Acquisition Frenzy Afoot in Corporate Wellness

Corporate wellness has a new dominant player with Virgin Pulse’s recent acquisition of two competitors — a signal that more consolidations are on the horizon in an industry crowded with scores of players.

Virgin Pulse, a wellness and engagement company that is part of Richard Branson’s Virgin Group, announced in February that it was acquiring Providence, Rhode Island-based ShapeUp and Global Corporate Challenge, a wellness firm based in Melbourne, Australia. Together, the three companies will serve 6,500 customers in 185 countries, according to a company news release.

“This industry is growing quite rapidly, so there are a lot of companies building the same things,” said Chris Boyce, CEO of Virgin Pulse. “We saw an interesting opportunity by combining ShapeUp and GCC, which has an international presence. With these three entities, we will have a huge number of clients, and we are picking up great programs and international capabilities.”

Financial details of both acquisitions remain undisclosed, but the deals are likely the first of many to come, said Danna Korn, CEO of Sonic Boom Wellness, a corporate wellness program based in Carlsbad, California. She predicts that 2016 “will be a big year” for mergers and acquisitions in the wellness world.

“This is the first in a huge wave of these kinds of occurrences, and it’s going to continue to happen,” she said. “Companies will either get gobbled up or go out of business.”

With so many players crowding the field, like Sonic Boom, Ceridian LifeWorks, Corporate Fitness Works, Limeade, Keas, The Vitality Group and a steady flow of smaller startups entering the market, it’s inevitable that some will not survive, according to Mike Thompson, president and CEO of the National Business Coalition on Health.

“The whole wellness arena is entirely fragmented,” he said. “There are literally hundreds of players, and it’s not clear that many have distinguished themselves from the pack. It’s like the wild, Wild West.”

Companies that are majority-owned by venture capital and private equity firms are most susceptible to being sold or going bust, Korn said.

“Nearly every big player in the industry has taken a lot of funding in private equity venture capital,” she said. She added that Sonic Boom is not funded by venture capital or private equity. “They have to pay it back plus interest, or someone will have to buy you. Investors say that you have three to five years before you have to pay them back. If you can’t, then you have no choice but to be acquired or go out of business.”

Oftentimes, private equity and venture capital firms expect startups to double or triple their growth in that three- to five-year period, according to industry analyst Andrew Sykes, president of Habits At Work, a corporate wellness consulting firm in Chicago.

“Organic growth is very difficult to achieve at the pace that venture capital firms are looking for,” he said. “A way of getting their money out is selling the business that they invested in.”

The mergers and acquisitions trend mirrors the consolidation craze in the human resources software industry of a few years ago.

“It’s a really interesting and exciting time for our industry,” said Henry Albrecht, CEO of Limeade, a Bellevue, Washington-based health and wellness technology company. “It’s a natural process in markets to assemble over time when there are similar products and platforms to integrate. We’re in a period of coalescence.”

What this activity means for employers is unclear, but many agree that Virgin Pulse’s acquisitions will likely be a boon to companies trying to expand their global reach and those seeking more nuanced approaches to wellness. The wellness industry is shifting its focus from traditional methods like health risk assessments and biometric screenings to programs that address employees’ emotional, financial and mental well-being. 

“The large employer market is increasingly global and seeking scalable wellness platforms and solutions that can be adapted beyond the U.S.,” said LuAnn Heinen, vice president at the National Business Group on Health. “From that standpoint, the successful integration of these companies, each of which had its own successful platform, could be a plus. At the same time, we’re seeing a proliferation of startup players in the wellness space, so there is no shortage of niche solutions for employers to pilot in areas like diabetes prevention, nutrition, sleep and resilience. It’s good news that now, and in the foreseeable future, employers have access to large scalable solutions as well as new ideas and mobile apps from small vendors.”