In a move that some analysts say may signal the return of the initial public offering (IPO) to the digital health market, revenue cycle management company Waystar said in a May 28 filing with the US Securities and Exchange Commission (SEC) that it will seek a public exit that could raise up to $1 billion.
The digital health market has had a tough year, with no IPOs in all of 2023. Comparatively, the industry saw roughly 20 public exits in 2021. The recent slowdown in the broader IPO market is linked to several trends, including high interest rates and some high-profile bankruptcies, according to Adriana Krasniansky, head of research at digital health strategy group and venture fund Rock Health’s advisory arm.
“It’s not that easy to go public in any sector, but it’s been especially hard for companies in the digital health sector because they’ve seen other digital health players have a hard time on the public markets,” Krasniansky told Healthcare Brew
So, why now? There are a few factors at play that set the stage for Waystar to IPO now, Krasniansky said.
For one, the overall IPO market beyond digital health is starting to thaw, according to Krasniansky and other investment strategists.
Also, some late-stage digital health companies are facing pressure to exit in some way from investors and employees looking for a liquidity event, whether that’s an IPO or another type of public exit like a merger or acquisition, Krasniansky said.
Third, there are some digital health companies on the public market that are doing well and setting a positive example.
“[Those companies] have really found their footing when it comes to reporting quarterly and managing their guidance, so there’s probably a stronger…peer set that some of these players can look for to better see what they should expect,” Krasniansky said. “Now, you have a little bit more foresight into what things might look like for you because you have some of these proxies or peers in the market.”
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Lastly, going public opens a company up to new investors, which is important at a time when the cost of capital in the private markets is high and investors are spending more conservatively, Krasniansky added.
“Especially for some companies that are more private equity-backed, or those that have high debt burdens, it could be pretty interesting for them to go public as a way to broaden their access to different investors or a broader class of investors,” she said.
Looking ahead: Waystar’s IPO could inspire others to take their shot at going public, but it’s going to take roughly a quarter to really tell, according to Krasniansky.
“Going public sometimes can be a decision that’s inspired by other companies doing so, but it’s also a very individual decision for each company,” she said. “It’s not always easy to compare apples to apples, and say because one or two digital health companies are going public that more will follow.”
There has already been some momentum in the digital health market this quarter. While Waystar is the largest digital health IPO of 2024, it’s not the first. Tempus AI, a precision medicine company, filed to go public on May 20 and reportedly plans to raise up to $100 million, though the company didn’t disclose pricing terms in its SEC filing.
Whether or not Waystar’s IPO will make venture capitalists more comfortable investing in the digital health space remains “the million-dollar question,” according to Krasniansky.
“If the IPO market were to open a bit more or thaw a bit more, there may be conversations that begin again about many of these late-stage players exiting publicly,” she said. “However, it’s still important to remember that…several digital health companies left the public markets in the past several quarters.”
Moving forward, Krasniansky said she hopes digital health companies will take “really measured steps…about exiting onto the public markets, because the public market comes with a lot of responsibility.”