Healthcare SPACs Update

Special purpose acquisition companies (“SPACs”) have become a famous trend in financial markets as a faster mechanism to take private companies public compared to a traditional IPO. InnovaHealth recently quantified the size of the SPAC market dedicated specifically to Healthcare in order to better understand the growing amount of proceeds searching for private to public Healthcare business combinations.

Currently, there are at least 73 Healthcare specific SPACs that have either raised capital and are pre-IPO or have IPO’d and searching for acquisitions. In total, this represents nearly $15 billion of aggregate capital and growing. For perspective, this amount of Healthcare dedicated proceeds exceeds the total capital raised in SPACs across all industries in 2019. The average size of these Healthcare SPACs is approximately $200 million and once public generally have an 18 to 24 month deadline to complete an acquisition or it must return capital to shareholders.

An example from the medical device industry is Butterfly Networks (BFLY) the novel portable ultrasound device which went public nearly a year ago via the SPAC mechanism. Though BFLY is a success in the domain of innovation and sales growth, the $2bn valuation at which it went public might be considered cautionary tale for public investors in the SPAC as the BFLY stock has been mainly volatile and the returns on the actual share price over the last year have ended up at approximately zero.

It is difficult to tell from this limited case if there are too many SPACs chasing too few deals given that our industry has around 20,000 private companies globally.  What we do know, however, is that public investors in a healthcare SPAC are well advised to diligence the level of experience and prior successes of the SPAC managers and that valuation and post-merger execution are critical to a successful outcome.