In recent years, we have seen healthcare information technology (IT) companies emerge as a leading investment focus for private equity. Healthcare IT has showcased resilience and steady growth even as other healthcare sectors, like healthcare services, faced evolving regulatory challenges. While Healthcare IT faces its own set of regulatory hurdles — especially around data security, interoperability, and compliance — these differ from the direct care and reimbursement complexities that healthcare services providers confront.
As owners of healthcare IT companies consider their strategic plans for 2025, I believe they have a unique opportunity to consider lucrative exit strategies and other mergers and acquisitions (M&A) opportunities, driven by strong and rising interest from investors who recognize the substantial value of digital transformation in healthcare.
Why Buyers Are Targeting Healthcare IT Businesses
The interest in healthcare IT companies from private equity firms and others stems from the long-term customer relationships and "stickiness" of software platforms, especially in mission-critical areas like revenue cycle management (RCM), quality of care, and provider productivity applications. The ongoing digital transformation in healthcare, coupled with a rising demand for analytics and interoperability, positions healthcare IT companies as high-value targets with scalable revenue potential.
Historically, the lower-middle market in healthcare IT was less attractive to private equity due to the dominance of venture capital investors and a focus on growth at all costs over profitability. However, as fundraising becomes more challenging, companies are shifting to scale with profitability in mind, aiming for cash-flow-positive models. We have seen this shift spur a rise in venture-backed, lower-middle-market software transactions, creating new M&A opportunities for companies that previously had limited exit and partnership options.
Attractive sectors in healthcare IT include RCM, predictive analytics, value-based care, and niche-focused healthcare solutions. RCM platforms are among the most sought-after targets, with significant deal flow driven by the outsourcing of complex billing and coding tasks. Despite some consolidation in recent years, this market remains highly fragmented, offering further consolidation opportunities for private equity, while the long-term relationships these platforms foster enhance scalability and investment appeal.
With the rise of value-based care, platforms centered on financial efficiency, data-driven decision-making, and outcome improvement — such as clinical analytics, care coordination, remote patient monitoring (RPM), and point-of-care decision support tools — are experiencing elevated activity. Tools leveraging artificial intelligence (AI), machine learning, and real-time data integration are particularly scalable across various healthcare settings, making them especially attractive to investors.
Software products focused on specific niches within healthcare are also drawing premium valuations due to their high demand. With barriers to entry and limited competition, these specialized products often establish moats through customer retention and long-term contracts, making them ideal tuck-in acquisitions for larger platforms. Examples include ambulatory electronic health record (EHR) and practice management solutions tailored to specialties like dermatology and ophthalmology, which offer highly specific workflows and patient engagement tools that drive operational efficiency and improved outcomes. Products focused on chronic disease management, such as hypertension- and diabetes-focused RPM, also align well with value-based care models.
Why This Matters for Healthcare IT Business Owners
Private equity interest in healthcare IT companies is driving higher valuations, especially in the sectors outlined above, enabling many owners to achieve attractive multiples when they bring their company to market. Selling to investors that understand the strategic value of specialized software allows for smoother integration into larger platforms, enhancing scalability and impact. Owners can also benefit from flexible exit options, including minority buyouts, majority recapitalizations, earnouts, equity rollovers, and ongoing roles within the acquiring platform, offering various paths to a successful transition.
For Healthcare IT business owners considering a future sale, taking steps now to strengthen and streamline operations can lead to a more attractive valuation and smoother transaction process. Start by ensuring that financial records and key performance indicators (KPIs) are transparent, accurate, and readily accessible. Clear visibility into revenue streams, customer retention rates, and cost structures is essential for attracting potential buyers.
Additionally, focus on reinforcing your platform's scalability and interoperability to align with industry demands for flexible, integrative solutions — features highly valued by private equity and strategic investors. It's also wise to address regulatory compliance proactively, particularly around data security and interoperability standards, as these are increasingly scrutinized in due diligence.
Finally, consider solidifying long-term contracts and deepening relationships with clients. Long-term customer retention enhances the perceived stability and profitability of the business. By preparing these elements now, you'll be well-positioned to capitalize on the favorable market trends when the right opportunity arises.
