Quick reads

Recent findings suggest that mergers and acquisitions (M&A) are significantly favored when compared with the route of an initial public offering (IPO). M&A transaction data from 2015 shows that within digital health, 187 companies were acquired for a grand total of over $6B. While the first half of 2016 produced 87 M&A transactions compared to 92 during 2015, their total value was worth $10.4B, nearly doubling the amount seen during all of 2015. This is a strong indicator that digital health is coming more into the mainframe and that its value proposition to existing businesses warrants more investment dollars to combat the changing marketplace.

As M&A becoming more valuable in 2016, IPOs are slowly losing their appeal. In all of 2014 and 2015, there were 5 IPOs in the digital health space worth approximately $8B during either year. To date, in 2016 only 1 company, NantHealth, went public and generated $1.5B in market capitalization.

This declining trend can be seen outside of digital health. By the summer of 2016, only 59 U.S IPOs were done, the least since the recession of 2008. These 59 companies produced a market capitalization of $12.5B, also the smaller number since that same recession.

The downfall of the IPO can be explained through rising costs, capital requirements, and superior alternatives. On average, the cost for a company to go public is between $500,000 and $1M+. The preparation work that goes into an IPO is tremendous, with regulatory, operational, and financial compliance often taking several months of work from a group of professionals. The human capital and burdensome expenses required for a company to pursue an IPO are simply too great, with other routes such as M&A and equity crowdfunding offering cheaper and more efficient processes, oftentimes with higher valuations.

In the next article in this series, we analyze the investor preferences with regards to deal stage and size – http://www.wefundhealth.com/news/deal-stage-analysis/

Image Source: http://www.triple-tree.com/blog/2013/10/14/q313-healthcare-ma-roundup/

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