- Digital-first value based care startup Babylon plans to go public via a merger with a special purpose acquisition company, the latest in a rash of digital health companies entering the public markets spurred by the coronavirus pandemic.
- The transaction implies a $3.6 billion enterprise value for London-based Babylon, which offers an AI-enabled chatbot and other remote digital health tools, and will net the company an estimated $575 million in proceeds.
- Babylon is relatively fresh to the U.S. market, launching officially in the country early last year. It plans to use the influx of capital to expand its services and further scale its U.S. operations. After closure of the deal, expected by the third quarter, Babylon plans to trade on the Nasdaq under the symbol BBLN.
Babylon is the latest digital health company to saunter into the public markets, having entered into a definitive agreement to go public via a SPAC merger with Alkuri Global Acquisition Corp, according to a Thursday release.
Babylon was founded in 2013 with the aim of realigning the $10 trillion global healthcare market towards low-cost preventative healthcare. The company has two primary channels: Babylon 360, a digital-first care management and navigation service that includes the option of telehealth visits; and Babylon Cloud Services, a platform with self-care tools for patients and doctors, including an AI-enabled symptom checker.
Babylon makes money by taking on medical risk for its members and looking for cost savings, along with annual licensing fees for its software, per an investor presentation on the blank check deal.
Combined, its platforms cover 24 million people in 16 countries. In the U.S. specifically, Babylon covers three million lives, 90,000 of which are capitated, and has licensed providers in all 50 states.
Like other digital health players, Babylon enjoyed rapid growth last year, reporting revenue of $79 billion — five times greater than 2019's topline. Babylon expects revenue to increase at a 166% compound annual growth rate through 2023, when it expects to start returning a profit to investors.
However, some investors may be put off by its $3.6 billion valuation, which represents a whopping 46 times 2020 revenue. Many on Wall Street have raised concerns about sky-high valuations for digital health companies, worried about a COVID-19-inflated bubble that could pop once consumer demand for in-person medical services fully recovers.
And Babylon faces heavy competition in the space: In the U.S. alone, it faces virtual care giants like Teladoc and Amwell, along with value-based medical networks like Oak Street Health, One Medical and Accolade. All have been in operation much longer in the U.S., with more time to build out their networks.
"Our relatively limited operating history makes it difficult to evaluate our current business and future prospects," Babylon wrote in a summary of its risk factors, which also included highly concentrated revenue sources, the likelihood of rising expenses and "intense competition" in the sector.
The transaction includes up to $345 million in cash from Alkuri's trust fund, and is also supported by a $230 million private placement offering.
Babylon expects to have roughly $540 million net cash on its balance sheet following the deal, which has already been cleared by the boards of both Babylon and Alkuri. The transaction gives Babylon an equity valuation of $4.2 billion with about 416 million shares outstanding, priced at $10 a share.
Babylon founder Ali Parsa will stay on as CEO, while an Alkuri representative will join Babylon's board. Parsa will retain roughly 26% ownership in Babylon at close, while existing Babylon shareholders will own about 84%.
The transaction may also result in Babylon fully acquiring Higi, a patient engagement company that makes FDA-cleared health kiosks. In May 2020, Babylon acquired an option to buy Higi in its first official U.S. investment, and said Thursday it intends to acquire the remaining equity stake in Higi it doesn't currently own. Currently Babylon has a 22% equity stake in the Chicago-based startup.
Higi's major investors have agreed to accept shares in the newly public Babylon in lieu of cash, if Babylon exercises its option. That would reduce Babylon's cash needs by about $40 million.