Maximizing Value in Healthcare IT M&A: Why Founders and CEOs Should Trust VERTESS
At VERTESS, we bring unparalleled expertise and a deep understanding of the healthcare IT sector to every M&A engagement, helping clients achieve the highest possible valuation and a smooth, successful exit. Selling a business is more than just a transaction — it's the culmination of years of hard work and growth. We recognize these efforts and take a personalized approach to transaction engagements, working closely with each client to understand their goals and develop a strategy that highlights the unique value of their company. Our process begins by identifying the ideal target buyer groups, whether they are private equity firms, strategic acquirers, or other specialized investors. With our extensive network, we connect owners with buyers who appreciate the strategic value of their business and are invested in maximizing its future growth potential.
We also excel in crafting a compelling narrative that showcases each company's strengths. By collaborating with clients to emphasize scalability, revenue potential, and competitive advantages, we ensure their business stands out in a crowded market and attracts top-tier buyers. From structuring the deal to navigating due diligence and handling negotiations, VERTESS provides comprehensive support at every step, anticipating and addressing potential challenges to keep the process on track. Our expertise ensures that every detail is managed with precision and care, giving clients the confidence that they're positioned for success.
With private equity attention intensifying and valuations on the rise, now is an ideal time for healthcare IT business owners to consider their exit options. Partnering with seasoned advisors like VERTESS can simplify the M&A process and unlock the full potential of an exit. This will help ensure owners are well-positioned to capitalize on today's healthcare IT market opportunities while preserving the legacy of their healthcare IT businesses.
Jack Turgeon, MBA
As a Director at VERTESS, I bring extensive experience in sales, consulting, and project management from early-stage startups. With an MBA from Babson College, I have a strong foundation in business strategy, operations, and financial analysis. My personal connection to behavioral healthcare through a family member motivates me to help business owners get the best deal possible while ensuring high-quality care for their clients. Throughout the M&A process, I provide comprehensive support at every step. I have a proven track record in negotiations and client management after working with companies in various industries. I’m excited to join VERTESS and make a meaningful impact on the lives of the owners I work with.
We can help you with more information on this and related topics. Contact us today!
As a Managing Director at VERTESS, which specializes in healthcare mergers and acquisitions (M&A) advisory, I've witnessed the industry's inherent cycles shaped by the likes of economic trends, regulatory shifts, and technological innovations. The latest analyses point to the likelihood of a significant rebound in healthcare M&A as we near the end of 2024 and move into 2025 — and I personally share this sentiment.
At VERTESS, we are seeing an uptick in new clients exploring exit strategies, recapitalization, and growth opportunities, alongside an increasing interest from various buyers and emerging investment groups. I do not believe this revival is a fluke. Rather, it's a culmination of a blend of factors redefining the strategic landscape for healthcare organizations.
Such a bounce back for the healthcare industry would be welcome news, considering the turbulent few years we are hopefully starting to put behind us. Regulatory uncertainties, volatile valuations, and the impacts of the COVID-19 pandemic — which still weigh heavily on some sectors — led to a noticeable slowdown in healthcare M&A activity. Additionally, the dual pressures of inflation and rising interest rates prompted many organizations to tread cautiously with their capital.
However, the following are five emerging indicators that suggest we are on the cusp of increases in strategic healthcare M&A transactions.
1. Market stabilization
Organizations are beginning to regain confidence in their strategic capabilities, which is helping stabilize the market. In addition, clearer regulatory guidelines, in areas such as telehealth and value-based care, are fostering a more stable environment that would appear ripe for M&A activities.
2. Consolidation trends
The healthcare sector continues to undergo a significant consolidation phase — and evidence points to this period continuing for some time, even with some consolidation efforts receiving increased scrutiny. Buyers are seeking opportunities to enhance their operational efficiencies and achieve economies of scale.
3. Technological advancements
The pandemic further accelerated the adoption of digital health technologies, thus fundamentally reshaping our industry. Companies specializing in health tech solutions, including those using artificial intelligence and machine learning, are becoming highly sought-after acquisition targets, both because of their results to date and their perceived long-term value. The integration of innovative solutions represents an opportunity for traditional healthcare providers to improve patient outcomes and operational efficiency while differentiating themselves from competitors and potentially capitalizing on the continued movement toward value-based care.
