LumiraDx Announces SPAC Merger Agreement

With the ongoing boom in special purpose acquisition companies (SPACs), there seems to be a new merger announcement every day. The latest deal is LumiraDx, which has agreed to go public by merging with CA Healthcare Acquisition (NASDAQ: CAHC) in a deal valuing the healthcare company at $5 billion.

Here’s what investors need to know about LumiraDx and its merger deal.

The Opportunity Behind LumiraDx

LumiraDx was founded back in 2014 and has developed several diagnostics and health IT businesses that it has sold to juggernauts in the industry. The major deals have been for Alere and MediSense to Abbott Laboratories (NYSE: ABT) and Inverness to Johnson & Johnson (NYSE: JNJ). 

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The latest strategy is to create a connected point-of-care (PoC) diagnostics platform used by healthcare providers, aptly dubbed the LumiraDx Platform. The company seeks to address common pain points associated with current PoC offerings, such as poor clinical performance, a limited test menu, and high costs of ownership. By consolidating numerous tests and PoC systems into a single handheld device, LumiraDx says that it can help healthcare providers declutter their office labs while simultaneously providing cost savings. 

LumiraDx has also developed a COVID-19 antigen test that has been in use during the pandemic. The company notes that the crisis accelerated its go-to-market strategy for diagnostic technologies that it had already been developing for years, while it is still working on additional testing solutions to expand its portfolio. 

There is also a low-cost home COVID testing system called Amira that LumiraDx plans to launch later this year. Each test, which will be sold over-the-counter directly to consumers, will cost just $2 to $4, significantly lower than the COVID tests currently on the market. LumiraDx estimates that the market opportunity for COVID testing is worth $5 billion to $10 billion.

Revenue in 2020 was $139 million, which resulted in a net loss of $241 million. Sales are forecast to skyrocket to a range of $600 million to $1 billion in 2021, and the company did not offer long-term revenue forecasts beyond this year. That’s rare for SPAC deals. 

SPAC Details: What CAHC Stockholders Should Know

Speaking of SPAC deals, the merger agreement will provide LumiraDx with $115 million in cash from CA Healthcare’s trust account. Additionally, there is no PIPE (private investment in public equity) financing component, which is also uncommon in SPAC transactions. The deal gives LumiraDx a pre-money valuation of $5 billion, which is about the same as the post-money enterprise value of the combined company.

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Since the SPAC is bringing a relatively modest amount of cash to the table, CA Healthcare shareholders will collectively own just 2.2% of the combined company. CA Healthcare sponsors will receive a 0.6% stake, while existing shareholders will retain 97.1% ownership.

Separately, LumiraDx added that it has secured an additional $400 million in debt financing, consisting of a $300 million senior loan facility and a $100 million revolver. 

The merger is expected to close around mid-2021.

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