Editing Babylon Holdings Limited
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<small>SPACs, or Special Purpose Acquisition Vehicles, are blank cheque companies that have no commercial operations. Formed by groups of investors, SPACs raise capital through an initial IPO which is then placed in an interest generating trust account. After the management team has identified a particular target company, it will merge with that company using the money in the trust. This allows the target company to become public without going through an Investment Bank or a traditional underwriter.</small> | <small>SPACs, or Special Purpose Acquisition Vehicles, are blank cheque companies that have no commercial operations. Formed by groups of investors, SPACs raise capital through an initial IPO which is then placed in an interest generating trust account. After the management team has identified a particular target company, it will merge with that company using the money in the trust. This allows the target company to become public without going through an Investment Bank or a traditional underwriter.</small> | ||
<small>During 2020 and 2021, there was a huge surge in the use of SPACs due to excessive liquidity that had arisen from the pandemics over-expansive monetary policy. A key player in the then exponentially growing telemedicine market, Babylon looked to capitalise on its position as soon | <small>During 2020 and 2021, there was a huge surge in the use of SPACs due to excessive liquidity that had arisen from the pandemics over-expansive monetary policy. A key player in the then exponentially growing telemedicine market, Babylon looked to capitalise on its position as soon as possible. SPACs offer a significantly faster time to market than traditional routes which seemed most applicable for Babylon at the time. Ultimately, this decision lead to a sharp demise in investor confidence as the share price has dropped 99.99% since IPO.</small> | ||
Ahead of its stock market debut, Babylon was valued at $4.2bn, set to receive $575mn from the merger with the SPAC, Alkuri Global. Typically in SPACs, shareholders have the option to redeem their shares prior to the business combination, for a pro-rata share of the funds in the investment trust. Since the SPAC target company often hasn’t been identified when the SPAC is formed, this procedure incentivises investors who may be worried about risks involved. On the date of the merger, 90% of shareholders chose to redeem their shares despite having all voted to approve the deal. As a result, Babylon was left with just $275mn in cash, $300mn less than originally calculated. To make up for this shortfall, Babylon had to cut staff, cancel two existing NHS contracts early and raise $80mn in additional cash – a disaster. | Ahead of its stock market debut, Babylon was valued at $4.2bn, set to receive $575mn from the merger with the SPAC, Alkuri Global. Typically in SPACs, shareholders have the option to redeem their shares prior to the business combination, for a pro-rata share of the funds in the investment trust. Since the SPAC target company often hasn’t been identified when the SPAC is formed, this procedure incentivises investors who may be worried about risks involved. On the date of the merger, 90% of shareholders chose to redeem their shares despite having all voted to approve the deal. As a result, Babylon was left with just $275mn in cash, $300mn less than originally calculated. To make up for this shortfall, Babylon had to cut staff, cancel two existing NHS contracts early and raise $80mn in additional cash – a disaster. |