4. Private equity involvement
The recent lull in M&A activity has resulted in private equity firms accumulating substantial capital reserves. We see that the firms are eager to invest and have a growing interest in doing so within healthcare. These firms, which are often focusing on long-term value, are well-positioned to drive a new wave of consolidation. In 2025, I expect elevated consolidation in more fragmented markets like home health, behavioral health, and outpatient services, to name a few.
5. Focus on value-based care
The ongoing transition to value-based care models is prompting some healthcare organizations to pursue partnerships specifically aimed at enhancing care coordination and improving patient outcomes — two key contributors to value-based care success. We are seeing how M&A can lead to innovative care delivery models that enable healthcare organizations in value-based care arrangements to meet the evolving expectations of payers and patients.
My Strategic Healthcare M&A Outlook
Recognizing that 2025 is likely to see a resurgence in M&A activity, I believe stakeholders across the healthcare spectrum should begin preparing now — if they haven't started already — to capitalize on the growth in transactions. Organizations must prioritize initiatives that support efforts to identify strategic partnerships that align with their long-term objectives, bolster their competitive positioning, and enhance patient care.
The cornerstone of successful healthcare M&A lies in meticulous due diligence and developing a concrete understanding of the strategic rationale behind potential deals. Healthcare executives would be well-served to collaborate with seasoned M&A advisors who can provide invaluable insights into market trends, help identify suitable targets, and facilitate negotiations that yield fair value for all parties.
When I read the tea leaves, I see a healthcare M&A landscape that stands on the precipice of revitalization, driven by market stabilization, technological innovation, evolving care delivery models, and other influences. As we approach the end of 2024 and transition into 2025, organizations that remain agile and proactive in their strategic planning will be ideally positioned to seize the opportunities that lie ahead. In this dynamic environment, the role of M&A advisory will be essential in navigating the complexities of transactions, helping ensure that healthcare organizations not only survive but thrive.
Anna Elliott, CM&AA
With over 15 years of experience in healthcare technology, post-acute care, hospice, and urgent care, I am a highly experienced healthcare executive. I have successfully supported numerous private equity roll-ups and exits in the home healthcare sector. My extensive knowledge of the healthcare industry and my leadership in the M&A community, as a certified M&A Advisor (CM&AA) and member of the Executive Committee of the Chapter of the Association for Mergers & Acquisitions Advisors (AM&AA), distinguish me from others in the field.
Throughout my career, I have specialized in healthcare and have excelled in attracting healthcare technology firms and industries that are growing through Mergers + Acquisitions. I have a strong ability to target specific needs and opportunities in the business supply and demand process, resulting in over $150 million in value delivered to organizations.
As a co-founder of M&A Finders, a boutique Merger and Acquisition advisory firm in Pittsburgh, I have been able to pursue my passion for advocating on behalf of buyers and sellers in achieving their M&A goals. I am excited to bring my skills and network to VERTESS, where I have access to the necessary resources to further expand my impact in the healthcare industry.
We can help you with more information on this and related topics. Contact us today!
There's the expression, "You never get a second chance to make a first impression." For many healthcare business owners thinking about selling their company, the first impression they may personally make on prospective buyers will come from a confidential information memorandum (CIM). If that CIM doesn't represent the business in a professional, positive, and transparent manner, the owner may not get a chance to receive a fair offer.
What exactly is a CIM? It's the confidential document used to market a healthcare business to potential buyers. It may go by other names, including a pitch deck, investor deck, the "book," or confidential information presentation (CIP). The marketing document is typically called a CIM when used in the sale of a mature healthcare businesses and a pitch deck for healthcare startups.
While the name is interchangeable, the content is not. A CIM is the initial source of data and information a buyer uses to evaluate the candidacy of an investment target relative to its investment thesis. Broadly speaking, the CIM explains what the business does and the type of transaction the owners are seeking.
