Promising Special Purpose Acquisition Companies (SPAC) are tested around the world by small companies to go public. The only function of SPAC is to acquire another company for listing them on the stock exchange and make them public.
Talkspace made news recently for being the only virtual healthcare company to go public which was made possible by a SPAC merger. This write up intends to throw an insight on this merger and its aftermath.
Who is Talkspace?
Talkspace Inc is a which was founded in 2012, primarily to reduce the stigma of seeking mental help with the help of licensed therapists who are adept in behavioral issues, albeit virtually.
The start-up not only boomed instantly but recorded phenomenal growth during the coronavirus pandemic when mental health services got severely affected during the strict quarantine period.
Who is the SPAC?
SPAC is the , a leading firm that’s sole purpose is to invest in companies that are based in New York, mainly those which focus on healthcare and other sectors. Since it was formed to merge with an entity, it raised as much as $314 million in June 2020 on NASDAQ.
What was the deal?
In January 2021, Hudson Executive Investment Corp went public about a definitive merger agreement with the leading online therapy app provider Talkspace Inc.
After taking approval of all the stakeholders, the deal was clinched in June 2021 for $414 million in cash and further $25 million in forward purchase by SPAC.
Not only was the transaction supported by an oversubscribed $300 million in shares committed at a price of $10, Hudson Executive Capital assured a further $25 million to backstop redemptions. As such, TALK began trading on NASDAQ in June 2021.
What was the agreement?
As per the merger agreement, Talkspace was to merge with Tailwind Merger Sub 1, a wholly owned subsidiary of Hudson Executive Investment. Talkspace being the surviving entity was then deemed to merge with Tailwind Merger Sub II, another wholly owned subsidiary of Hudson Executive Investment.
After the merger, all the vested rights in the existing Talkspace common stock are deemed null in exchange for the stock of Hudson Executive Investment Corp at par value or in a mix of cash and shares.
Further the agreement stated that it could be closed anytime before closing by mutual consent of both parties in case the transaction was not consummated before 30th July 2021, or if the Government prohibited the merger due to uncured breaches by either of the parties, especially by Talkspace if the acquired stock failed to get approval of Hudson Executive Corp’s holders of outstanding shares.
Take Away from the deal
Suppose Talkspace had decided to go public with its own IPO, the time taken to complete the process would have been at least two years. Having said that, the business of Talkspace which revolved around mental health, may not have gained traction with investors due to the general stigma associated with mental health and behavioral issues.
Since Talkspace would have been unable to raise the required capital on its own, the merger with SPAC would have given the company the breathing space it was desperately looking for. Moreover, SPAC had to comply with fewer regulations in order to go public.
Ultimately, the merger offers Talkspace an opportunity for better reach among the users, primarily because of the curiosity SPAC associates with itself.The main takeaways can be summarised as below:
- Higher price for the founders to negotiate a better deal with the sponsors
- When a deal is made through SPAC, it offers acceptance and raises public awareness.
- While an IPO takes two years, SPAC can be completed in 4-5 months, thus saving a lot of time
- The regulations for a SPAC merger are less stricter than for an IPO
- A SPAC merger offers a sense of security to the shareholders, even if it goes into liquidation
- Sponsors also earn enough in these cases if the deal turns sour and SPAC goes into liquidation
Final thoughts
The successful deal between Talkspace and SPAC is considered to be a novel advancement in the trading sector, and this is just a beginning.The advantages of SPAC, will see many mergers in the coming years, with better visibility and enhanced public support. That said, the traditional IPO will still remain the driving force in the market and a favorite of many companies.
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