In recent years, special purpose acquisition companies (SPACs) have emerged as a popular alternative to traditional initial public offerings (IPOs) for healthcare technology start-ups looking to go public. However, the rapid decline in stock value of companies like Sharecare, Akili, and Pear Therapeutics, which went public via SPAC mergers, has raised questions about the effectiveness of this strategy.

SPACs are essentially shell companies that raise funds from investors with the sole purpose of acquiring an existing company and taking it public. SPACs gained popularity because they offer a faster and cheaper way for companies to go public compared to traditional IPOs. The process of going public through a SPAC merger can take as little as a few months, compared to the lengthy process of an IPO, which can take over a year. Additionally, SPACs offer a greater degree of certainty for the company going public, as the price and terms of the deal are negotiated upfront, whereas, in an IPO, market conditions can affect the price and demand for the company’s shares.

However, despite the potential benefits, healthcare technology start-ups that have gone public via SPAC mergers have not had much success in maintaining their stock value post-merger. For example, Sharecare, a digital health company that went public via a SPAC merger with Falcon Capital Acquisition Corp in November 2021, saw its stock price plummet by more than 50% in the months following the merger and is now trading at roughly 15% of its initial offering. Similarly, Akili Interactive, a company that develops digital therapeutics, went public via a SPAC merger with Sensyne Health in February 2021, but its stock value has also declined significantly since then, and now trades at roughly 15% of its initial offering. Pear Therapeutics, a company that develops prescription digital therapeutics, went public via a SPAC merger with Thimble Point Acquisition Corp in September 2021 and recently filed Chapter 11 bankruptcy.

So why have healthcare technology start-ups that have gone public via SPAC mergers struggled to maintain their stock value? One possible explanation is that investors are becoming increasingly skeptical about the long-term prospects of these companies. Healthcare technology start-ups often have promising technology and innovative solutions, but they face significant regulatory and reimbursement hurdles that can delay the commercialization and adoption of their products. Additionally, the market for digital health products is becoming increasingly crowded, with many players vying for market share. As a result, investors may be wary of investing in healthcare technology start-ups that have yet to prove their ability to generate sustained revenue growth and profitability.

Another possible explanation is that the market for SPACs became increasingly saturated. In 2021, there were more than 600 SPACs that raised over $180 billion in capital, according to SPAC Research.  This led to intense competition for attractive acquisition targets, which may have led some SPACs to overpay for companies with unproven business models and weak financials. As a result, companies that go public via SPAC mergers may be overvalued relative to their actual prospects, which could lead to a decline in their stock value once the market corrects. By 2022 the number and dollar value of SPACs had declined substantially.

Given the short time frame, it appears to be more of an issue of poor due diligence, or perhaps these companies are aware of their struggles and find a SPAC as an easier target with which to generate capital and some profits for their current shareholders; although they may have restrictions regarding when shareholders can liquidate their shares.

In conclusion, the apparent failure of healthcare technology start-ups to maintain their stock value post-SPAC merger suggests that this strategy may not be the silver bullet that some had hoped for. Nor a safe investment for those investing in the SPAC. While SPACs offer a faster and cheaper way for companies to go public, they also come with risks and uncertainties that may not be apparent at the time of the merger. As the market for SPACs continues to evolve, healthcare technology start-ups should carefully consider their options and weigh the potential benefits and risks of going public via a SPAC merger.