Most business owners do not create a CIM until they are prepared to actively market their business for a sale. However, if an unsolicited buyer takes interest in your company, immediate signals are sent if you do not have a CIM, let alone one that's current: You're unprepared for a sale, and the buyer is in a good position to negotiate a value deal. At least those are the signals potential buyers receive, regardless of whether they're true. Simply responding to interested buyers with an annually updated CIM signals a posture toward prospective buyers that you are not interested in a low-ball offer.
On the other hand, if you intend to execute a coordinated, professional healthcare M&A process to sell your business, a CIM is required. You will be marketing your business to dozens — if not hundreds — of potential buyers, many of whom analyze numerous potential acquisitions each week. Without the data about your healthcare business consolidated in a professional manner, buyers are much less likely to invest the time into understanding your company's raw information. Note: Marketing your healthcare company is essential to finding the right buyer and securing a fair price for your business, which I previously discussed in this column.
Moreover, organizing and presenting the data allows you to structure the narrative in ways that emphasize your company's strengths while providing explanation on any potential weaknesses. You can tell your story to potential buyers in ways that benefit you as opposed to allowing a buyer to "discover" the hair — the operational, legal, financial, or other aspects of the business that have had errors, inefficiencies, or other liabilities — and speculating on any other skeletons that could be in your closet.
This column takes a closer look at the importance and development of a CIM is written for two audiences: 1) sellers who are hiring a professional healthcare M&A advisor, like VERTESS, to help them proceed with a sale and develop a supporting CIM or to double check that their current advisor included the relevant, key points in the CIM and 2) owners who endeavor to manage the sale of their business without a professional M&A advisor (not advisable) and therefore need tips and best practices to create an impactful CIM.
Confidential Information Memorandum Best Practices
Let's take a look at a few general CIM best practices before we discuss key components of a well-rounded CIM.
First, do not use a Word or similar document to create your CIM. Nobody wants to open up a CIM and be greeted by a wall of text — even a wall that has an occasional chart or image dropped in. Buyers review hundreds of CIMs, so the last thing you want to do is have a CIM that makes a negative first impression (remember what I said in the first paragraph). Make your CIM simple, nice to look at, and easy to review and digest. Include graphics, charts, and pictures, and present them in an attractive layout. This is best achieved using software like Microsoft PowerPoint.
Second, don't exaggerate or attempt to mislead a reader. An investor competent enough to buy your company is also competent enough to eventually learn the truth about your company. Be as honest as possible in the CIM. That's what buyers are expecting.
Third, and this goes back to the purpose of the CIM: Keep it concise. This means around 40 pages, although fewer is fine if that's what's required to effectively tell your story. If you feel compelled to create a CIM that's longer than 40 pages, you should feel that those "extra" pages are absolutely essential to better positioning your company in a competitive landscape.
After sending a CIM to potential buyers, you will find many will respond with additional questions deriving from their specific investment thesis. You can't try to get ahead of every question as questions change between differing theses. An industry specialist can help you create a CIM with specific data points that all investors in your vertical will want to understand. Investors will begin analyzing the data, using it in their own models; ask questions relating to their own thesis; and, if they feel like there could be an interesting opportunity, they will set up a "coffee meeting." This meeting gets final questions out of the way. When using a healthcare M&A advisor, the coffee meeting isn't something you should need to do as the seller.
From here, a potential buyer should have the preponderance of data needed to meet with you, the seller; identify chemistry and synergy; dig deeper into the data; visit your operations (if applicable); and eventually, if all goes well, submit a letter of intent (LOI).
What To Include in Your Healthcare Confidential Information Memorandum
Below we identify some of the core components of a good CIM. There may be reasons to exclude, modify, or expand on this list. Each business is different, and your M&A advisor should know what is most important to include in your CIM, assuming your advisor is a specialist in your healthcare industry.
Company overview
The first page of the CIM with meaningful content — usually the overview — gets a fair amount of attention and then most buyers will scroll to the financial section found later in the CIM. If buyers like both pages, they'll go back and read the rest of the document.
In your business overview, summarize the offering in a way any reader (potential buyer) can understand. Define your audience, which is often demographics of end users, the business types you sell to, and/or possibly a job function (i.e., your customers). Show how you solve a problem(s) and explain it in a way that's easy to follow.
