GigCapital2 to merge with two telehealth firms in $1.35 billion deal - sources

(Reuters) - Blank-check acquisition company GigCapital2 Inc has agreed to merge with UpHealth Holdings Inc and Cloudbreak Health LLC to create a digital healthcare company valued at $1.35 billion, people familiar with the matter said on Monday.

The deal is the latest in a string of mergers seeking to capitalize on the growth in telemedicine fueled by the COVID-19 pandemic. Direct-to-consumer health company Hims Inc and acute care telemedicine company SOC Telemed Inc also clinched deals with so-called special purposed acquisition companies (SPACs) this year.

A SPAC such as GigCapital2 is a shell company that uses proceeds from an initial public offering (IPO) to acquire a private company, typically within two years. A merger with a SPAC is an alternative to a traditional IPO that more private companies have turned to this year.

By combining UpHealth Holdings and Cloudbreak, GigCapital2 plans to create a company focused on digital care management, telehealth, digital pharmacy and technology-enabled behavioral health, the sources said, adding that the merged company expects to generate approximately $115 million in revenue in 2020.

The sources requested anonymity ahead of the deal’s expected announcement later on Monday.

The deal comes after GigCapital2 abandoned a non-binding $880 million agreement it entered into last month to merge with Bolder Industries, a maker of recyclable plastic and rubber.

GigCapital2 decided that telehealth was a more attractive sector to focus on.

GigCapital2, which raised $150 million in an IPO in June 2019, plans to raise $160 million in form of a private investment in public equity, or PIPE transaction, to help finance the new deal, the sources said.

Reporting by Krystal Hu in New York, Editing by Sherry Jacob-Phillips