Why Is Big Tech Buying Healthcare Companies? It’s the Data and Market, Stupid

Mohit Oberoi, CFA - Author
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Aug. 11 2022, Published 8:18 a.m. ET

U.S. tech companies have grown through a mix of organic and inorganic growth. Through acquisitions, big tech companies have bought direct competitors and potential competitors. Of late, companies like Amazon and Microsoft have been quite interested in healthcare companies. Why are tech companies buying healthcare companies?

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In July, Amazon announced the acquisition of One Medical for $3.9 billion, its third largest deal to date, behind Whole Foods and MGM Holdings. The deal was also the largest since CEO Andy Jassy replaced Jeff Bezos in 2021. Amazon’s One Medical acquisition is not the first healthcare acquisition from Amazon, though, and definitely not the first from a big tech company.

Major healthcare acquisitions by big tech companies:

In March 2022, Microsoft completed the $20 billion acquisition of Nuance, which is “a leading provider of conversational AI and cloud-based ambient clinical intelligence for healthcare providers.”

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Alphabet has also completed several healthcare acquisitions. These include Fitbit, Nest Labs, and Senosis Health.

Apple has been expanding its healthcare footprint, too. CEO Tim Cook believes healthcare solutions would be “Apple's greatest contribution to mankind.” Apple has acquired Beddit, Gliimpse, and Tueo Health in the healthcare space.

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TikTok parent ByteDance has acquired a Chinese hospital chain.

Coming back to Amazon, which has made waves with its One Medical acquisition, the e-commerce and cloud giant has completed several other healthcare acquisitions. These include PillPack and Health Navigator.

It is not only U.S. tech companies buying healthcare businesses. Recently, TikTok parent ByteDance acquired Amcare, which is among the leading hospital chains in China.

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On the face of it, tech companies buying healthcare companies might seem out of left field. However, the deals make perfect strategic sense for Big Tech. To begin with, the healthcare industry is becoming increasingly digitized as companies like Teladoc Health seek to revolutionize the ways healthcare is delivered.

Why are tech companies buying healthcare companies?

Healthcare seems to be the next big frontier for healthcare companies. As the digital transformation gains pace, healthcare is one industry that looks ripe for digitization. For tech companies, healthcare is a big market and its TAM (total addressable market) is around $10 trillion.

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In a world increasingly interconnected through smartphones and the internet, tech companies see a big opportunity in healthcare and are expanding their offerings in the industry, including through acquisitions. Notably, tech companies were also rumored to be interested in Peloton.

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Another reason for the renewed merger and acquisition activity is a fall in valuations. Big tech companies are flush with cash and the fall in valuations of both public and private companies make acquisitions more attractive. Cook has admitted Apple might look at strategic acquisitions amid the fall in valuations.

It’s the data too, stupid!

To borrow a phrase from James Carville, “it’s the data, stupid.” Tech companies are also interested in the loads of customer data that healthcare companies have. Since data is the new oil, tech companies don’t want to miss out on the healthcare data of users as among others it would help boost their digital advertising business.

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