The final element to include in your overview is your "secret sauce" — your unique approach to solving the problem with your target audience.
Some quick tips for writing the overview:
Avoid using adjectives like "first," "only," "huge," or "best," which are words that signal inexperience and possibly exaggeration.
Take time to properly define your target audience.
Eliminate buzzwords or jargon.
Keep it concise.
Include the ownership structure, reason(s) for the sale, and details on the desired deal structure, if known.
Company history
When you reflect on the history of your business, you'll probably think about the experience of opening the company, your first customer, the first time you hired and fired someone, your first insurance reimbursement check, a customer experience that went wrong, or a major accolade. Investors want to know about the background of your company, but they are really looking to understand your history through the lens of growth. Help buyers visualize the way your footprint expanded, customers grew, patients diversified, contracts were secured, and staff increased. Include the challenges and risk factors you faced along the way and how you overcame or navigated them.
Remember: A buyer is acquiring your business so they don't need to face all the challenges you encountered and overcame. If they wanted to face those challenges, they would start their own company. Let buyers know how much work it took to grow the company to its current state, even if those growth pains are in your distant memory.
After reading the history, potential buyers should come away with two sentiments: 1) I'm glad I don't have to go through all that effort, and 2) The skill, effort, and luck involved to advance the business to its current state are difficult to reproduce, so it's less risky to buy than build.
Team
Include an organization ("org") chart and explain why your team is qualified to execute your operations better than competitors. Work history, networks, and skills are key points to highlight, as is your history together as a team. This may include how you knew each other before working together.
Resume highlights or short bios are expected. Limit these to your leadership team. While the organization chart may show all the positions (ideally grouped by division or function), investors are most interested in and likely looking to acquire your management team. They want to know the management team that they're acquiring is worth their investment.
Healthcare market
In many healthcare verticals, the market is known or assumed, but potential buyers want to know how big the opportunity is associated with your company. Yes, they may plan to expand your business, but the core market is a starting point, and they want to know that you know it.
Beyond providing a market overview, also provide a clear picture of your audience. What is your market size? Who are they, and how many are in your market? How do you reach/communicate with your audience? What are your referral sources? What is your market position?
When putting together this market analysis, you may decide to share the "total addressable market" (TAM), which includes every potential member of your audience seeking services or products from your business, or you may decide to refine it to your "total serviceable market" (TSM), which are the customers you are able to reach.
Business model
How do you make money? Who pays you, how much, when, and from where? I've seen sellers drop the business model canvas into a pitch, but that may signal inexperience. You should be able to synthesize your business model into a succinct, visual, and possibly creative way where everyone can understand the model.
For example, with substance use disorder (SUD) providers, I model the American Society of Addiction Medicine (ASAM) continuum in a visual, then overlay the company's position in the continuum and add relevant data. See an example below. It's a simple visual to depict a client's business model, and even an investor not experienced in the space will understand exactly what the client does, how they're paid, how patients move around the continuum, and some outcome measurements.
Competition
Not all CIMs include information on competition, but I personally like to discuss it. In the SUD/mental health spaces, it's helpful to see the density of providers in a geography since that helps buyers understand in-network reimbursement rates better.
When providing a competitive analysis in the CIM, you do not need to know and/or identify every competitor, but you should have command over the competitors in proximity to your operations. Communicate how they're trying to address the problems you're working to solve and how your solution is similar or different — or whether any difference matters.
If you have a competitive advantage, share it. If your service is similar to your competitors, leave this section out. It may be unnecessary and spur questions you don't want to answer.
Business growth
Buyers deploy capital to generate a return on their investment. How might they generate a higher return on capital with your asset versus another? While you might not receive the "credit" in valuation for future revenues associated with growth (the buyer will need to do the work to achieve that growth, so they're not going to pay for it ahead of time and be accountable to execute it), you'll see increased interest from potential buyers if you can show demonstratable pathways to that growth.
Case studies that highlight a recent initiative and discuss how that initiative and its success can be reproduced is one effective way to demonstrate growth opportunities. In SUD, this may be a new level of care in an existing geography or starting an intensive outpatient program (IOP) to see if there's demand in a new geography before launching a residential treatment center (RTC). In mental health, a case study might speak to marketing to new populations, telehealth, psychedelics, or transcranial magnetic stimulation (TMS). Including data points that give a clear picture of the path toward growth can effectively demonstrate growth potential.
