Rebecca Torrence
- Healthcare M&A is picking up — but striking a deal may be painful for some founders.Healthcare dealmakers said more startups are coming to the table to consider mergers.With high standards for IPOs and buyers focused on AI, mergers may be some startups' only hope.
Beyond the AI boom, some healthcare startups are at a crossroads: combine with a competitor, or close their doors.
Healthcare M&A activity has been slower in 2025 than many investors and founders would've hoped, two bankers and a private equity investor said during a panel Monday at the HLTH conference in Las Vegas.
But that pace appears to be picking up. Sasha Kelemen, a director in Baird's healthcare investment banking group, said during the panel that while digital health startups have historically been reluctant to merge with one another, she's beginning to see silver linings as companies "recalibrate expectations."
"You're seeing kind of a 'come to Jesus' moment where a lot of companies are realizing across digital health that if they are going to survive, they're going to have to come together in different ways," she said. '"But it's a painful process to do that."
Founders across tech are running into the same dilemma: as AI overtakes investor and buyer attention, many non-AI startups that were hot in venture's 2021 funding boom are now struggling to raise capital. Merging with a rival has become their last resort and perhaps their only hope.
Nick Richitt, global cohead of healthcare services investment banking at JPMorgan, said he's seeing more early-stage VC-backed startups and investors come to the table to consider mergers in areas like virtual care. He hasn't seen the same willingness in previous quarters.
"Why are we pursuing parallel roadmaps when we could pool our resources?" he said.
Some virtual care combinations are already happening, across both early-stage and late-stage players, albeit many in the form of acquisitions. And often, they're coming with valuation markdowns. Telehealth GLP-1 startup RemedyMeds bought consumer health provider Thirty Madison, last valued at $1 billion a $140 million Series C round in 2021, for $500 million in September.
On Monday, public mobile health provider DocGo said it would buy virtual care startup SteadyMD in a deal worth up to $25 million; SteadyMD has raised nearly $40 million to date, including a $25 million round in 2021 led by Lux Capital.
While VC investment across healthcare slipped in the first half of 2025, health tech funding got a boost, thanks to AI. M&A activity is seeing a similar trend. The total value of healthcare M&A deals in the first half of the year rose 56% compared to the previous six months, despite deal volume seeing a 1% dip, due in part to higher-priced healthcare AI deals, according to KPMG.
Buyers' healthcare AI appetite is leaving many healthcare services players out to dry. That could force those startups to search for a lifeline among their adversaries.
The digital health "doom loop"
There are two types of struggling healthcare companies right now, Richitt said.
First are the late-stage companies that raised large sums of capital in 2021 at lofty valuations. Many of those startups are taking longer than expected to grow into those valuations and shore up their economics as the standards for healthcare IPOs get higher, Richitt said.
Some of those startups are turning to M&A to manufacture the growth or extra runway they need, Robb Vorhoff, managing director and global head of healthcare at General Atlantic,
"Investors said, I really want to push the valuation to the max, minimize the dilution, and I assume I can always punch out. Then the tide goes out," he said. "It has been a grind for those companies to work through, and in the digital health space, it's driven a lot of M&A activity."
The second type of struggling healthcare company is the earlier-stage startup that's stuck in what Richitt called the "doom loop."
"You get to a point where the funding dries up, and your only options are venture debt and reining in cash flow, so maybe you don't grow as fast. Then your valuation comes down. You get stuck trying to outrun the debt," Richitt said.
But mergers of "equals" can be challenging, Kelemen said. Even if founders can find a complementary business that's also interested in merging — a feat difficult enough on its own — those founders might not agree on their startups' relative valuations, or who should be in charge of the combined company, she said.
At the same time, investors across VC and private equity are facing increasing pressure to return capital to their limited partners, Vorhoff said.
He added that the valuation corrections across healthcare, and the deals that may come with them, are healthy for the industry — even when they hurt.
Sunnier skies in AI
Healthcare VC has become a tale of two cities as struggling startups stand alongside AI peers facing rising investor and buyer demand.
While Vorhoff noted there are fewer strategic buyers or private equity sponsors interested in virtual care bets right now, healthcare AI deals are surging, especially for companies selling AI into hospitals.
Hospital revenue management is the hottest ticket in town. R1 RCM bought General Catalyst-backed Phare Health last week for better medical coding capabilities. Public revenue cycle management company Waystar closed a deal for Iodine Software for $1.25 billion this month. Earlier this year, New Mountain Capital created its own revenue cycle management play by combining multiple companies, including startup SmarterDx, which it paid around $1 billion for.
"We're seeing a lot of the large incumbents think about, do we buy or build, especially in the AI space," Kelemen said.
Venture-backed startups want in on the action, too. AI scribe darling Abridge is reserving a portion of the $700 million it's raised from investors over the past year and a half to consider acquisitions as it digs into revenue cycle management, CEO Shiv Rao told Business Insider in August.
Richitt said investors and bankers are still figuring out how to structure those deals and evaluate risks in the market as AI startups land high valuations relative to their revenue.
"How do you value an AI company? We don't really know what the margin retention looks like, or what the endgame looks like for this company," Richitt said. "Do the incumbents have the advantage, versus these startups with a clean slate? I don't know. The M&A market is going to adjudicate some of this, figure out the answers, and the IPO market will do the rest."
