Thatch, a health benefits platform, will consider acquisitions as the market is likely to consolidate in the next couple of years, co-founder and CEO Chris Ellis said.

The San Francisco-based company, which helps employers move from traditional group health plans to a consumer-directed model, is “watching the space” and in contact with sector players and advisors, the CEO said.

Acquisitions could make sense to add technology, customers, or teams, he said, although he declined to share additional details on potential acquisition candidates.

Thatch, which has mainly grown organically, in April announced that the employers, employees, and brokers currently served by Venteur, a ICHRA administration platform, would transition to Thatch’s platform. Ellis said that the deal went “very well” and the customer retention was good.

In the last few years several companies have entered the health benefits market, and Ellis expects the sector to consolidate over the next couple of years, creating a larger pool of potential acquisition targets.

The growing number of providers and products is also creating customer “fatigue,” he said. M&A can help companies achieve greater economies of scale.

Financing for any potential acquisitions would be arranged as needed, the CEO said. In September, Thatch raised USD 108m in new funding at a USD 1bn valuation from The General Partnership, Index Ventures, General Catalyst, and Andreessen Horowitz, with participation from ADP Ventures, Paychex, Eli Lilly and Company, Scale Venture Partners, QuantumLight, SemperVirens, Quiet Capital, and Avid Ventures.

The proceeds will mainly be used to expand product and technology and grow the go to market capabilities to meet strong customer demand, he added.

According to Ellis, the company’s revenue has grown nearly seven-fold over the past year, with just under 6,000 employers using the platform.

Approximately 50% of revenue is from small businesses with up to 50 employees, while the remaining 50% comes from mid-sized companies with between 50 and 5,000 employees, Ellis said. He added that the mid-market segment is growing “really fast.”

Over the next 12 to 24 months, the company’s priorities are investing in product development, technology, and go-to-market capabilities, using most of the recently raised USD 108m. he said. Thatch is hiring across all functions and expects to increase headcount to 300 by year-end from about 200 currently, he added.

The business serves members in all 50 US states. Its strongest markets include California, Florida, Maryland, Virginia, the Pacific Northwest, and some Midwestern states, he said.

Thatch would like to pursue an IPO, although Ellis said that is still several years away.

Since its founding in 2021, the company has raised a total of USD 186m, Ellis said.

The recent fundraising should finance the business for many years, Ellis said. He declined to comment on profitability, noting that Thatch remains in a phase of “hypergrowth.”

With Thatch, employers set a defined healthcare benefits budget, and employees use those tax-free funds to choose an individual health plan that best fits their needs, including preferred doctors, prescriptions, family circumstances, and coverage options. Employees can also use the remaining funds for eligible healthcare expenses, including GLP-1 treatments and therapy. The company’s distribution network includes partnerships with ADP, Paychex, Gusto, and QuickBooks.

Other players in the sector include Remodel Health and Take Command, as well as start-ups, the CEO said.