Babylon shareholders will see their stakes wiped out in a restructuring deal if the British healthtech cannot find a buyer for parts of its business or drum up extra funds in the next few weeks.
The company has been scrambling to make up a $300m shortfall in its finances since its botched SPAC deal in October 2021. 18 months later — despite layoffs, cancelled NHS contracts and cash injections from investors — it hasn’t succeeded.
On Wednesday Babylon said that London-based credit fund AlbaCore Capital would carry out a “restructuring and recapitalisation” of the business in June “in the absence of other acceptable transaction proposals from third parties”. Babylon says shareholders didn’t have a say in the decision due to the terms of Babylon’s existing debt agreements with AlbaCore. The credit fund lent Babylon $30m in March, on top of an existing $200m loan in 2021 — and is now loaning an extra $34.5m to the business.
The move follows a tumultuous 18-month existence on the public markets, in which Babylon’s share price has dropped more than 99%. In September the company implemented a reverse share split, effectively combining shares to boost the price. But it continued to slide, and the share price has dropped 83% since the company announced plans to restructure on Wednesday.
If the restructuring happens, Babylon shareholders — which include big Swedish investors Kinnevik and VNV Global — will see no returns on the more than $700m invested in the healthtech since 2013.
Why is this happening?
Babylon, which helps people access GPs and an AI-driven symptom checker via an app, has been cash-strapped for years.
After investors dropped out of its SPAC, it found itself $300m short. It managed to claw back about $100m of its funding shortfall through layoffs and cancelling NHS contracts, but has remained in a tricky financial position. In August 2022, CEO and founder Ali Parsa told Sifted that Babylon needed to raise $200m by sometime in 2023.
It got some of the way there in October, when the company raised $80m from existing shareholders VNV Global and Kinnevik. Under the terms of the agreement, Babylon agreed to sell US-based independent doctors network Meritage — which it acquired in May 2021 — for at least $120m, which the company said would bring it to break-even. But six months on, Babylon hasn’t been able to find a buyer.
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As formerly free-flowing funding has dried up amid the economic downturn, Babylon’s big-spending business model has increasingly seemed unworkable. Despite making $311m in revenue in the first three months of 2023, losses nearly doubled to $63m compared to the previous quarter.
It will now have until June to find another “acceptable transaction proposal from a third party” for the sale of Meritage, otherwise the stakeholders will be wiped out, people close to the company tell Sifted.
By the terms of the loans the company has signed with AlbaCore, the lenders have the right to take over the company if it cannot pay back the loans or provide additional funds.
Swedes lose out
Swedish investors are set to lose big if the planned restructuring goes through.
Kinnevik, which first invested in Babylon in 2016, owns 18.6% of the company. It has invested 1.1bn SEK (€100m) across several financing rounds.
VNV Global owns 16.2% of the shares in Babylon and has invested about $125m in the company across several rounds since 2017. Global Health Equity — an investment company which VNV Global owns 37.5% of — also has a 2.86% share in Babylon.
The list goes on. Swedish pension fund AMF invested approximately €50m in Babylon in a private placement at the time of the $4.2bn SPAC in 2021. It now owns 4.79% of the company. Another Swedish investment fund, Swedbank Robur, also invested at the same time.
Combined, Swedish investors today own over 42% of the shares in Babylon.
Saudi Arabia’s Public Investment Fund — one of the largest sovereign wealth funds in the world, with total estimated assets of $620bn — owns a 12.2% stake. It led Babylon’s $550m Series C in 2019.
Single-digit stakes are owned by Luxembourg-based investment company NNS Sarl, US-based Alkuri Global, which Babylon merged with in its SPAC, and Jersey-registered Hanging Gardens Ltd.
How much money Parsa — who currently owns 19.5% of the company — would lose is unclear. Babylon says that the restructuring will provide for a “new long-term employee incentive plan” and an investor close to the company tells Sifted this could help Parsa retain a stake in the business.
While things currently look dire for Babylon shareholders, the restructuring is just one possible scenario.
It could still find a buyer for Meritage. Babylon could also sell other parts of its business — or the whole thing — as long as it gets a greenlight from AlbaCore — or try to drum up further equity investment.