Today’s exit market for healthcare companies is in a sorting phase, according to one expert.
Jack Euston — a longtime healthcare investment banker, who now serves as co-founder and general partner Fountain Health Partners — thinks that the market is separating companies that were built for the 2021 funding playbook from companies built around capital efficiency and operating discipline.
“The exit environment is better and more active than it has been in several years, but it remains highly selective. The market has shifted from ‘well-funded growth story gets acquired’ to ‘workflow-embedded, margin-relevant businesses get acquired,’” Euston explained.
He noted that while the IPO window cracked open last year with exits from Hinge Health and Omada Health, it has not opened much further. In general, hold periods remain stretched.
That’s the reality today, but it’s not necessarily the environment that strong companies funded in 2026 will face when they’re ready to exit, Euston pointed out.
“When you’re launching a firm today, you’re not really investing into the current exit environment. You’re investing into the environment that will exist three to five years from now, when your portfolio companies are actually ready to transact. We don’t pretend to have a crystal ball, but that is the lens we use,” he stated.
Fountain Health Partners is forecasting what 2028-2031 might look like, and Euston said the team thinks the market will be “meaningfully better than current headlines suggest” for strong companies.
A few years from now, much of “the challenged 2021 vintage” will have dropped off, he said, adding that the companies receiving funding now typically have cleaner capital structures and more realistic growth expectations.
Euston also believes the buyer world for middle-market healthcare companies could continue to expand.
“Strategics have learned hard lessons from the last cycle, whether it was Walmart Health shutting down, Walgreens writing down VillageMD, Amazon working through the challenges of One Medical, or other high-profile examples. Buyers are more disciplined today, but when they find strategic, high-quality assets, they will still pay up,” he declared.
There’s a misconception that disciplined buyer behavior automatically equals lower prices across the board. Euston said this is not the case.
In many situations, it means premium prices for premium assets, and then very little interest in everything else, he explained.
AI will only sharpen that divide. Euston noted that buyers are increasingly viewing AI not as a feature, but as an engine for margin expansion. They’re looking for AI tools that can actually improve margins and simplify workflows in a measurable way.
AI companies that can do this will be well-positioned for raising capital, securing customers and approaching the exit market, Euston remarked. It’s the companies that use AI superficially, or those that remain undifferentiated point solutions, that are much more likely to get commoditized.
That dynamic could create a stronger market for healthcare companies built around long-term sustainability rather than growth-at-all-costs strategies, he said.
Photo: LAW Ho Ming, Getty Images
