US big data company Palantir has taken a strategic stake in British health firm Babylon, as part of a $4.2bn blank-cheque deal to take the start-up public in the US.
Babylon, which offers a range of healthcare services to 24m patients via a mobile app, has agreed to merge with Nasdaq-listed special purpose acquisition company Alkuri Global, becoming the latest European tech firm to spurn a London listing.
The deal gives Babylon an enterprise value of $3.6bn, with an additional $575m in gross proceeds. This includes $270m in private placement from new investors including Swedbank Robur, Sectoral Asset Management and controversial data-analytics firm Palantir, as well as existing investors such as Kinnevik and Alkuri Sponsors.
Founded in 2013 by British-Iranian entrepreneur and former banker Ali Parsa, Babylon developed the GP at Hand app, which allows UK-based patients to access their NHS general physicians virtually, acting as their digital primary care practice. The service now has roughly 90,000 patients on its books, making it the largest GP “practice” in England.
Babylon also has contracts with South Korea’s Samsung and China’s Tencent, and raised money from Saudi Arabia’s sovereign wealth fund as part of a $550m fundraise in August 2019.
Last year, it launched in the US, which Parsa said has already made up more than 80 per cent of its revenues for the year so far. “Last year we did $80m of revenue, this year we will do just north of $300m. We are thinking we will be break-even at ebitda-level in 2023,” he said, despite losses of £95m in 2019 and 2020.
New strategic investor Palantir, best known for its work in the US defence and national security sectors, was contracted by the UK’s NHS last year to work on a Covid “data store”, managing distribution of PPE and other medical equipment between UK hospitals.
“Some of the tech Palantir owns . . . nobody has brought that into the realm of biology and healthcare,” said Parsa. “Their knowledge of data and our knowledge of healthcare can overhaul what we could do [together]. We wanted to take . . . the day to day biometrics of the human body and be able to construct a more pre-emptive image, by building a digital twin of each of us.”
Exits of digital health companies reached record highs in 2020, and are estimated to climb in 2021. In the first quarter of this year, seven digital health companies have already listed via US Spacs, according to data from CBInsights.
However, shares in Alkuri Global, which have consistently traded at a discount to its net asset value, barely budged following the deal’s announcement. Alkuri’s current $9.85 stock price is below the $10 per share at which investors, including Pipes, buy into the transaction.
Large “pops” in Spac stocks following takeover announcements are rarer as increased regulatory scrutiny and poor performance have put a dent in investor confidence. During the height of the Spac boom in the first quarter of 2021, it was common to see shares in blank-cheque companies jump by 80 or 90 per cent based on just rumours of a deal.
Parsa acknowledged that it is a difficult time for the Spac market and said the company would have likely seen a different result had it listed six months ago.
Babylon is the latest UK technology group to list in the US via a Spac deal. It follows in the footsteps of Arrival, the London-based electric car company that started trading on the Nasdaq in late March after it merged with CIIG Merger Corp, and British used car dealer Cazoo, which is going public in a $7bn deal with the US-listed Ajax I.