- Hims & Hers is going public through a merger with a special purpose acquisition company in a blank check deal valuing the three-year old telehealth vendor at about $1.6 billion, as Wall Street continues to be bullish on virtual care.
- Hims & Hers will merge with Oaktree Acquisition Corp., a franchise backed by massive global investment manager Oaktree Capital Management, in a transaction expected to close in the fourth quarter of this year. Upon completion, the combined company will be traded on the New York Stock Exchange under the symbol HIMS.
- The combined company will have an estimated $330 million in cash after closing, comprised of cash on hand plus an expected $205 million from OAC and up to $75 million from a concurrent private placement (PIPE) of common stock, priced at $10 a share, from institutional investors.
Digital health companies are raking in piles of dough from investors as COVID-19 continues to spur Wall Street interest in virtually delivered healthcare. Funding in the sector could bypass $8 billion in the third quarter, up from a still-record $5.8 billion in the second, according to CB Insights analysts.
The sector is booming as patients turned to telehealth in droves for nonemergent care starting in March to avoid potential COVID-19 transmission in doctor's offices and hospitals.
This tailwind, along with rising consumerism and the need to lower costs, have radically accelerated virtual care, and given rise to a slew of recent deals.
Hims & Hers began as a millennial-focused startup treating erectile dysfunction. In recent years the San Francisco-based company has expanded to cover primary care, mental health, sexual health, dermatology and hair loss, selling both prescription and non-prescription products. Sexual health still makes up a majority of revenue.
Hims & Hers, which has a network of 240 providers and a digital pharmacy, plans to use the funds to drive growth and new product lines, the company said. Near-term opportunities include sleep, fertility, diabetes and cholesterol care, according to an investor presentation on the deal.
Hims & Hers is majority direct-to-consumer, which differentiates it from vendors like Amwell and Teladoc focused on the business-to-business-to-consumer space. The company doesn't accept insurance, though it noted in the presentation that could change. Hims & Hers does have early partnerships with hospital systems Oschner Health and Mount Sinai, and also offers a telehealth benefit for employers.
As of June, Hims & Hers had about 260,000 subscriptions on its platform. Since its founding in 2017, it's run more than 2 million telehealth visits and grown steadily, with 100% compounded annual revenue growth over the past two years, from $27 million in 2018 to $83 million in 2019 and an expected $138 million this year, per internal data.
Hims & Hers has more than doubled gross margins to 71%, with recurring revenue making up 91% of its top line.
Its valuation of $1.6 billion equals 8.9 times estimated 2021 revenue, and 12.2 times estimated 2021 gross profit, the company said.
By comparison, two of the biggest U.S. telehealth players, Teladoc and Amwell, have enterprise values of about $20 billion and $6 billion, respectively. Chronic care management company Livongo, which Teladoc acquired in an $18.5 billion megadeal in August, was valued at about $17 billion before the buy.
Private companies can turn to blank check companies as a route to going public giving them guaranteed access to capital in lieu of a traditional initial public offering. Another telemedicine company, SOC Telemed, went public in a similar deal late July with special purpose acquisition company Healthcare Merger Corp.
As part of the deal, Hims & Hers' management and existing equity holders, which include McKesson's venture fund and Thrive Capital, a VC firm run by the brother of White House adviser Jared Kusner, will roll almost 100% of their equity into the combined company.
As things currently stand, current Hims & Hers equity holders will own about 84% of the combined company's stock at closing, Oaktree Acquisition Corp. shareholders will own 12% and PIPE investors will own about 4%.
Hims & Hers CEO Andrew Dudum will retain 90% of voting power following the deal, according to paperwork filed with the Securities and Exchagne Commission on Wednesday.