Top 3 SPAC Targets – Health and Wellness Tech

SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among health and wellness tech companies. We look at why they are compelling and why each could be a fit for a blank-check merger.

With a long weekend ahead of us, many will be looking at the extra day as an opportunity to focus on wellness, which is exactly what a great amount of venture capital has done over the past several years.

The total global market for physical activity is expected to reach $1.1 trillion in 2023, according to  Global Wellness Institute. The $828 billion that the sector generated in 2018 was largely made up by $333 billion in spending on wellness apparel and footwear, which is increasingly overlapping with and being taken over by the $36 billion spent on wellness and fitness tech, which includes wearables.

The pandemic is only expected to accelerate this latter trend as more fitness activity was going digital and occurring at home even before lockdowns made that the only option. Even gyms and fitness clubs like CrossFit have adopted a “if you can’t beat ‘em, join ‘em approach” with more hybrid digital options included in memberships.

With the market’s biggest recent winner being home exercise bike platform Peloton (NASDAQ:PTON), investors are likely to increasingly see the home wellness tech market as the ticket.

Overall, VC exits in health and wellness tech space have been dropping over the last two years, however. The $5.2 billion reaped by venture capital firms in exits in 2020 was a 36% decline from the $8.2 billion reaped in 2019, according to Pitchbook. Much of this is explainable by the uncertainty presented by the pandemic, but as of the end of Q1, 2021 was on pace to achieve just half of the VC exit value of 2020.

This came alongside a record quarter for early investments in the space with $4.2 billion in VC cash invested in the sector across 153 deals. With so much money going in and so little coming out, there appear to be a raft of companies ready to take the next step with investors on their cap table likely eager for them to do so.

Whoop

Whoop, there it is. What it is, is a fitness and health tracker that goes beyond the usual exercise stats to analytics that tell hobby and professional athletes how much sleep to get, how much they’ve recovered from previous exercise and therefore how much additional strain to put on.

Its users have reported experiencing injuries 60% less often with the app as well as better sleep and health outcomes. Whoop has also priced itself aggressively with its wearable smartwatch coming free in exchange for software subscriptions ranging from $18 to $30 per month. By contrast, Fitbit wearables range in price from $80 to $300 with many features only unlocked via their own $9.99 subscription.

Former NFL quarterback Eli Manning has invested in the company and it has also been endorsed by prominent cyclists, golfers and current face of the NFL – Patrick Mahomes. Lining up brand ambassadors like these could be a step ahead of a major listing and Mahomes brings his own SPAC connection, serving as a member of Disruptive I (NASDAQ:DISA)’s Athlete Advisory Council.

All of the hype could pose problems of its own given the company’s blazing trajectory, however. Last week, it closed a $200 million Series F funding round that tripled its valuation to $3.6 billion in less than a year, having raised $100 million in a Series E at $1.2 billion in October 2020. A rush to IPO at this point could come with some risk on both ends of the spectrum, and its founders may prefer to deal with a SPAC that could give it some more price certainty and upside protection in the form of an earnout.

Virta Health

In a different segment of the user spectrum, Virta provides a platform for nutritional optimization for those with chronic diabetes. Using connected testing equipment and its medical records app, it provides continuous supervision of diabetes patients, digital coaching and medications dispersed as needed.

Diabetes has long been a growing issue in the US and it remains difficult to treat because its effects on patients are highly personalized and can be set off or kept at bay with small changes in daily behavior. Keeping tabs on all of that, however, has never been particularly efficient through the current medical system with limited patient interactions with doctors.

Virta is not alone in seeking a tech solution to this, but the approaches range from highly consumer-focused apps to digital therapies going through FDA approval processes to be essentially a prescriptible drug. Better Therapeutics is taking the latter approach and announced a combination with Mountain Crest II (NASDAQ:MCAD) in April.

As it goes through clinical trials, Better does not expect to turn its first revenue until 2023, but Virta is already far down the commercialization path. It now has licensed physicians for all 50 states serving both private insurance plans and Medicare Advantage. Valued at $2.1 billion in an April Series E, it has raised $364.6 million to date.

Its path to customers has been through employer health plans with an emphasis on saving everyone along the chain money from reduced prescription costs. Its average customers have reduced their pharmacy costs by $160 per month, and Virta only takes fees from a portion of any savings achieved. But, its impacts have been wider thus far as customers using Virta Health’s system have reported an average weight loss of 30 lbs.

Tonal

SPACs still have the opportunity to get into the race for the next Peloton as well. Mirror appeared to be the next contestant, but was bought out in a strategic play by Lululemon (NASDAQ:LULU) last year.

Tonal combines bits of both of Peloton and Mirror. It features a large wall-mounted display like Mirror, but also workout equipment like the bike provided by Peloton. In Tonal’s case this comes in the form of two adjustable handles that can be pulled from different heights and different levels of resistance to mimic the weight-lifting exercises on more traditional home gyms.

It can provide up to 200 lbs of resistance with each of these arms using electromagnetic force rather than physical weights. Overall, the unit provides a small footprint for apartment-dwellers, but its price tag of $2,995 means that the company still looks to straddle digital and brick-and-mortar sales channels where customers can see it in person before buying.

Pandemic sales skyrocketed 8x for Tonal and it reached a valuation of $1.6 billion in a March capital raise. Its CEO Aly Orady has already noted at that it too is on a path to the public markets and like Whoop has lined up high profile influencer-investors such as tennis and basketball stars Serena Williams and Stephen Curry.

But its investor base also includes firms that are active in the SPAC space like Dragoneer. This firm, and its currently searching SPAC, Dragoneer III (NASDAQ:DGNU), would likely have Tonal’s ear whenever it does press ahead for with plans for a listing.