An IPO, initial public offering, is the first time the general public is able to buy shares in a company. For cash-strapped healthcare companies, going public could mean a life-saving capital boost. However, the healthcare IPO outlook for 2023 is lagging behind other developments in the industry, such as large mergers and acquisitions.
In 2021, healthcare companies shattered previous records with 403 IPOs offered and $56 billion raised (1) because of soaring investment in the health space and (2) a strong stock market. Now, in early 2023, enter: the worst IPO drought since 2009. As US stocks continue to lag behind global peers, it is uncertain when (or if) this period of uncertainty and low investment will reverse back to previous highs.
The ability for healthcare companies to break-even as businesses dictate if an IPO is necessary. A study distributed by the American Hospital Association estimates that half of US hospitals had lower margins in 2022 relative to a pre-pandemic baseline (2). This suggests increased strain on the healthcare industry, though some healthcare companies have seen soaring revenue and profits recently. With supply, labor, and drug expenses rising, raising capital can be a way for healthcare companies to fund new ventures, reward stakeholders and employees, and ensure care can be provided.
As for the outlook in 2023 and beyond, first in the healthcare industry IPO pipeline could be companies in the pharmaceutical, biotech, and virtual care space — all of which have immense potential for positive growth and effective scaling. However, a survey of over 90 health tech experts found that nearly two-thirds of those surveyed expect two or fewer health-tech companies will go public in 2023 (3). Furthermore, none of the most anticipated IPOs of 2023 are healthcare companies.
Unfortunately, this is a standout healthcare industry problem. Bloomberg reporting notes that recent trends in inflation and growth stock rates are signaling a stronger IPO market and that companies who have been waiting to go public should be prepared to accelerate their plans (4). As the outlook for the IPO market for 2023 becomes more positive, it seems that healthcare companies are still not what investors are looking for.
In contrast, in 2022, healthcare companies were the prize of several multi-billion dollar merger and acquisitions (M&A) deals. UnitedHealth Group acquired Change Healthcare for $13 billion, after winning a dispute against the US Department of Justice over claims of anti-competitive behavior. CVS acquired Signify Health for $8 billion and extended into the value-based home care space. Amazon acquired One Medical for $3.9 billion, in an effort to expand its primary care network.
Now, in February of 2023, as CVS announces its acquisition of Oak Health for $10.6 billion, the healthcare M&A deal market seems much more encouraging than the IPO outlook. The IPO market had historical highs in 2021, and predictions suggest that although the market is progressing, it will not reach the same peak. However, the horizon for healthcare M&A deals represents an expansion that could address consumer desire for remote, telehealth, and more convenient primary care.
References
- Frey, M. (2022). Healthcare IPOs Break Record in 2021 as Chinese Companies Lead Q4. S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/healthcare-ipos-break-record-in-2021-as-chinese-companies-lead-q4-68571158.
- Kaufman, Hall & Associates, LLC. (2023). National Hospital Flash Report: January 2023. https://www.kaufmanhall.com/sites/default/files/2023-01/KH_NHFR_2023-01.pdf
- Health Tech Nerds. (2023). HTN 2023 Healthcare Predictions. https://www.healthtechnerds.com/perspective/htn-2023-healthcare-predictions
- Singer, D. (2023). IPOs Speed Up Their Timelines as Bankers Start to See Go Signals. Bloomberg. https://www.bloomberg.com/news/articles/2023-02-01/ipos-speed-up-their-timelines-as-bankers-start-to-see-go-signals