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A strong labor market and consumer spending held up economic growth in 2023. Together with signals of rate cuts in 2024, public markets rebounded with performance well into the double digits, especially among technology vendors – the NASDAQ and our Horizontal SaaS index posted 45 – 55% gains. Mostly because of a weak Q3, our Digital Health index underperformed with an 11% gain in 2023. Revenue valuations remained at a discount to the NASDAQ at 3.5x. Revenue growth was flat at 9% for our index members, although the majority have improved their profitability profiles.
Digital Health private placement deal volume mostly held flat, with 2023 recording ~900 transactions. Q4 2023 saw the lowest quarterly deal value in over five years at just $2.8B with the full year’s $13B of deals representing another annual decline of 40%. The market appears to be concentrated on smaller placements, as Q4 had almost no large raises above $100M and average deal size fell to just $13M.
Comparatively, the M&A market in Digital Health was healthier. Deal volume was also consistent with 2022 at just over 300 deals, while aggregate value only declined 25%. The proportion of sub-$50M deals continued to decline, a sign that earlier-stage vendors are trying to weather the market climate. We are optimistic for 2024 M&A activity given many vendors have been focused on improving profitability. The LTM average M&A revenue multiple held flat above 6x, representing a premium to the public markets.