Technology and the American Healthcare Revolution

Perhaps the most painful realization from the past year is the fragility of the American healthcare system. As COVID-19 challenged our resources in ways we couldn’t have imagined, healthcare IT companies stepped up to the plate to innovate and scale the technology solutions that our healthcare system so desperately needed to continue delivering care to patients.

The unprecedented demand for technology triggered record-making growth among healthcare IT companies and that trend is sure to continue as we look forward to 2021. The continued need for advanced healthcare technology creates limitless opportunities for healthcare IT companies.

However, opportunity doesn’t automatically result in growth, especially under the pressure of a continued global pandemic that’s created a particularly fragile economy. With these challenges in mind, Aprio’s analysts and advisors have assessed upcoming trends and curated recommendations on how to advance your growth.

Factor future trends into your growth goals

Following the challenges of 2020, America is potentially on the cusp of a healthcare revolution to be driven by healthcare IT companies. However, unknown factors relating to policy, funding, and systemic apprehension to change make it near impossible to know what the future of healthcare will look like. Healthcare IT companies need to evaluate and align their business goals with future trends, but, how do you plan for growth in an era defined by the unexpected?

Aprio’s analysts recommend scaling and growing your business by focusing on the greatest needs that the past year uncovered – innovative patient care and evolving consumer behaviors. Solutions such as telemedicine, wearables, data analytics, blockchain, artificial intelligence, and IoT technologies will likely continue to dominate the healthcare technological revolution, and the necessity of these solutions will only solidify as patients become more accustomed to technology-based care models.

With healthcare comprising 20% of the American economy, healthcare IT companies have the opportunity to dominate a large market share by focusing on the industry’s more critical needs. While other sectors remain unpredictable due to persistent economic uncertainty, the need for innovative healthcare solutions will only continue to increase.

Weigh the risks and benefits of M&A transactions

The combination of low interest rates and well-capitalized banks willing to lend for transactions signals the perfect environment for a booming M&A market, providing healthcare IT companies with an additional avenue for targeted growth. Whether you’re a buyer or seller, there are new benefits and risks to a transaction driven by the current economic and industry needs that you should consider as you plan your company’s next move.

• For buyers, M&A can accelerate growth. If your healthcare IT company is hoping to scale quickly in response to the pandemic, a targeted transaction could make that goal a reality in warp speed. Rather than doing the heavy lifting on your own, buying a company that already offers the tech you want/need will allow you to go to market much faster and yield higher returns. With readily available capital, low interest rates, and a target market strategy, an M&A transaction could be just what your company needs to propel your growth through this vacillating market.
• For sellers, increasing interest in M&A transactions in the technology sector, and particularly in the healthcare IT industry, indicate a seller’s market. Growth in healthcare IT triggered an IPO boom in 2020, with many large, well-funded and VC-backed healthcare IT companies choosing to go public with incredible success. As these companies go public, the increase in funding will drive interest in buying earlier-stage companies. Any company with an innovative idea and a proven ability to scale will be a hot commodity for big, public companies looking to expand.

Insider tip: Aprio’s experts note that buyers should be hyper-aware of their timing to market and their market preparation. If you’re preparing to sell, a smooth transaction will be highly dependent on due diligence. Multiple buyer offers are probable, so take the time to get your financial house in order before you go to market.

For anyone considering an M&A transaction, it’s also worth noting the potential impact of the current political climate. Considering the large stimulus packages passed this year and the presidential election, future interest rate hikes are possible, and that could affect the bottom line of any transaction.

Political uncertainty driven by policy-informing factors (e.g. the makeup of the senate and a new administration) could also have a big impact on the healthcare industry. The Affordable Care Act and the amount of funding available to any company operating in the healthcare market are vulnerable. However, Aprio’s advisors caution against letting hypothetical tax considerations influence your business decisions too heavily. A knowledgeable tax advisor can help you find creative options for structuring a transaction in a way that offsets the impact of potential interest rate changes, leveraging opportunities like dividend recapitalization or partial liquidity events.

Consider new investors

Bringing on new investors could be a realistic way for your company to advance growth through innovation in line with current market needs. General technology valuations doubled over the last five years, a rate of acceleration that healthcare IT companies blew out of the water in 2020. Healthcare IT companies’ particular resilience and successes throughout the current economic crisis have driven more interest from VCs and PE firms looking to invest. This is particularly true given the clearly defined needs for innovative healthcare solutions. In comparison to other software and technology sectors, healthcare IT companies are particularly well-positioned for high valuations and new investments.

If a capital raise seems like a potential opportunity for your company, Aprio’s Capital Raise Preparation Services can help make that a reality through financial preparation, presentation coaching, introductions to investors, and personalized guidance.

The bottom line

Despite a tumultuous year for the U.S. and global economy, healthcare IT companies have much to look forward to heading into 2021. The outlook for the industry is incredibly strong, and the potential to capitalize on that trajectory is limitless. The emergence and solidification of new mission-critical needs in the healthcare industry are guiding additional innovation, while an abundance of capital combined with low interest rates makes investment in growth a reality.

If you’re trying to decide what’s next for your healthcare IT company, Aprio can help. We’re closely monitoring current economic trends, and our expert advisors have the experience you need to begin weighing your options. Whether you’re evaluating an M&A transaction, considering new investors, or looking for creative tax solutions, we’re ready to help you plan your next steps.