The genomics and biotechnology company 23andMe has become the latest firm to join the list of companies going public via a special purpose acquisition corporation (SPAC). The SPAC, called VG Acquisition Corp, is backed by billionaire Richard Branson and his empire Virgin Group. The transaction values 23andMe at a whopping $3.5 billion.
As part of the merger, the Sunnyvale, California-based firm is expected to receive $759 million of gross proceeds consisting of a $509 million cash contribution held by VG Acquisition Corp’s trust account and a $250 million private placement of stock priced at $10 per share.
Founder Anne Wojcicki and Virgin’s Branson will be investing $25 million each while the rest of the funds will be contributed by a range of investors including funds managed by Fidelity Management & Research Co, Altimeter Capital, Casdin Capital, and Foresite Capital.
The deal will result in 23andMe having over $900 million in cash available that could aid the firm in product development and growth strategies. Existing shareholders of 23andMe will own 81% of the merged entity upon completion of the transaction.
Richard Branson & SPACs
Richard Branson has himself used SPACs to help one of his businesses in going public. The English entrepreneur’s spaceflight business Virgin Galactic went public via venture capitalist Chamath Palihapitiya’s SPAC.
VG Acquisition Corp
Virgin Group floated its SPAC VG Acquisition Corp in October, raising $480 million. Now the same money, along with other investments, will be used for funding 23andMe’s business.
According to STAT, Branson has been interested in 23andMe since the start when he was a fresh investor. The DNA testing allowed the business magnate to discover he had an Indian great-great-great-grandmother.
The SPAC craze has been going on in the market since last year and seems to be continuously growing. A SPAC is a blank-check firm that raises funds through an Initial Public Offering (IPO) with the purpose of acquiring a private company through a merger and making it go public.
It can be thought of like a reverse IPO where the business itself is not present at the time of raising money. SPACs tend to be quicker and involve fewer regulatory requirements as compared to a traditional IPO.
23andMe, co-founded by Anne Wojcicki, Linda Avey, and Paul Cusenza, in 2006, is best known for its saliva-based tests that give people a glimpse into their ancestry and detect whether they are prone to a group of hereditary conditions, including Parkinson’s disease, type 2 diabetes, and celiac disease.
The tests gained approval from the Food and Drug Administration (FDA) in 2017 while in the following year, the company gained approval for its pharmacogenetic tests which diagnose genetic markers of drug metabolism.
DNA Kit Market
The Silicon Valley-based company sells genetic testing kits directly to consumers and over 26 million people have used the DNA ancestry test according to a 2019 report from MIT Technology Review. The overall DNA kit market is expected to grow over $2.7 billion by 2030 according to Transparency Market Research.
23andMe has raised around $900 million to date out of which $85 million were raised last December from a Series F round. Last fall, the biotechnology company caught the eye of the British multinational pharmaceutical firm GlaxoSmithKline (GSK) which invested $300 million in 23andMe and the two firms collaborated to discover new drugs using data gathered from the numerous customers of the company.
Unfortunately, 23andMe saw falling revenue of its DNA testing kits in January 2020 due to a slip in consumer genetic testing and had to lay off 14% of its employees.
While the merger will provide a boost of capital to 23andMe, it will also pose the challenge of delivering value to shareholders which translates to reporting a healthy profit regularly.
The deal is expected to conclude in the second quarter of 2021 and the new entity will be listed on the New York Stock Exchange under the ticker symbol “ME”.