Acute care telemedicine company SOC Telemed set to go public as part of SPAC deal

Acute care telemedicine company SOC Telemed plans to merge with Healthcare Merger Corp. in a "blank check" deal.

The deal, announced Wednesday, implies an initial enterprise value for SOC Telemed of approximately $720 million, according to the companies.

HCMC is a special purpose acquisition company (SPAC). Private companies will look to merge with a SPAC or blank check company as a nontraditional route to go public rather than a typical initial public offering. With the IPO market rattled by COVID-19 and wild volatility, it has become a more attractive way to go public, The Wall Street Journal reported.

Digital health company Hims & Hers also is exploring going public through a merger with a blank check acquisition company that could value it at more than $1 billion, Reuters reported, citing people familiar with the matter.

As a result of the deal, the combined company will operate as SOC Telemed and will be listed on the Nasdaq, the companies said in a press release.

During an investor presentation Wednesday, Steve Shulman, CEO and a director of HCMC, said SOC Telemed's growth potential is boosted by significant industry tailwinds.

"We believe that it couldn’t be a better market for this company right now. We are truly at the right place at the right time," he said. "Telemedicine is here to stay. All healthcare leaders are looking at their opportunity to leverage telemedicine."

The deal will enable the company to capitalize on substantial opportunities to expand and grow and benefit from the accelerated adoption of telemedicine as a result of COVID-19, said Shulman, who will become the chairman of the SOC Telemed board of directors as part of the deal.

The combined company raised $165 million from BlackRock Inc., Baron Capital Group and ClearBridge. That private investment in common stock of the combined company will close concurrently with the business combination.

In addition, HCMC raised $250 million of cash proceeds in an initial public offering in December 2019.

The merger with a SPAC company as an avenue to go public provides SOC Telemed with access to committed capital, interim CEO Paul Ricci told Fierce Healthcare.

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"COVID has been an enormous accelerant to telemedicine and it became important for SOC to access growth capital and this was a very efficient and rapid way to do that," he said.

He added, "In addition, we able to take advantage of additional leadership skills. HCMC was founded by a group of investors who all have deep experience in the healthcare industry."

As hospital leaders struggle with the problems of acute capacity management, physician scarcity and cost optimization, it has become clear that virtual care will continue to be a critical component of the healthcare industry's ability to deliver better care to patients, Ricci said.

Founded in 2004, SOC provides services to 847 facilities including 543 acute care hospitals with customers such as HCA Healthcare, Community Health Systems and Baylor Scott & White. The company's technology is used in 19 of the 25 largest U.S. health systems.

SOC is the largest provider of acute tele-neurology and tele-psychiatry and has delivered over one million acute care consultations.

The company is looking to expand into other service lines including critical care, emergency medicine, hospitalist medicine and cardiology,

The company provides a differentiated solution through the integration of a proven software platform along with a panel of consult coordination experts and a network of clinical specialists as part of its acute telemedicine solution, Shulman said.

Credit Suisse served as financial adviser to SOC and acted as placement agent on the private offering. Orrick Herrington & Sutcliffe LLP served as legal counsel to SOC.

MTS Health Partners served as financial adviser, and Weil, Gotshal & Manges LLP and Ellenoff Grossman & Schole LLP served as legal counsel to HCMC. Cantor Fitzgerald & Co. served as capital markets adviser to HCMC.

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The proposed business combination is expected to be completed in the fourth quarter of 2020.

The transition also marks changes in SOC Telemed leadership. Ricci will step down as interim CEO at the completion of the business combination, and John Kalix will be appointed CEO.

SOC Telemed pulled in $66.2 million in revenue in 2019 and is estimated to generate $57.3 million in revenue for 2020, marking a decline due to decreased utilization during the COVID-19 pandemic, executives said during the investor presentation.

However, executives are expecting 2021 revenue to reach $80.4 million, with $113.5 million in revenue by 2022.

The company has seen record bookings of $5.7 million in the first half of 2020 and is on track to achieve full-year bookings of $10.9 million. SOC Telemed reported $6.1 million in full-year bookings in 2019.

Bookings are expected to double to $21.8 million in 2021, according to the company's investor presentation.

"The company is valued at nine times 2021 revenue. We think that’s compelling in light of the market dynamics and that it is a 50% discount to where Teladoc is trading," Shulman said. "Our expectations of relative growth is 40%, and Teladoc is at 19%. For both of those reasons, the value and investment are interesting."

SOC's current management and equity holders, including Warburg Pincus, will roll a portion of their equity into SOC, and the proceeds generated by the transaction will be used to pay down existing debt, purchase a portion of the equity owned by existing SOC shareholders and capitalize the SOC Telemed balance sheet, according to a company press release.

Assuming no redemptions of HCMC public shares, current SOC equity holders will own 40%, HCMC shareholders will own 32%, PIPE investors will own 21% and HCMC's sponsor will own 7% of the issued and outstanding shares of common stock of SOC immediately following the closing, respectively.