SPAC-powered digital health deals rising dramatically

• According to research by Rock Health, digital health companies are seeing their share prices rise, largely due to the use of special acquisition companies better known as SPAC.

• “In the first three and a half months of 2021, digital outputs from the digital healthcare industry were made or announced by 2020. Digital health companies have been the subject of 13 SPAC-led mergers since the beginning of last year, 11 of which have closed or are expected to be completed this year” the report said. This corresponds to only eight IPOs in the same period. Two SPACs involving digital health companies were completed in 2020 and none in 2019.

• The SPAC targets, however, tended to generate significantly fewer funds than comparable IPOs. The companies were also significantly less developed than those traditionally listed on the stock exchange. However, Rock Health predicts that the trend will continue and should be a “wake-up call” for large healthcare companies looking to purchase digital health goods.

SPACs were launched last year to raise funds faster than a traditional IPO.

The explosion in telemedicine during the COVID-19 pandemic has increased the demand for digital health services during the lockdown. One such deal recently included Share care-backed Anthem, which recently raised $ 4 billion.

However, a SPAC tends to result in a lesser caliber business than an IPO. According to Rock Health analysis, the signed SPAC digital health contracts raised an average of $ 184 million. That’s $ 43 million less than IPOs with similar companies, a 19% difference.

Companies acquired by SPAC are, on average, five years younger than digital healthcare companies that are going public, which means their revenue streams and valuations are likely to be lower as well.

In total, Rock Health has 52 trained SPACs dedicated to the acquisition of healthcare companies. There are also 51 digital health companies with private funding of at least $ 180 million, which means there are likely many more deals out there to bring private digital health companies into the horizon. This could be powered by the record $ 6.7 billion venture capital raised by digital healthcare companies in the first quarter of this year.

While SPACs offer some perks to companies considering going public, “public investors have less time to carefully examine the odds,” concluded Rock Health, suggesting that fraud or other irregular activity is more likely. “While the new way of earning money is important for retailers, some bitter apples may provide poor digital healthcare in the public market.”