Hims will join public markets via merger with Oaktree's 'blank check' company

The deal is expected to close in Q4 2020, and values the direct-to-consumer telehealth company's combined entity at $1.6 billion.
By Dave Muoio
02:39 pm
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Consumer-friendly telehealth and mail-order wellness product service Hims is officially entering the public markets. Today it announced a merger agreement with Oaktree Capital Management-sponsored special purpose acquisition company (SPAC) Oaktree Acquisition Corp.

The reverse merger is expected to close in the fourth quarter of 2020, and places the combined entity at a roughly $1.6 billion valuation, according to the companies' announcement.

The deal will deliver Hims up to $280 million in cash – $205 million of which comes from Oaktree Acquisition Corp., and $75 million from the concurrent private placement of common stock priced at $10 per share. All told, Hims' current equity holders will hold about 84% of the combined company, Oaktree Acquisition Corp. shareholders will claim about 12%, and private placement investors will have the remaining 4%.

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Launched in 2017, Hims got its start selling sensitive wellness, grooming and sexual health products to male consumers with the help of online consultations and ordering. The years since have seen the very well funded company expand into other demographics with the launch of its Hers brand. 

More recently the company has honed in on providing virtual primary care, mental health services and even COVID-19 testing kits. It now operates across all 50 states with over 250,000 recurring customer subscriptions, and reports lifetime stats of more than 2 million telehealth consultations and over 10 million cumulative user touchpoints.

"We’re experiencing a unique moment in the evolution of healthcare in our country –COVID-19 has accelerated our view into what the future of healthcare looks like, and there’s been an incredible increase in the use and awareness of telehealth from both patients and providers," CEO Andrew Dudum told MobiHealthNews in an email statement.

"What Hims & Hers has been building since day one is a consumer-oriented telehealth platform that empowers people with choice across all aspects of their health and wellness. We're uniquely situated to address the needs of this current environment and lead the space as the future of healthcare continues to unfold. As we do, we're confident that the markets will respond to this clear vision."

WHY IT MATTERS

Hims' deal with the "blank check" company will bring a new telehealth player into the New York Stock Exchange's ring, which has been especially generous to virtual care providers throughout the course of 2020.

And while public investors will soon have their chance to claim a part in Hims' business, the company said that it will also benefit from the major influx of cash. It wrote in the announcement that it plans to "continue investing in growth and new product categories to accelerate its goal of becoming the digital front door to the healthcare system."

As a result of the deal, Hims has also laid bare some of the details of its operations to potential investors.

According to an investor presentation deck hosted on its website, the company reports $27 million in annual revenue during 2018, $83 million in 2019 and an estimated $138 million for this year – a compound annual growth rate (CAGR) of 128%. The company reports that its gross margin has also skyrocketed during that time, from 29% ($8 million) in 2018 to an estimated 71% ($98) in 2020, representing 254% CAGR.

And while the company didn't break down its operating expenditure, it made the case of accelerating online order numbers, declining customer acquisition costs and growing cumulative revenue per new subscriber as major factors that will keep its adjusted EBITDA losses low as the business continues to scale.

Looking forward, Hims is projecting revenues swelling modestly to $179 million (30% year-over-year growth) in 2021 and $233 million (30% year-over-year growth) in 2022, with gross margins landing at 73% and 75% for those same years. The company also outlined specific areas of potential growth for its products such as sleep health, fertility, diabetes, and cholesterol, and opportunities in "telehealth friendly" international markets, including the U.K., the E.U., Canada, Australia, Indonesia and Singapore.

“Hims & Hers is an ideal match and represents a unique opportunity to invest in a rapidly-growing company that is modernizing the delivery and accessibility of healthcare and wellness solutions," Patrick McCaney, CEO of Oaktree Acquisition Corp., said in a statement.

"Over the past two years, the Company has experienced significant growth bolstered by the continuing widespread adoption of telehealth and digital patient care solutions – and we think this is just the beginning. We look forward to partnering with Hims & Hers to accelerate the expansion of its high-quality, end-to-end care services across the broader healthcare marketplace.”

THE LARGER TREND

Word that Hims was eyeing an SPAC deal bubbled up in July, right around the time that another telehealth provider, SOC Telemed (formerly Specialists on Call), would also be employing the increasingly popular alternative to a traditional IPO.

Blank-check merger or not, 2020 has seen a clear rise in digital health companies rushing to the public markets. Within the telehealth sphere, Amwell made its debut a couple of weeks ago after announcing its intentions alongside a major investment from Google. GoodRx hit the markets last week to a very strong reception, while the earlier part of the year saw listings from Accolade, One Medical and the (recently embattled) Nanox.

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