India’s healthcare technology (healthtech) space, which is largely dominated by online pharmacy and doctor consultation apps, is now headed into a consolidation phase. Smaller start-ups are entering into strategic M&A deals with established corporates and larger deals, especially as funding dries up across late-stage rounds.
According to a recent report by startup media house Inc42, out of the 206 mergers and acquisition (M&A) deals in 2021, there were at least 13 in the healthtech space alone.
Some of the biggest M&A transactions in the space include Pharmeasy’s buyout of diagnostics chain Thyrocare for $600 million in June 2021 and $144-million acquisition of hospital supply chain management startup Aknamed in September 2021. Tata Digital, a wholly-owned subsidiary of Tata Group, also acquired an online pharmacy startup 1mg for $230 million in June 2021.
Digital health platform Mfine, which recently ran into funding challenges, also merged with diagnostics company LifeCell International after laying off almost half its workforce in July 2022. The startup, which raised more than $90 million in financing from Stellaris and Prime Ventures, was one of the casualties of the slowdown in late-stage funding. Prior to the acquisition, it was last valued at around $450 million.
This year, due to inflationary pressures coupled with a slowdown in late-stage funding, more than 30 different tech startups in the country have resorted to layoffs or restructuring.
However, there is still a large amount of uninvested capital lying across VC and PE funds that are focused on India, and several healthtech investors and investment bankers told FE that they are eyeing deals in emerging healthtech categories. Start-ups in AI-based diagnostics and patient care, fitness trackers, group insurance and other tech-based allied health services have recently received much investor attention across both early and mid-stage rounds.
“As the deal value in the healthtech space touched approximately $4 billion during H1 of CY22, compared to $$2 billion a year ago. We expect to see a similar trend going forward as there is an increasing demand for data analytics through public-private partnerships and alliances. The evolving shifts in the market and consumer behaviours should continue driving the deal momentum as the larger players will be redeveloping their operating and revenue models to adapt and stay ahead of the curve,” said Ankur Bansal, co-founder & director at alternative NBFC and AIF Fund platform BlackSoil.
Currently, online pharmacy remains the largest category in the healthtech space in terms of funding. Startups in this category raised more than $720 million in 2021, accounting for 33% of the $2.2-billion funding in the healthtech space, according to estimates from Inc42. But this is expected to change.
Analysts and investors indicate that the preventive healthcare space which includes categories such as fitness and wellness apps, foods and supplements, early diagnostics and health tracking products, online health insurance and others is expected to mop up a chunk of the funding in the next few years. Estimates from management consulting firm Redseer show that the preventive healthcare segment is projected to reach $197 billion by 2025, growing at a CAGR of 22%.
Startups such as diabetes management platform Fitterfly, AI-based diagnostics platform Qure.ai, health tracking app GOQii and emergency response provider StanPlus had recently raised large rounds in early- and late-stage funding, signalling investor interest in the segment.
Amit Nawka, partner for deals & startups at PwC India, told FE that the online pharmacy, doctor consultation and diagnostic apps, which received considerable investor attention in recent times, spent a large amount of capital on customer acquisition during the peak pandemic period in 2020-2021.
“However, now investors are wondering whether all that customer acquisition costs are sustainable, now that the healthcare consumers are going back to offline clinics for consultation and diagnostics. Many of these startups also stayed away from expanding into small towns in tier 2 and 3 geographies since the opex costs are too high for an ample return on investment,” said Nawka.
He added that few startups in preventive health care, health monitoring, corporate health insurance and secondary-care categories are instead attempting to go deeper into smaller towns with a capital-efficient model without spending too much cash on operational expenses.
For example, Pristyn Care, which specialises in secondary-care surgeries, is tapping into under-utilised surgical and medical resources lying around both organised and unorganised hospitals in the country using an aggregation model. By partnering with a network of hundreds of clinics and hospital chains, Pristyn Care offers both speciality surgeries and minimal procedures across proctology, urology, ENT, gynaecology, vascular, laser and laparoscopy. Besides surgeries, the platform focuses on doctor’s consultations, hospital admissions and pre- and post-surgical follow-ups.
Pristyn Care also entered the unicorn club recently after it raised $100 million in a Series E round led by Sequoia Capital US, valuing it at $1.4 billion in December 2021.
Mumbai-based Kenko Health, which offers a susbcription-based solution for OPD health insurance, is one of the emerging startups in health insurance taking a differentiated approach for affordable healthcare solutions. It offers a subscription-based service, which costs anywhere between Rs299-1,999 a month, which covers all healthcare expenses across OPD, hospitalisation and medicine delivery through partnerships with insurance companies and online pharmacies. For the monthly subscription, Kenko covers the entire costs of consultation, medicine purchases, diagnostic tests and others.
Aniruddha Sen, co-founder, Kenko Health, said that the startup’s current user demographics include middle-income households mostly in tier 2 towns. The company is also currently in the process of acquiring a general insurance licence from the IRDAI to offer its own health insurance products. It had recently raised around $12 million as part of its Series A round, led by Sequoia Capital India, in Februauy 2022.
“Currently, we cover close to about 120,000 to 25,000 lives and we plan to grow 10X of this by next year. Also, we are looking to raise additional equity-based capital since we have applied for a general insurance licence. Hence, the funding is mainly a regulatory requirement that we have to fulfil,” added Sen in an interview.
Bansal of Blakcsoil further pointed out that although investor focus has slowly started pivoting from curative health to preventive health with more people taking to fitness studios and gyms, while actively tracking their key vitals, regulatory, social and economic tailwinds will eventually determine which specific segments may prove to be most fruitful for investors.
On the other hand, Redseer expects the M&A activity to continue in the future, as well-funded startups acquire smaller, innovative models to plug gaps in their service offerings. However, with investors having raised significant capital focused on Indian startups, analysts and investors expect healthtech startups to continue to raise capital, especially in the early stages.