in-network provider status with Blue Cross Blue Shield health plans in six states, has seen its stock go from $37 per share in June to $35.50 on Dec. 20. 

Investors and early-stage companies will pay close attention to how early these IPOs and M&A deals perform before making their own moves, said Alex Lennox-Miller, lead research analyst focused on healthcare IT at Silicon Valley Bank.

“There are a lot of companies that are really holding their breath, hoping that they can go public or get acquired next year before they have to start thinking about another [funding] round,” Lennox-Miller said.