Covid-19 is likely to drive behavioral health providers to list following the lead of Talkspace.
By Kyle LaHucik and Sydney Halleman with analytics by Philip Segal
The psychiatrist’s couch has been ditched for the smartphone as virtual therapy is enjoying a surge in demand amid the Covid-19 pandemic.
“We see a very clear trend of many of the mental health providers moving their entire capacity to virtual care on the tailwind of Covid, which migrated the industry overnight,” said Oren Frank, CEO of Talkspace, an online provider of text- and video-based therapy and psychiatry services.
Online therapy is one aspect of the broader consumer behavioral health space, which includes treatment for addiction, sleep issues and eating disorders.
Capital raises grow ‘substantially’
According to Mergermarket data, about $1.31 billion private capital was invested in the virtual behavioral health space in 2020, up from $1.16 billion in 2019. So far in 2021, $554 million has been pumped into the space.
Virtual behavioral health private capital funding. Data YTD through February 22
The amount raised by digital health companies has grown substantially in recent years, according to Bill Evans, CEO of Rock Health, a venture capital firm that focuses on the space. Investors are coming back too, with about two-thirds of sector investors re-upping after participating in prior digital health rounds, Evans noted.
Later-stage companies include meditation app Calm, mindfulness app Headspace and enterprise mental health platform Modern Health.
Going public
Larger startups like Ginger, Lyra Health, MDLive and Doctor On Demand have raised so much private capital that going public is probably their next viable step, industry sources told Mergermarket.
Frank said digital health players likely would prefer going public by merging with a special purpose acquisition company, as his company chose to do last month. SPACs, also known as blank check companies, are especially efficient for accessing capital quickly and speed is at a premium right now, added Steven Harris, managing director at investment bank Bailey Southwell.
Blank-check sponsors are looking for the “next new-new thing,” said Jeff Arnold, CEO of digital health firm Sharecare, which is going public through a $3.9 billion merger with SPAC Falcon Capital Acquisition.
But a wave of SPACs may cause target companies to become overvalued, cautioned Stephen Scott, a partner and managing director at Bailey Southwell.
Gores Technology Partners II, EQ Health Acquisition, CA Healthcare Acquisition and Tailwind International Acquisition are some SPACs interested in digital or behavioral health, according to SEC filings.
There has been active M&A among digital health companies in the last five years, noted Rock Health’s Evans.
The $18.5 billion merger between Teladoc
Healthcare insurance companies are also acquiring in the space, Harris said, noting Centene’s
Earlier stage behavioral telehealth companies growing at 100% year-over-year trade at valuation multiples north of 10x revenue, while established players with employee assistance program solutions or large services components tend to trade at below 5x revenue, noted Harris.
“Digital health is on fire right now,” Sharecare’s Arnold said. “It’s gone from a really-interesting-to-have to a C-suite must-have.”
Based in Chicago, Kyle LaHucik (kyle.lahucik@acuris.com) reports on technology for Mergermarket. Sydney Halleman (sydney.halleman@iongroup.com) reports on healthcare and tech-enabled companies out of Mergermarket’s news bureau in Charlottesville, Virginia. Based in New York, Philip Segal (philip.segal@acuris.com) is Head Analyst for Mergermarket – Americas.
