Healthcare IT M&A Update – January 2025

B2B End Market Drives Healthcare IT M&A, RCM Draws Heightened Appetite

The Healthcare Information Technology (IT) sector has experienced significant end market disruption, largely driven by increased medical costs and insurance burdens. Several secular trends, including Healthcare industry defensibility and digital transformation tailwinds, continued to support strong sector merger and acquisition (M&A) and financing activity in 2024. However, acquirers and investors in the space have increasingly shied away from the Direct-to-Consumer (DTC) end market in favor of Business-to-Business (B2B) market participants. Consumer-facing businesses, such as telehealth providers, have faced heightened competition as the market has become saturated following COVID-19. In addition, elevated inflation and medical costs have tightened consumers’ wallets, hampering revenue growth for many DTC participants. These factors have also afflicted healthcare providers’ bottom lines, driving demand for B2B-focused companies offering practice management and revenue cycle management (RCM) software solutions.

As private equity investors returned to platform acquisitions in 2024, we continue to see a strong focus on B2B technology providers in the Health Technology segment, including practice management and RCM which address a critical pain point for providers—namely, more efficient and effective collection of receivables.

David DeSimoneManaging Director, Capstone Partners

Healthcare Providers Demand RCM Solutions to Fortify Revenue Collection and Reimbursement

The RCM segment of the B2B Healthcare IT market has garnered heightened demand as healthcare providers have struggled with revenue collection and reimbursement. Employers have increasingly shifted health insurance burdens onto employees amid an elevated inflationary environment, resulting in higher deductibles and out-of-pocket costs. Of note, the average annual growth rate for out-of-pocket healthcare costs in the U.S. is expected to reach 4.7% between 2023 and 2032, according to the Centers for Medicare & Medicaid Services (CMS).¹ This has placed increased pressure on healthcare providers’ balance sheets, necessitating automated accounts payable/accounts receivable (AP/AR) solutions to collect and process payments from cash-strapped patients. As a result, the RCM segment, broadly defined, comprised the lion’s share (46.3%, $306.8 billion) of global Healthcare IT sector revenue in 2023, according to Grand View Research.^2,3 RCM providers’ dominant market position has increasingly drawn acquirers and investors to the segment.

Healthcare IT M&A Market Exhibits Strength, Private Equity Increases Sector Exposure

The Healthcare IT M&A market has continued to yield considerable levels of activity, primarily supported by heightened private equity (PE) appetite in the space. Healthcare IT M&A volume reached 265 transactions announced or completed in 2024, outpacing the prior year by 2.7%. Strategic and financial buyers in the sector have prioritized businesses with advanced technologies, strong margins, and exposure to favorable end markets. Strategic acquirers continued to comprise the majority (50.2%) of sector deals in 2024. The strategic buyer pool has largely consisted of healthcare services companies, which have increasingly opted to acquire technology assets rather than develop new systems in-house for speed of implementation. However, PE firms accounted for a record 49.8% of sector M&A transactions in 2024. PE dealmaking in the space increased 20% year-over-year (YOY) in 2024. In contrast, strategic buyer activity fell 10.1% YOY during the same period. While sponsors continued to utilize add-on transactions (69.7% of 2024 PE deals), platform acquisitions in the sector spiked 135.3% YOY. Elevated fundraising levels, vast amounts of dry powder, and an easing Private Credit market have enabled sponsors to pursue scalable platform opportunities.

Healthcare IT M&A Multiples Remain Strong, Middle Market Draws Heightened Valuations

Healthcare IT M&A transactions have continued to elicit healthy pricing as participants have showcased a high degree of recurring revenue and interoperability. M&A multiples in the Healthcare IT sector averaged 6.1x EV/Revenue from 2021 through 2024, outpacing the average sector multiple from 2018 through 2020 (4.4x EV/Revenue) and 2015 through 2017 (3.7x EV/Revenue). The middle market (less than $500 million in enterprise value) continued to yield significant levels of sector deal flow, comprising 81.3% of total disclosed transactions in 2024. Middle market sector participants have also enjoyed favorable pricing as private strategic and PE-backed buyers have submitted competitive bids for quality tuck-in acquisition opportunities. Middle market deals in the sector averaged 6.3x EV/Revenue from 2021 through 2024, outperforming the average middle market revenue multiple from 2018 through 2020 by nearly three turns.

Acquirers Prioritize B2B Healthcare IT M&A Targets

The Healthcare IT M&A market has undoubtedly reflected heightened demand in the B2B vertical. Acquisitions targeting B2B participants increased 24.2% YOY to comprise 71.7% (190 deals) of total sector transactions in 2024. In contrast, DTC M&A activity in the sector dropped 28.6% YOY during the same period. B2B sector players typically deliver higher margins and customer lifetime value (LTV) compared to the DTC vertical, driving strategic and financial buyers to the space. PE firms have been particularly active in the B2B Healthcare IT M&A market as sponsors have increasingly prioritized acquisition targets with sticky customer bases and scalable software solutions. PE dealmaking in the B2B vertical of the sector rose 40.6% YOY to 97 transactions in 2024. This largely materialized in add-on acquisitions as many sponsors executed buy-and-build strategies to bolster B2B portfolio companies with advanced, interoperable technology offerings.

