The healthtech sector’s spectacular surge in Spacs and de-Spacs | FT Big Deal
The Covid-19 pandemic triggered a significant rise in Spac investments in the healthtech sector. While Spacs offer opportunities for healthtech companies, the road to a de-Spac process can be complex and perilous.
In 2020, as the Covid-19 pandemic escalated,
the healthtech sector saw a strong increase in investment,
specifically in the form of Spacs. Spacs are shell companies that are formed
to gather investment with a promise to purchase an attractive company within two years.
When the Spac and its target company merge, this is called a de-Spac
There’s been a fairly large surge in Spacs generally,
but healthtech in particular, there were around 50 in 2020,
another 40 or so and 2021. The number of healthtech Spacs has
increased dramatically in recent years. We’ve seen more than a 260% increase
from even pre-Covid times about two and a half years ago.
When successful, a Spac can offer a healthtech company significant advantages, allowing it to
grow quickly in a fast-moving industry. If you think about Spacs as a particularly
convenient vehicle for earlier stage companies to access the public markets, healthtech companies
are companies that have a potentially very exciting product be that a pill, be that a
medical device, but their issue is they’ve got a fairly long ramp until they go commercial.
So, what you really need are very patient investors.
What Spacs offer healthtech companies is a way to say, look,
we can get you out into the public markets earlier, before you necessarily have all of the
operating results that you would otherwise need to become a public company.
Why? Because we’ve got an experienced management team that’s capable of assessing
the validity of your product or your pill. Whilst Spacs pose a significant opportunity for
the fast-moving healthtech sector, the road to a de-Spac can be complex and perilous.
So while Spacs or blind pools of capital or blank cheques, as they’re often referred to,
I think it really comes down to the managers, the sponsors of the Spacs.
We think about two companies coming together. So it’s about transparency, it’s about
communication, it’s about diligence. It’s about reputation.
The risk for a healthtech company in a de-Spac is that they go public before they’re ready
and they become subject to the public scrutiny before they’re really ready to bear it.
It’s fundamentally a perilous process, a long-term process, and usually, it takes a very patient
investor to see the healthcare company through the various stages of clinical development.
For that company to become public early, for its employees to sort of track their
stock prices in real time as the market basically trades on rumours and speculation,
that can become quite demoralising. I believe that the number of Spacs committed
to healthtech and life sciences will continue to grow rapidly, even in a more
highly-regulated market, potentially. I think it’s a tremendous opportunity for
the healthtech companies, in the sense, even if you’re not directly doing a Spac the fact that
there are these Spacs that are going around and that are offering quite attractive valuations,
I think that is bringing the overall valuation of the sector up.