- Talkspace on Wednesday became the latest digital health company to go public, announcing it intends to merge with a special purchase acquisition company in a deal valuing the behavioral health startup at $1.4 billion.
- The transaction with SPAC Hudson Executive Investment will provide Talkspace with $250 million in cash. It plans to use the infusion of funds to grow its user base, add partnerships and expand internationally, the New York City-based company said in a release.
- The deal is expected to close around the end of the first quarter or early in the second quarter this year. The combined company will operate as Talkspace, and plans to be listed on NASDAQ under the ticker TALK.
Digital health was thrust into the mainstream in 2020 as consumers looked for tools to access their doctors and manage their physical and mental wellness at home during the coronavirus pandemic. COVID-19 supercharged investor interest in digital health, with 10 digital health categories reporting record funding amounts last year, according to analysts at Mercom Capital Group.
The market is clearly still hot off those tailwinds, with Talkspace the latest in a boom of health tech players becoming publicly traded entities. SPACs are an increasingly popular route to that end, with telehealth vendors SOC Telemed and Hims & Hers inking so-called "blank check" deals with SPACs to go public in July and October, respectively.
Online therapy company Talkspace offers counseling with a network of licensed therapists, selling services directly to consumers or through employer-sponsored health plans. Since it was founded in 2012, Talkspace has served more than 2 million people, and currently has 46,000 active members treated by about 2,600 providers in all 50 states, according to an investor presentation on the definitive merger agreement.
Since the beginning of 2019, the number of Talkspace users covered by employers or health plans has grown from just 2 million people to more than 39 million today, showing increased coverage of telemental care. In that same time period, the number of direct-to-consumer users has grown from about 20,000 to 28,000.
Surging use led to rising funding. Talkspace raised $50 million in a Series D round in May, bringing its total funding to roughly $107 million across 11 rounds, according to Crunchbase.
Talkspace plans to use the fresh infusion of capital to grow geographically and expand its suite of services, including in more wellness-focused areas like sleep. The company plans to use mergers and acquisitions to pursue growth, COO Mark Hirschhorn said on a Wednesday call with investors. Talkspace has just one acquisition under its belt so far, with its buy of relationship counseling app Lasting in November.
For 2021, Talkspace estimates net revenue of $125 million, up about 69% from 2020. Its valuation of $1.4 billion is about 11 times that figure.
Talkspace says it addresses a vast unmet need, with an enormous total addressable market to drive that growth. In the U.S. alone, about 52 million people reported experiencing mental illness in 2019, according to the National Alliance on Mental Illness. That's one in five Americans. Yet fewer than half actually sought out or received care, NAMI found.
And research shows COVID-19 has exacerbated conditions like anxiety and depression, upping the ante for telemental solutions. Other virtual care giants have reported skyrocketing demand for the specialty care, with New York-based Teladoc, for example, noting behavioral health was one of its fastest-growing segments last year.
And there's evidence virtual therapy is just as successful, if not more so, than in-person treatment, and is a valuable tool for accessing hard-to-reach populations, especially if access to a physical provider is curtailed due to location, cost or stigma. Talkspace was recently awarded almost $7 million in grants from the National Institutes of Health to research the efficacy of different types of telepsychiatry and what patients benefit the most from digital therapy.
Talkspace will retain its existing leadership team through the transaction, and will add Douglas Braunstein, the managing partner of Hudson Executive Capital, as chairman of the board.
In other market news, Boston-based telehealth giant Amwell also said Tuesday it created a proposed public offering to extend almost 11.3 million shares of its Class A common stock to the public. Amwell won't receive any proceeds from the move, which is its second public offering since it debuted on the NYSE in September.