The RCM segment has been a bright spot in the B2B Healthcare IT M&A environment, attracting heightened attention from strategic and financial buyers. Market fragmentation, easier sale cycles, and outcome-based pricing models in the segment have created a favorable backdrop for consolidation. Several notable M&A transactions illustrating buyers’ RCM acquisition appetite are outlined below.

• Elevate Patient Financial Solutions Acquires NYX Health Eligibility Services (November 2024, Undisclosed) – Elevate Patient Financial Solutions (ElevatePFS) acquired NYX Health Eligibility Services for an undisclosed sum in November 2024, supported by minority backing from The Edgewater Funds and Frazier Healthcare Partners. NYX offers technology-enabled RCM solutions focused on front-end claims, eligibility verification, and enrollment services for hospitals and healthcare providers. NYX’s front-end specialization is expected to bolster ElevatePFS’ RCM services in the Medicaid space. The transaction marks ElevatePFS’ third acquisition in the RCM segment to date, demonstrating private strategic buyers’ appetite for horizonal consolidation. “The addition of NYX will be a valuable extension of ElevatePFS’ best-in-class front-end complex claims offerings. Their commitment to advocacy for patients and clients mirrors our mission to ensure every client, patient, and team member has an elevated experience,” said Michael Shea, CEO of ElevatePFS, in a press release.⁴
• Francisco Partners Management Acquires AdvancedMD (October 2024, $1.1 Billion) – In October 2024, PE firm Francisco Partners Management acquired AdvancedMD from Global Payments (NYSE:GPN) for an enterprise value of $1.1 billion. AdvancedMD provides cloud-based medical office software that unifies practice management, electronic health record (EHR), patient engagement, and RCM solutions. The company primarily serves healthcare practices and independent physicians, reducing administrative and billing burdens. The acquisition highlights PE’s interest in end-to-end healthcare software providers serving the B2B market. “AdvancedMD’s end-to-end platform delivers an integrated user experience for patients, physicians, staff and billers, and is well-positioned to ensure its customers’ success,” said Justin Chen, Partner at Francisco, in a press release.⁵ Francisco plans to further expand AdvancedMD’s B2B capabilities through organic growth measures and add-on acquisitions.

• Petal Solutions Acquires Medcom Billing Systems (October 2024, Undisclosed) – Canada-based Petal Solutions acquired Medcom Billing Systems in October 2024. Terms of the transaction were not disclosed. Petal develops practice management, care coordination, and scheduling software for physicians and nurses. Medcom delivers medical billing and RCM software solutions to streamline healthcare providers’ operations, revenue predictability, and automated workflows. Medcom represents Petal’s fifth acquisition in the Healthcare IT sector and third in the RCM segment since 2016. The company has increasingly pursed the inorganic expansion of its RCM offerings to capitalize on B2B market demand and position itself as a Healthcare IT sector leader in Canada. Of note, the acquisition of Medcom supplements Petal’s client base with more than 2,000 physicians across Canada, according to the company’s website.⁶

B2B Market Leads Healthcare IT Financing Activity

Financing activity in the Healthcare IT sector rebounded in 2024 as venture capital (VC) firms reentered the market in search of lucrative B2B investment opportunities. Total capital invested in the Healthcare IT sector increased 22.4% YOY to $24.9 billion in 2024. The number of financing deals also increased in 2024, rising 20.9% YOY. VC firms in the space increasingly participated in later-stage financing rounds (48% of 2024 VC deals) to ensure healthy exit valuations and satisfy fund investors’ demand for returns. The B2B vertical led financing activity in 2024, accounting for the majority of sector deals and capital raised. Capital invested in the B2B Healthcare IT market in 2024 rose 11% YOY to $14.7 billion, with the number of deals increasing 36% YOY during the same period. Many VC firms in sector have pursued B2B investments as these startups typically require lower customer acquisition costs and less extensive marketing budgets compared to DTC providers. Depicted below are notable funding rounds in the B2B vertical, demonstrating investors’ shift in capital deployment.

