Digital health player Babylon Health to go public via $4.2B merger with blank check company

A person holding a smartphone in their hand with screen shot of Babylon Health app
Babylon's offerings include Babylon 360, a digital-first value-based care service, and Babylon Cloud Services, a suite of digital self-care tools that enables patients and clinicians to gain insights and information either through Babylon directly or through Babylon’s roster of partners. (Babylon Health)

As expected by many industry analysts, Babylon Health is the latest digital health player to go public via a SPAC deal.

The London-based health tech startup plans to become a public company through a $4.2 billion merger with Alkuri Global Acquisition Corp., led by Groupon’s ex-chief executive officer Rich Williams and former chief operating officer Steve Krenzer.

The transaction is expected to close in the second half of 2021 and the combined company plans to trade on Nasdaq under the new symbol “BBLN”.

"We’re at a critical moment in the evolution of healthcare—if there’s any time to step on the gas to capitalize on this significant market opportunity, it’s now. Babylon is poised to re-engineer the $10 trillion healthcare market to better align system-wide incentives and shift the focus from reactive sick care to preventative healthcare, resulting in better patient health, improved patient experience and reduced costs," a Babylon spokesperson said in an emailed statement.

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, funded over 85% from new, external institutional investors including AMF Pensionsförsäkring, Sectoral Asset Management and Swedbank Robur with strategic investor Palantir. 

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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 said in a press release.

The transaction reflects an initial pro forma equity value of approximately $4.2 billion and an enterprise value of approximately $3.6 billion.

Ali Parsa, Babylon founder and CEO, will become chairman and CEO of the combined entity.

The SPAC route is a faster and more efficient route to market versus a traditional IPO, a Babylon spokesperson said.

"It will allow us to immediately capitalize on our market momentum globally and particularly in the U.S. market. Ultimately, this process will help accelerate our mission to put accessible and affordable healthcare in the hands of every person on Earth and provide us with capital to support our ambitious growth plans and accelerate our go-to-market strategy," the spokesperson said.

Founded in 2013, Babylon offers a digital healthcare app for AI-powered diagnosis and video appointments that covers 24 million people across four continents, according to company executives. The company raised $550 million in August 2019 in an effort to launch an expansion into the U.S. It has raised $631 million to date.

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The company has seen massive growth, with annual revenue jumping by 400% in 2020, and revenue is expected to grow by 300% in 2021, according to its investor presentation. Babylon reported $16 million in unaudited revenue in 2019 and that grew to $79 million in 2020. The company is projecting revenue will jump to $321 million in 2021, reach $710 million by 2022 and top $1.4 billion by 2023.

"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," Parsa said in a statement.

"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," he said.

Babylon's push into U.S. market

Babylon's offerings include Babylon 360, a digital-first value-based care service, and Babylon Cloud Services, a suite of digital self-care tools that enables patients and clinicians to gain insights and information either through Babylon directly or through Babylon’s roster of partners.  

The U.K.’s National Health Service uses Babylon Health to offer its “GP in Hand” mobile consultation service. 

In 2020, the company helped one patient every five seconds with approximately 6 million patient interactions, Babylon executives said.

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The startup has gained strong traction in the U.S. and has recently been making a big push into the market by buying two California-based medical practices. The company acquired Meritage Medical Network and First Choice Medical Group and opened an office in Palo Alto.

Babylon plans to use the fresh capital from the deal to build on this momentum by rapidly scaling its operations, company executives said.

"Babylon's patient-first approach—coupled with its focus on accessibility and affordability—has made it one of the most exciting growth stories in health and technology," said Williams in a statement. “When we founded Alkuri, we set out to identify high-potential, disruptive companies with visionary founders and strong teams. Babylon is all of those things, and we're excited to work with them on their truly world-changing mission.” 

The field of AI-based health chatbots has grown crowded in recent years, and Babylon has emerged as a major player in the sector.

But Babylon Health has faced controversy and criticism over its AI-based symptom checker and whether it has adequate proof that its products work.

The company has also encountered public controversy by making certain claims that critics have described as misleading. The British Medical Association and other medical groups pushed back on studies that claim Babylon's AI could diagnose common diseases as well as human physicians.

Ardea Partners LP is serving as a 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.