Ginger.io Inc.'s merger with meditation app Headspace Inc. could lead the way for more combinations in the digital mental health space, analysts have told S&P Global Market Intelligence.

The two companies entered into a definitive merger agreement Aug. 25 to become a combined digital mental health and well-being platform called Headspace Health. It followed a year that saw investments in digital health companies by venture backers and employers increase as the pandemic highlighted the need for mental health services.

Mental health apps received over $1 billion in financing in 2020 alone, Raj Prabhu, CEO of research organization Mercom Capital Group, told Market Intelligence. A report by digital health venture capital firm Rock Health showed that this trend continued into 2021, with digital health companies targeting mental health raising $1.5 billion in the first half of the year.

Headspace closed on a $93 million series C funding round in February 2020, followed by nearly $48 million in June 2020, according to Crunchbase. More recently, Ginger raised $100 million from a group of investors in a series E round in March.

Founded in 2010, Headspace offers guided meditation and mindfulness exercises to reduce stress and anxiety as well as improve sleep. The Los Angeles and London-based company provides its services directly to consumers through an app that is available across multiple platforms. The company said in a press release that it has published over 25 studies in peer-reviewed journals, including a case study with employees of Google LLC and Swiss pharmaceutical giant Roche Holding AG that showed eight weeks of using the app decreased anxiety by 31% and depressive symptoms by 46% among healthy adults.

Ginger, a San Francisco-based company also founded in 2010, delivers its mental health app through employers and health plans with a business-to-business model. The company offers team-based care that includes a behavioral health coach and, if needed, a licensed therapist and psychologist who work together to decide on a care plan for users. Ginger counts health systems and health plans such as Optum Inc. and Kaiser Permanente Inc. among its customers.

The combined entity "will address the systemic challenges of access and affordability in a fundamentally different way by creating the world's most holistic, scalable and effective mental health and well-being company," Headspace CEO CeCe Morken said in an Aug. 25 press statement.

The new Headspace Health will reach nearly 100 million users globally through its direct‐to‐consumer, or D2C, business as well as over 2,700 enterprise and health plan partners, the companies said.

The two businesses complement each other, Rock Health COO Megan Zweig told Market Intelligence in an emailed statement. Their different selling strategies offer great cross-selling opportunities, but how the combined entity executes its rollout will be especially important, Zweig said.

"There haven't been many prior examples of a D2C-B2B digital health merger and each go-to-market approach requires a distinct strategy," Zweig said. "Doing both has rewards — like leveraging Headspace's strong brand and customer acquisition to direct users to Ginger services — but also runs the risk of diluting focused efforts."

More mergers possible

The merger could be the first in a series of mental health consolidations as digital health companies compete for a limited supply of mental health professionals such as psychiatrists and health coaches, Zweig added.

This increased competition can already be seen in the traditional healthcare provider space, with Universal Health Services Inc. noting in a July earnings call that the diversion of licensed behavioral health employees into telehealth had been one obstacle to keeping labor costs down and employee numbers up across the hospital network earlier in the pandemic. Meanwhile, telehealth provider Amwell recently purchased digital mental health company Silvercloud Health Inc to boost its behavioral health offerings.

"The space is ripe for consolidation in terms of strategically marrying subscriber bases and platforms with conditions treated, and this deal could open the door for other similar deals in the future," Mercom's Prabhu said in an emailed statement to Market Intelligence.

The financial terms of the deal were not disclosed by the companies. Ginger CEO Russell Glass will lead the combined company when the transaction closes, anticipated in the last quarter of 2021.