After Troubled Year, Talkspace Flagged as Prime Acquisition Target by Jefferies

Talkspace Inc. could be a prime acquisition target for any number of potential buyers seeking to jump into the booming virtual behavioral health space, according to a new analyst note from Jefferies Research Services.

The analysts said the boom in virtual behavioral health services from the pandemic, as well as aspects of Talkspace’s (Nasdaq: TALK) falling stock price, make it a potential acquisition target.

Foundationally, the digital behavioral health space has seen major investment in the last few years because of the coronavirus pandemic. The pandemic highlighted the massive unmet need for more behavioral health services and drove additional demand. In 2021 alone, the global digital health space saw $57.2 billion in funding while digital mental health startups raised about $5.1 billion.


Further, the coronavirus pandemic has driven an explosion in the use of telehealth which has been larger and more enduring than in other segments of health care.

Despite the favorable environment for telehealth and virtual behavioral health, Talkspace has faced several issues since going public via SPAC in 2021.

Talkspace immediately revealed losses that were beyond what was expected. By the time the company got to its second earnings call, its co-founders Oren and Roni Frank were no longer with the company. A few days later, the company announced that now-former COO Mark Hirschhorn was out of the company following “an internal review of Mr. Hirschhorn’s conduct in connection with a company offsite that took place late last week.”


All of that led to the company’s share price dropping to $1.71 per share as of late afternoon Thursday. That represented an 80% dip from Talkspace’s June debut at $8.90.

“With [Talkspace] valued just above cash, we believe ample potential buyers could emerge on the M&A front, particularly PE buyers or a large diversified player looking to get into the behavioral health space,” the Jeffries report states. “Despite the operational challenges, the company operates in an attractive and growing market for behavioral health services.”

The report notes that Talkspace has a well-recognized brand and a small but growing base of b2b users. The company’s primary focus is on the d2c market. Part of the company’s troubled performance involves converting people who arrive at Talkspace’s digital assets into paying customers.

The analysts also note that Talkspace stands apart from its competitors in the digital mental health space because it’s publicly traded. Several of the comparable companies identified in the report — Headspace Health, Cerebral Inc. and Lyra Health — are all privately held.

“Currently, most comps in the virtual behavioral health market are private, which we think is ideal as the industry emerges from a boom in demand, but public markets are somewhat hostile towards unprofitable businesses,” the report states.

Talkspace has also been outstripped in valuations by its privately held peer: Lyra Health landed $235 million in funding on a valuation of $5.6 billion. The valuation of Ginger and Headspace, the companies that formed Headspace Health, was about $3 billion.

Talkspace’s market capitalization is about $263 million, down from $1.4 billion at the time of its IPO.

The report notes the success of Teladoc Health Inc. (NYSE: TDOC), an early entrant into the space, as validation of the virtual behavioral health space.

Teladoc acquired BetterHelp, its d2c mental health entity, for $4.5 million in 2015. In 2021, it pulled in about $700 million of the company’s $2.03 billion of annual revenue, showing how virtual behavioral health platforms could thrive as part of another company.

“[We] believe a pure-play behavioral player like [Talkspace] could be a nice addition to a more diversified portfolio,” the report states. “The combination of the capability of the company’s platform, technology and network are a rare commodity and we believe that as competitors look to ramp their respective capabilities, some may find it easier to buy vs build.”

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