Digital Health IPO Window Opens Amid Uncertainty, M&A Activity Rises

The digital health sector is experiencing a cautious resurgence in initial public offerings (IPOs) after a prolonged period of stagnation, while mergers and acquisitions (M&A) activity continues to gain momentum. However, industry experts warn that economic and policy uncertainties could complicate the outlook for companies seeking to enter the public markets.

IPO Landscape: Opportunities and Challenges

At the recent HLTH conference in Las Vegas, industry leaders discussed the renewed interest in digital health IPOs for 2026 and 2027. Megan Scheffel, head of credit solutions for life science and healthcare at Silicon Valley Bank, noted that many companies are "ready" and have the "financial profile to go public if the market opens."

However, the path to going public is not without obstacles. Robbert Vorhoff, managing director and global head of healthcare at private equity firm General Atlantic, highlighted the challenges posed by ongoing uncertainties:

• The federal government shutdown, now in its fourth week, is preventing the Securities and Exchange Commission from reviewing new IPOs.
• The healthcare sector is bracing for the impact of the One Big Beautiful Bill Act, which could potentially remove millions from insurance coverage and strain providers financially.

These factors create a more difficult environment for companies aiming to meet and exceed expectations set during the IPO process in their early quarters as public entities.

Recent Success Stories and Strategies

Despite the challenges, the sector has seen some notable successes. Healthcare payments firm Waystar went public in 2024, followed by digital musculoskeletal care company Hinge Health and chronic condition management firm Omada Health earlier this year.

Leaders from Omada and Hinge shared their strategies for successful public offerings:

1. Acting like a public company while still private, including conducting mock earnings calls.
2. Demonstrating attractive top-line growth, margins, and a clear path to profitability.
3. Seeking specific feedback from investors on their businesses rather than solely focusing on market timing.

Daniel Perez, CEO and co-founder of Hinge Health, emphasized the importance of beating and raising expectations for four quarters before going public.

M&A Activity on the Rise

For companies unable to meet the high bar set for IPOs, M&A presents an alternative exit strategy. The sector has seen a significant increase in deal volume, with 166 acquisitions recorded through the third quarter of 2025, a 37% increase from the previous year.

Scheffel noted two primary trends in M&A activity:

1. Consolidation of similar firms to build efficiency.
2. Combination of adjacent businesses to add new capabilities, such as a behavioral health company merging with a physical therapy provider.

However, experts caution that integrating two companies can be challenging, particularly for startups new to M&A. Sasha Kelemen, a director in Baird's global healthcare investment banking group, described it as a "painful process" but necessary for survival in some cases.

As the digital health sector navigates these complex market dynamics, companies must carefully weigh their options and prepare thoroughly for either public offerings or strategic acquisitions to ensure long-term success and value creation.