M&A activity in 2018 remained healthy in the $40 billion wellness sector. Big players used M&A to get bigger, and private equity investors played both sides of the trade–selling assets to realize gains and buying platforms to effect consolidation. Consolidation has been driven, in no small part, by employers' desire to reduce the number of benefits vendors they use. Consolidators have acquired best-in-class point solutions to integrate into end-to-end solutions. Continued tightening in the U.S. labor market added to industry momentum. Unemployment ended the year at 3.9%, real average weekly earnings grew by 1.2% in 2018. Employers looked for benefit packages that included wellness offerings to recruit and retain employees.
For perspective, employers are the largest conduit for healthcare coverage in the U.S. According to the Kaiser Family Foundation, 56% of the non-elderly population in the U.S., more than 152 million people, received health insurance coverage from employers in 2016. In addition, 60% of workers covered by employers are in self-funded plans, meaning that the employer, not an insurance company, is responsible for the cost of healthcare not funded by employee-paid premiums, co-payments and deductibles. Self-funding skews heavily toward large employers – 91% of employers with 5,000 or more workers are self-funded, versus 23% of employers with 50 to 199 workers.
United States: Healthcare IT Insights – Winter 2019
by Brooks Dexter, Eric Coburn, Philip Smith, Adam Stormoen and Jordan Lampos, Duff and Phelps | February 26, 2019
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Large employers also represent a larger share of the market for employee wellness programs – 62% of large employers (200 or more workers) offer health risk assessments and 50% of large employers offer biometric screening to employees, as compared to 37% and 21%, respectively, of small employers (50-199 employees). Large employers with wellness programs have a significantly higher adoption rate, and 48% of them reported using a third-party wellness provider (as opposed to an insurance company, TPA or self-administration) as compared to 28% of small employers.

The data above suggest that serving large employers could be lucrative is for wellness providers, which could at least partially explain vendor consolidation, as certain wellness program providers using M&A to increase their scale in order to add capabilities to better serve the needs of large employers.
Benefit plans are a valuable tool that employers use to recruit and retain talent. According to a 2016 survey by Glassdoor, 57% of respondents reported benefits to be among the top considerations in accepting a job. As more wellness offerings have been incorporated into benefit plans in response to the progressive tightening of the labor market, wellness has become well-being. Health risk assessments, biometric screening and weight loss and smoking cessation programs have been joined by mental health, sleep management, mindfulness and financial wellness programs in many benefit plans, not only to recruit and retain, but to foster employee engagement and enhance productivity. In response, third-party vendors have added these and other capabilities organically and via acquisition.
Software has been an important enabler for vendors as they scale programs across large employer groups. This was one of the stated drivers of the November 2018 acquisition of SimplyWell, a portfolio company of Frontier Capital, by Marlin Equity Partners, which merged the business with its Virgin Pulse wellness portfolio company. In the press release announcing the deal, Marlin said, "The acquisition of SimplyWell allows us to add immediate scale and critical product features to the Virgin Pulse platform and accelerates the time to market of key clinical-focused capabilities for our customers in the near-term." Earlier in the year, when Marlin acquired and merged venture capital-backed RedBrick and Virgin Pulse, it cited similar dynamics: "Bringing RedBrick's live and digital coaching and benefits navigation together with Virgin Pulse's mobile-first, daily engagement platform allows us to deliver the industry's only global, one-stop-shop for employees and employers."
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