Babylon Health CEO Dr Ali Parsa
(Babylon Health CEO Dr Ali Parsa)

Babylon Health is joining the SPAC boom

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London-based digital healthcare app Babylon Health  plans to become a public company through a merger with Alkuri Global Acquisition Corp., a blank check company or SPAC. The SPAC route is a faster route to market versus a traditional IPO,  with a report by JP Morgan stating that half of all the new IPOs by volume since January 2019 were SPACs.

The deal, which is expected to close in the second half of 2021, reflects an initial pro forma equity value of roughly $4.2 billion  and enterprise value of approximately $3.6 billion. The combined company will operate as Babylon and plans to trade on Nasdaq under the new symbol “BBLN”. Existing Babylon shareholders will roll 100% of their equity into the combined company and will own approximately 84% of the pro forma company at closing. Dr Ali Parsa, Babylon founder and CEO, will become chairman and CEO of the combined entity.

Born in 1965 in Iran, Parsa is a British-Iranian healthcare entrepreneur and former investment banker who has worked for Credit Suisse, Merrill Lynch, and Goldman Sachs. In 2013, he founded Babylon Health, a subscription health service provider that enables users to have virtual consultations with doctors and health care professionals through text and video messaging on its mobile application. Babylon Health covers over 4.3 million people worldwide, with more than 1.2 million digital consultations completed to date. Before Babylon, Parsa created Circle, his first healthcare company, which became Europe’s largest partnership of clinicians, with some £200m of revenue, 3,000 employees and a successful IPO.  He has a PhD in Engineering Physics.

Commenting on the IPO,  Parsa stated:

“We founded Babylon on a fundamental belief, that it is possible to make quality healthcare accessible and affordable for every person on earth by combining the latest in technology and the best in medical expertise. We have achieved one of the highest growth rates every year since our inception, with consistently high clinical outcomes and patient satisfaction. Becoming a public company is just another step in our journey. We are at the very beginning of our work to re-imagine our sector, to make it digital-first and prevention-first and shift the focus away from sick care to true health care.”

The transaction is expected to deliver up to $575 million of gross proceeds to fund Babylon’s pro forma balance sheet, including the contribution of up to $345 million of cash held in Alkuri Global’s trust account assuming no redemptions. The combination is further supported by a $230 million private placement (PIPE) – funded over 85% from new, external institutional investors including AMF Pensionsförsäkring, Sectoral Asset Management and Swedbank Robur with strategic investor Palantir – at $10.00 per share. There is additional participation from Ali Parsa, Alkuri Sponsor LLC and existing Babylon investors Kinnevik and VNV.

In addition, Babylon previously acquired an option to purchase Higi, a consumer health engagement company, and intends to acquire the remaining Higi equity stake it does not already own.

Assuming no redemptions, taking existing cash and transaction fees into account, Babylon is expected to have approximately $540 million net cash on its balance sheet following the transaction, which will be used to pursue organic growth strategies as well as attractive and opportunistic acquisitions.

The company’s annual revenue surged by 400% in 2020 and revenue is expected to grow by 300% in 2021, according to its investor presentation.

Ardea Partners LP is serving as financial advisor, Citi is serving as financial and capital markets advisor, and Wilson Sonsini Goodrich & Rosati, P.C., Allen & Overy LLP and Walkers (Jersey) LLP are serving as legal counsel to Babylon. Jefferies is serving as exclusive financial advisor and Winston & Strawn LLP is serving as legal counsel to Alkuri Global. Jefferies, Citi and Pareto Securities AB served as placement agents on the PIPE.

Babylon Health has faced considerable criticism from numerous medical professionals over its AI-based symptom checker. Virtual health care sounds great, but can AI diagnose common diseases as well as human physicians and be trusted on the issues that matter the most?