Digital health funding boom continues as ETAO cuts SPAC deal

Chinese digital health firm ETAO International will go public via a merger with a blank cheque company that will value it at around $2.5 billion.

The deal with special purpose acquisition company (SPAC) Mountain Crest Acquisition Corp III (MCAE) will give the five-year-old telehealth group up to $304 million in gross proceeds, bolstered by a $250 million private round from China SME Investment Group. A separate private placement worth $51 million is due to close next month.

Operating in China, Canada and Australia, ETAO specialises in telemedicine and artificial intelligence-powered healthcare technologies for applications like cancer screening, backed up by 12 bricks-and-mortar hospitals and 30 clinics.

It has more than 5 million registered users and provided care for 3 million people in 2020, providing online consultations, online pharmacy and other services through a network of 3,00 healthcare professionals.

Last year, the New York City-headquartered company started drawing on the expertise of Chinese-American physicians to provide services to patients in China and provide medical education to doctors operating in the Chinese healthcare system.

Funding from the public listing will be invested in expanding the capabilities of its hospitals and clinics as well as its online medical services.

The merger is expected to close this summer, at which point the combined company will trade under the ETAO ticker on the Nasdaq.

Another SPAC set up by Mountain Crest Acquisition – led by Suying Liu – merged with digital health player Better Therapeutics last October, raising around $70 million. Better Health specialises in prescription digital therapeutics (DTx) for cardiometabolic diseases.

The SPAC route to a public listing is increasingly being used by digital health companies as an alternative to an initial public offering (IPO), with other recent examples including DTx company Pear Therapeutics and telehealth player Babylon Health.

It can be quicker, simpler and cheaper than an IPO, which can see investment banks taking a sizeable slice of gross proceeds in fees, but also involves less scrutiny of a company's finances, liabilities and operational processes.

It is the second big digital health SPAC deal this year, coming shortly after healthcare gaming company Akili Interactive agreed to merge with Social Capital Suvretta Holdings Corp I in a deal that will value the firm at around $1 billion.

Commenting on the latest deal, ETA chief executive Wilson Liu said that the company "aims to become the world's leading digital healthcare group."

The pubic listing "will enable us to expand more rapidly and bring many more talented clinicians and more advanced telemedicine technologies to bear on our commitment to better healthcare delivery to the Chinese population," he added.