23andMe heads to public markets through SPAC merger with VG Acquisition Corp.

The deal values 23andMe at approximately $3.5 billion through the combination of stock and cash financing.
By Mallory Hackett
11:56 am
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Consumer genomics platform 23andMe is on its way to becoming a publicly-traded company through its merger with VG Acquisition Corp., a special purpose acquisition company sponsored by Virgin Group.

The two companies announced today they have entered into a definitive merger agreement that is expected to close in the second quarter of this year. Once completed, the combined companies’ stock will be traded on the New York Stock Exchange under the ticker symbol ME.

The deal values 23andMe at approximately $3.5 billion through the combination of stock and cash financing.

The announcement says that the companies expect up to $759 million of gross proceeds to be delivered to the combined company. Of that amount, $509 million comes from cash held in VG Acquisition Corp.'s trust account, and $250 million comes from the concurrent private placement of common stock, priced at $10.00 per share.

Sir Richard Branson, the founder of the Virgin Group, and Anne Wojcicki, the CEO and cofounder of 23andMe, are each investing $25 million in the PIPE, along with funds managed by Fidelity Management & Research Company, Altimeter Capital, Casdin Capital, and Foresite Capital.

As part of the transaction, 23andMe's existing equity holders will roll 100% of their equity into the combined company. All told, 23andMe will be capitalized with up to $984 million in cash, assuming no public shareholders of VG Acquisition Corp. exercise their redemption rights.

While the merger was unanimously approved by both companies' Boards of Directors, it is subject to approval by VG Acquisition Corp.'s shareholders and other customary closing conditions.

WHY THIS MATTERS

23andMe is a direct-to-consumer service that gives users insights into their DNA. The results can be used to educate about users’ ancestry, as well as their health predispositions.

More recently, the company has begun using its service to facilitate genetic research. For example, in 2019 the company teamed up with the Michael J. Fox Foundation for Parkinson’s Research. It also created a COVID-19 Severity Calculator based on a study it conducted, which included 10,000 participants diagnosed with the disease and 750 who were hospitalized.

This merger could serve as a kick-start to get 23andMe back on track after 2020 proved to be a year of financial struggles. At the beginning of the year, it laid off 100 employees across its consumer business as a result of disappointing sales numbers. When the news broke, Wojcicki told CNBC the industry was seeing a market cool down, and customer’s privacy concerns were a major factor.

The company has a past of ups and downs. In 2013, the FDA ordered 23andme to immediately stop selling its genetic testing service until the offering received a de novo clearance. It bounced back in 2017 when the FDA gave the go-ahead to sell its direct-to-consumer genetic test kits.

Another contributing factor to the company’s most recent upswing is its $82.5 million equity funding from Sequoia Capital and NewView Capital. 23andMe has a bit of a history bringing in substantial amounts of funding. In 2018 it landed $300 million, and the year before it had a $250 million round.

THE LARGER TREND

Going public through a SPAC merger has become a major trend for digital health companies over the last year.

Hims & Hers hit the public market earlier this year after closing its merger with Oaktree Acquisition. Talkspace recently announced a merger with Hudson Executive Capital to go public in a deal worth $1.4 billion. Butterfly Network and UpHealth each announced SPAC mergers in November.

Most recently, Reuters reported on rumors that both Sharecare and Ro are discussing potential merger agreements with SPACs that would lead to multibillion-dollar valuations.

ON THE RECORD

"As a fellow industry disruptor, as well as early investor in 23andMe, we are thrilled to partner with Sir Richard Branson and VG Acquisition Corp. as we approach the next phase of our business, which will create new opportunities to revolutionize personalized healthcare and medicine," CEO Anne Wojcicki said in a statement.

"We have always believed that healthcare needs to be driven by the consumer, and we have a huge opportunity to help personalize the entire experience at scale, allowing individuals to be more proactive about their health and wellness. Through a genetics-based approach, we fundamentally believe we can transform the continuum of healthcare."

 

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