Digital Health poised for sustained post pandemic growth

Digital Health sees robust growth since pandemic outset, maintaining strong performance despite post-COVID normalization

The global Digital Health market was valued at USD 360 billion in 2022 and is projected to grow by a CAGR of 19% to USD 468 billion in 2028. The sector’s rapid growth is driven by technological advancements, increased smartphone penetration, and the growing need for improved healthcare delivery and access. The largest and fastest-growing segment of Digital Health is telehealth. The segment makes up 40% of the market size and is expected to grow at a CAGR of 32% in the next five years. Previously, COVID-19 has boosted the segment with more and more people adopting teleconsultation and remote monitoring services. Next to telehealth, mobile health (mHealth) is surging, too, with expected growth rates of close to 30%. A major growth driver for mHealth is the increasing penetration rate of smartphones.

Global players are growing their revenues through consolidation. The number one on the Capitalmind Investec leaderboard of global Digital Health players by revenue, Optum could grow its revenue by more than USD 5 billion within five years, partially through the acquisition of Change Healthcare and others. The integration of Cerner into Oracle allowed the group to grow its combined market size within Digital Health.

While the largest players are located in the United States, the rather fragmented European market is continuously consolidating, producing large businesses that are on the path to compete with their larger American competitors. For instance, since 2018, CompuGroup Medical (CGM) acquired 13 companies, including Sorian and Medico from Cerner. Its acquisitions enabled the company to grow its customer base and global reach and benefit from knowledge spill-over and operational synergies. The digital health market is expected to further consolidate as favorable funding transactions in digital health are buy-and-build deals that enable product expansion for the buyers, which bring both opportunities and risks for software and healthcare companies.

The shift to Digital Health in the healthcare industry has been driven by behavioral changes resulting from the pandemic, resulting in a surge in the use of digital health tools and increased governmental support. I.e., the German government has pledged €4.3bn for investments in the digitalization of hospitals and the expansion of emergency capacities to accelerate the digitalization of the German healthcare sector.

Digital Health M&A activity in Europe reached a peak in 2021, as the pandemic accelerated the digitalization and innovation of the sector. Despite reaching all-time highs, the development of the Digital Health market is affected by economic challenges such as inflationary pressures and rising interest rates.

Key Takeaways

M&A Activity

European M&A activity in the Healthcare Technology market has risen sharply since the start of the pandemic and remains strong at pre-pandemic levels.

Trends

Digitalization will substantially change healthcare in its various processes. The COVID-19 pandemic has accelerated the transformation and raised awareness regarding the benefits of digitization leading to a growth of the Digital Health infrastructure.

Valuation

Healthcare Technology company valuations were heavily impacted by the opportunities that the pandemic (and the KHZG in Germany) provided. However, due to economic influences and the normalization of the pandemic, valuations faced a decline in 2022.

KHZG

The Hospital Future Act (Krankenhauszukuftsgesetz) subsidizes the digital modernization of German hospitals with €4.3 billion.

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