Expect more wellness industry consolidation, experts say

Industry experts believe that more consolidation in the wellness industry is inevitable as large companies seek scalable solutions they can offer on a global basis, but they also say there will always be room for innovative start-ups offering unique services.

In 2014 Stay Well Health Management and Krames StayWell merged, and Interactive Health acquired Health Solutions. Earlier this year, Virgin Pulse joined forces with ShapeUp and the Global Corporate Challenge.

“These mergers were for our clients. First of all, we want to give them the optimum challenge capability available. We also would like to offer customers the best possible global experience,” says Chris Boyce, CEO of Virgin Pulse. “The other thing is that consolidation brings greater capability to invest in scale.”

Defining wellness programs

While Mercer partner and North American total health management specialty practice leader Howard Kraft suggests that “wellness” is one of the most misused terms, he views wellness vendors as running the gamut from vendors promoting health, to those that help reduce health risk, to companies that help people manage chronic or acute conditions.

Danna Korn, the co-founder and chief energizing officer of wellness company Sonic Boom distinguishes between wellness companies offering primarily clinical or traditional services (i.e., Redbrick Health, American Specialty Health) and those that more clearly link wellness to employee engagement like Sonic Boom, Limeade, Virgin and Vitality .

A continuing trend

The growing popularity of workplace wellness is not surprising because companies that invest in their employees’ well-being see improved health outcomes, greater employee engagement, enhanced workplace culture and measurable ROI. As reported in a Limeade white paper, a study published in the Journal of Occupational and Environmental Medicine which tracked the stock performance of 45 publicly traded companies that earned top scores on employee health and wellness scorecards found the high scorers outperformed the 500 largest U.S. companies listed on the S&P 500 index by 235% over a six-year period.

That’s why Korn expects recent consolidation in the wellness industry to be a continuing trend. “I think the reason we're seeing this activity is because companies involved in mergers to date and most of the others out there have raised funds through private equity or venture capital,” she explains. “What that means is that once they take the funding, the clock starts ticking for when they have to pay their investors back. The only way they can find the money is by way of merger and acquisition or a strategic partnership.”

“The corporate wellness market is growing up and with the maturity of the market comes M&A activity.”

“The corporate wellness market is growing up and with the maturity of the market comes M&A activity,” agrees Henry Albrecht, founder and CEO of the wellness engagement and incentive management company Limeade. “A lot of money is being spent on a really important problem so it is attracting considerable innovation. However, much of that innovation will end up under fewer roofs or belonging to fewer companies.”

LuAnn Heinen, VP of the National Business Group on Health, recognizes that large wellness providers are merging with each other, but she also points out that large providers are acquiring smaller companies that offer niche solutions.

In fact, Mercer’s Kraft sees a huge role for smaller, more innovative niche players. “We have developed a partnership with Progyny for their infertility solutions and Livongo for diabetes management. They fill clear gaps in the marketplace,” he says. “Mercer also has an entire team led by a clinician, who evaluates wellness technology start-ups coming out of Silicon Valley seeking our ‘good housekeeping seal of approval.’”

Consolidation: pros and cons

But mergers in the wellness industry typically have pros and cons for both companies merging and their clients.

“I think sometimes there might be efficiencies as a result of these mergers and acquisitions because vendors can get rid of redundant departments or teams, which could result in more competitive pricing,” Albrecht says. But he suggests that consolidation can also be frustrating for buyers, because at least initially, there are so many unanswered questions. For example:

· How will my account be serviced?
· Will there be continuing investment in the product or service I bought?
· Will the integration be a six-month or a six-year process?

For Korn, one of the key problems for employers is that when wellness companies merge, they use vast amounts of venture capital to beef up their sales staff and product innovation but often not enough is spent on account management. “Mergers create instability and disruption for clients. They are used to working with certain people and all of a sudden they are gone,” she says.

“If two companies getting together have complementary products, skill sets and capabilities and they can create a seamless employer and member experience, it’s absolutely a positive” says Kraft. “But in some cases when a company that is extraordinarily good at something merges with someone else it dilutes their core capability and poor integration diminishes their reputation in the workplace.”

Heinen says a major challenge for employers is managing multiple wellness vendors, so if mergers mean more services are effectively integrated on one platform, that’s a good thing. “However, it doesn’t always work that way in practice,” she says.

But Virgin Pulse’s Boyce says the value proposition a merged venture can offer employers addresses issues of vendor access fragmentation. “Employers tell us they want a method of marketing all of their wellness options in a personalized way to their employees and our hub can do that,” he says. Their solution is a “smart hub” where employees can log on and interact with all of the available wellness services from the same portal.

He also notes that when he went out to meet the ShapeUp and Global Corporate Challenge client base after the merger, they were excited about the opportunity to move on to more comprehensive wellness solutions without having to change vendors or work with additional suppliers.

“There’s always a little bit of fear and certainly some of our competitors will be running around saying it’s going to be hard to integrate."

“There’s always a little bit of fear and certainly some of our competitors will be running around saying it’s going to be hard to integrate. But we’re not trying to bolt together a Frankenstein here,” he says. “We will actually have a seamless, great consumer experience across the board for our consolidated client list that will give them a chance to move forward in their maturity model.”

Advice for corporate buyers

So what should employers do if their wellness vendor is suddenly swallowed up?

Kraft says that employers should keep in mind that it is a fluid marketplace, and change will happen. He advises employers to focus on the integration details of the relevant vendors as reflected in their detailed short and long-term change management roadmaps, technology platforms and people and product portfolios.

“Ask very detailed, thoughtful questions so you understand the risks and rewards of the new model,” he says. “For example: What products and services have they purchased and when? What is their readiness level? What is their appetite for new, nimble solutions versus established, proven programs?”

“I would question where they are putting the money and what's going to happen to my service,” says Korn. “One of the biggest complaints in the corporate wellness world is that the service isn't there.”

“This year and next will be the years of the merger in the wellness industry. Gobble or be gobbled.”

Albrecht outlines the following best practices corporate wellness buyers should focus on in an unsteady environment.

1. Prioritize your needs as an organization. What major issue is your organization trying to solve? In a crowded market, many challenges and solutions exist — but you need to prioritize what’s critical to your success. What key capabilities do you need to meet your overarching business goals? What features aren’t as important?

2. Address those needs. This seems obvious, but broader platforms often lure buyers into making decisions that compromise on critical areas. The solution you choose should have excellent bench strength in your highest priority area. If your main goal is improving employee well-being, look for a partner that specializes in it — not a benefits provider with one small well-being feature.

3. Consider integration capabilities instead of one-size-fits-all. One positive development of the consolidation phase is that companies want to make it easy for you to connect with all of your vendors. Choose the (integration-ready) one you love — and customize it to meet your own unique needs.

Even if your wellness vendors have not been involved in recent high profile acquisitions and sales, chances are it may be only a matter of time. “We are always looking at what our clients need and to see if other companies are a good fit for our platform,” says Boyce.

Albrecht absolutely expects to see further mergers and he believes it will come in waves. “I think the key reason there is consolidation is the main players are seeing what a huge opportunity we have in this country to make people healthier,” he says. “And as the impact of wellness programs on the workforce is better understood, more buyers are attracted into the mix.”

Korn says, “This year and next will be the years of the merger in the wellness industry. Gobble or be gobbled.”

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