There are areas of low-hanging fruit for growth in most businesses. Even if they seem obvious, explain them. There are also growth initiatives you may have considered but chose not to pursue due to the effort, capital requirements, lack of manpower, lack of expertise, or simply because you were approaching a sale. Put numbers and timelines to these initiatives and offer the buyer a blueprint to a higher return on capital.
You're the expert. Help show it in the CIM. Buyers want to know what you might do to grow first before considering their own plans.
Financial overview
Historical and projected financials are key elements to a CIM. Explain volatility, and defend the proforma. Potential buyers will scrutinize any years where revenue and expense variance were substantial, so it helps to set the narrative for those likely questions in the CIM.
It's best that proformas provide a realistic outlook for the current scope and scale of the business if it is mature or a defensible and conservative outlook for growth initiatives for a newer business or startup. Sellers tend to have a bright outlook for future performance, but buyers know that storms can quickly appear in even the bluest of skies. In other words, your proforma should point "up and to the right" (it would be uncommon for an owner to believe plans will result in declining revenues) but avoid signaling inexperience by including assumptions that paint an unrealistic or overly optimistic growth trajectory.
Make sure the data you've peppered throughout your CIM clearly ties to and is reflected accurately in the proforma. We call this "tick and tie," where advisory teams put a "tick" mark next to every data point in a CIM and "tie" them out to all the other data to ensure everything checks out. If you don't tick and tie your CIM, there's a good chance a buyer will — and if they do, expect them to catch any errors, which will damage your credibility.
Metrics
Not all businesses operate off metrics, which is a travesty. If you have metrics, the key is to compare yours to industry norms. Common metrics in healthcare businesses include prior authorization versus claims collected, census, inventory turnover, and rounding, so you should be able to identify the benchmarks (a healthcare M&A advisor will help with this as well). If you have substantial variance from any benchmarks, you must address the reason(s) why. It's better to have an upfront explanation than to let buyers discover these variances and develop their own narrative for why your business is underperforming.
Creating An Optimal Healthcare Confidential Information Memorandum
Developing an informative and effective healthcare CIM takes time, expertise, comfort with software, and other skills. An experienced M&A advisor will have these skills or a team supporting them with such talents. An advisor will know how to present your company's most important data and what data to omit. An advisor will also know how to pepper the CIM with data points allowing buyside analysts to prepare their own models so they can analyze your business operating in their portfolio or model.
Completing a CIM is possible without an expert M&A advisor but doing so is not without risks. For most business owners, the work required to create a proper CIM is usually difficult to effectively execute while operating and leading the company and do so in a way that creates a limited auction for the company.
Since the CIM is essentially the first true experience, interaction, and impression a potential buyer will have with you and your company, it's likely in your best interests to hire a healthcare M&A advisor and task them with taking the lead on drafting the CIM. This will better help ensure the final document communicates what buyers want to see, positions your business correctly under current market conditions and buyer interests, and gives qualified buyers a starting point for the "coffee meetings."
David Purinton, MBA, CM&AA
After working in M+A advisory and corporate financial consulting, I was fortunate to co-found Spero Recovery, a provider of drug and alcohol recovery services with over 100 beds in its continuum of residential, outpatient, and sober living care. As its CFO I led the company to significant revenue and margin growth while ensuring it adhered to the strictest principles of integrity and client care. After selling Spero I remained in leadership with the buyer as its CFO and quickly realized accretion and integration. Of the myriad lessons not learned while earning my MBA with Distinction in Finance from a Tier 1 university, the most profound was the importance of investing in my staff and clients. I learned that the numbers on a spreadsheet represent humans, families, and dreams, which was a radically different paradigm from investment banking.
At VERTESS I am a Managing Director providing M+A and consulting services to the Behavioral Health, Substance Use Disorder treatment, and other verticals, where I bring a foundation of financial expertise with the value-add of humanness and care for the business owners I am honored to represent.
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