• Prompt Raises $206 Million in Series B Funding (September 2024) – In September 2024, Prompt raised $206 million in Series B funding from undisclosed investors for a post-money valuation of $990 million. Prompt develops EHR and practice management software for the Physical Therapy space, offering scheduling, documentation, patient management, and billing solutions. Prompt plans to utilize the funding to expand its billing and RCM capabilities organically and inorganically. Of note, Prompt announced its acquisition of OnusOne in October 2024 for an undisclosed sum. OnusOne operates a compensation modelling platform for physical therapy practices, enabling users to optimize their compensation models and improve revenue retention rates. “With OnusOne’s powerful platform, you can easily build out and administer compensation models that allow therapists and practice owners to share in aligned incentives and mutually benefit from upside in the practice,” said Michael Dwyer, Co-Founder of Prompt, in a press release.⁷
• StrataPT Secures $25 Million in Growth Equity Financing (September 2024) – StrataPT secured $25 million in growth equity financing from PE firm Council Capital in September 2024. The company operates a Software-as-a-Service platform that combines EHR, RCM, billing, and collections into a single solution, enabling healthcare practitioners to improve cash flow and focus on patient care. StrataPT’s reimbursement success and strong revenue gains piqued Council Capital’s interest in the growth equity deal. StrataPT has helped healthcare providers reach reimbursement rates of nearly 100%, collecting ~$275 million in payments to date, according to a press release.⁸ As a result, the company’s revenue has increased ~60% YOY. With the additional funding, the company plans to further expand its capabilities for physical, occupational, and speech therapists.
• Adonis Raises $31 Million in Series B Funding (June 2024) – In June 2024, Adonis raised $31 million in Series B financing for a post-money valuation of $155 million. Point72 Ventures led the round, joined by existing investors General Catalyst, Billing Capital, and Max Ventures. Adonis develops a healthcare revenue intelligence and automation software platform to streamline medical providers’ RCM functions. The company has processed over $13.3 billion in healthcare charges for more than 10,000 providers as of June 2024, according to a press release.⁹ Adonis plans to utilize the funding to further develop its artificial intelligence and machine learning capabilities for digital health businesses in the Anesthesia, Dermatology, Orthopedics, Dental, and Behavioral Health verticals.

Strong Healthcare IT sector dealmaking in 2024 has provided an optimistic outlook for Private Capital markets activity in the space moving into 2025. The DTC vertical will likely continue to struggle until inflation cools and consumer spending rebounds. The B2B market is anticipated to lead sector M&A and financing activity throughout 2025 as healthcare providers become increasingly reliant on technology to drive performance improvement.

To discuss end market disruption in the Healthcare IT sector, provide an update on your business, or learn about Capstone's wide range of advisory services and Healthcare IT M&A knowledge, please contact us.

Max Morrissey, Vice President, was the lead Market Intelligence contributor to this article.

Endnotes

1. Centers for Medicare & Medicaid Services, “CMS Releases 2023-2032 National Health Expenditure Projections,” https://www.cms.gov/newsroom/press-releases/cms-releases-2023-2032-national-health-expenditure-projections, accessed November 13, 2024.

2. Grand View Research, “Revenue Cycle Management Market Size,” https://www.grandviewresearch.com/industry-analysis/revenue-cycle-management-rcm-market, accessed November 13, 2024.

3. Grand View Research, “Healthcare IT Market Size,” https://www.grandviewresearch.com/industry-analysis/healthcare-it-market, accessed November 13, 2024.

4. The Edgewater Funds, “The Edgewater Funds Announces Elevate Patient Financial Solutions’ Acquisition of NYX Health Eligibility Services to Deepen RCM Offering,” https://www.edgewaterfunds.com/the-edgewater-funds-announces-elevate-patient-financial-solutions-acquisition-of-nyx-health-eligibility-services-to-deepen-rcm-offering/, accessed November 14, 2024.

5. Franciso Partners, “Francisco Partners to Acquire AdvancedMD from Global Payments,” https://www.franciscopartners.com/media/francisco-partners-to-acquire-advancedmd-from-global-payments, accessed November 14, 2024.

6. Medcom Billing Systems, “Medcom Solutions,” https://medcombillingsystems.com/solutions, accessed November 14, 2024.

7. Prompt, “Prompt Acquires OnusOne to Transform Compensation Models in Rehab Therapy,” https://promptemr.com/blog/prompt-acquires-onusone-to-transform-compensation-models-in-rehab-therapy/, accessed November 14, 2024.

8. CISION, “StrataPT Secures $25 Million to Help Outpatient Therapy Practices Improve Clinical Efficiency and Realize Highest Reimbursement Rates,” https://www.prweb.com/releases/stratapt-secures-25mm-to-help-outpatient-therapy-practices-improve-clinical-efficiency-and-realize-highest-reimbursement-rates-302263740.html, accessed November 14, 2024.

9. Adonis, “Adonis Raises $31 Million Series B,” https://www.adonis.io/resources/adonis-raises-31-million-series-b-led-by-point72-private-investments-to-improve-healthcare-financial-outcomes-and-patient-experiences-through-ai, accessed November 14, 2024.