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Ok gents, lil has been written about the LGVW-Butterfly deal. Between nurses/docs super excited about the product and the “t’s goooooing to moooon” hype, I thought to write a sound DD based on available facts as I did for Microvast and AvePoint. You may be sick of hearing about SPACs in 2020, but do keep an open mind about em bc solid companies are entering the mkt as well. Let’s dive in
30 secs elevator pitch: on November 19, 2020, Longview (LGVW) entered into a definitive business combination agreement with Butterfly Network (thereafter “The Company”), valuing the latter at an Enterprise Value of $1.5Bn, after a Letter of Intent signed in Oct20. The proposed business combination is expected to be completed in the first quarter of 2021, with the combined company’s Class A common stock trading on the NYSE under the ticker BFLY. The Company makes ultrasound proprietary technology more universally accessible and affordable and it’s backed by The Bill & Melinda Gates foundation
Investment Case Intro: Butterfly attacks a large, $8 billion addressable market and expands it materially by meaningfully growing each of the following: points of care, geographic reach and use cases. Moreover, Butterfly has many attractive investment attributes: strong balance sheet and liquidity, low manufacturing costs, rapid growth, high recurring revenue, a discounted relative valuation and high-return reinvestment ops
// What the heck is Butterfly Network and why should I care?
Butterfly Network is an innovative digital health company that is working to enable universal access to superior medical imaging. Key takeaway:
- In short: founded by Dr. Jonathan Rothberg (winner of Presidential Medal of Tech & Innovation) in 2011 and led by CEO Laurent Faracci, Butterfly has created the world’s first handheld, single-probe whole-body ultrasound system, Butterfly iQ, to make ultrasound technology more universally accessible and affordable
Company Footprint
- Addressing an unmet need: Point of Care Ultrasound (POCUS) represents the biggest paradigm shift since x-ray. Historically, the global ultrasound market has been dominated by traditional cart-based devices that are accessible only to highly specialized technicians and are located predominantly in hospitals, imaging centres, and physicians’ offices. POCUS usage today has been constrained by high upfront system cost, limited access, and suboptimal convenience. Notably 2/3 of the world has no access to medical imaging and 2/3 of diagnostic dilemmas can be addressed through simple imaging. The addressable market is represented by $6Bn of equipment market and $2Bn of service market, with an addressable population of 40M+ Global Healthcare Practitioners. Ultrasound uses sound waves instead of radiation and it’s pushed by several macrotrends: (i) aging population, (ii) chronic disease proliferation, (iii) move from hospital to home settings and (iv) wellness monitoring
Product Roadmap
- What about R&D? While smartphone-based ultrasound devices have existed for years, Butterfly is the first to completely re-engineer the technology behind acquiring images. The goal? Increase quality and efficiency while decreasing costs. To accomplish this, Butterfly engineers had to figure out how to replace the very core element of the ultrasound probe – the piezoelectric crystals. Using sophisticated physics and fancy math, these piezoelectric crystals are used to ‘transduce’ sound energy into electrical energy and vice versa. Butterfly’s new smartphone-based ultrasound device replaces expensive transducer crystals with computer chip technology, resulting in a device that costs less than $2,000, while currently emergency departments spend $25,000 to $250,000 to purchase and maintain sophisticated and cumbersome ‘portable’ ultrasound machines
- Relative analysis: there are arguably three other major competitors to Butterfly iQ in the handheld ultrasound market: GE Vscan Extend, Philips Lumify, and the Clarius Wireless Scanner. Each of these devices are FDA approved for most of the major uses of POC (Point- of-Care) ultrasound. No other device on the market has a 3-in-1 transducer, which leads to doubling and tripling of cost for each additional probe. Additionally, only the Philips Lumify and Clarius are smartphone based. From a cost perspective, there is no comparison. Butterfly iQ drastically reduces the upfront cost, and there is no extra charge for their cloud computing and storage. Not to mention, the iQ is the only probe pushing the limits of AI and deep learning. In case you like CNBC, they listed Butterfly as one of the 50 2020 disruptors companies
Comment of a Reseller, take it or leave it: “I literally sell ultrasound for living. Butterfly is going to have a subscription service and this is seriously in high demand. 25% of my leads are currently asking for this tech. My starting price of Phillips is between 4.5-5k, Chinese brands start at 2500”
Competitors' Positioning
- Expected & Current Financials: Butterfly has Substantial Growth Potential Across Multiple End-Markets with 65% revenue CAGR from 2019-2024E. Currently the company holds $500 million of cash to drive it through its investment phase and to expected positive cash flow. Significant discount to comparables, with 10.6x 2022E revenues with 70+% growth versus comparables at 13-20x+ 2022E revenues, with meaningfully slower growth. Total investment of over $400 million with first product introduced in 2018, 700+ patents and 2020E revenue of $44 million, projected to grow to $138 million in 2022E
Robust Roadmap
Competitors' Valuation
- Who’s managing my tendies? Founder Dr. Jonathan Rothberg to become Chairman of the combined company and will be Butterfly’s largest controlling shareholder. 100% of the equity of existing Butterfly Network investors, including Baillie Gifford, The Bill and Melinda Gates Foundation and Fosun Industrial Co., Limited, will convert into shares of the combined company. There will be no selling stockholders in the transaction
Zero-Selling Shareholders
// Ok so what am I buying here? LGVW
- Longview Acquisition Corp. is a Special Purpose Acquisition Corporation brought public as an affiliate of Glenview Capital Management. Glenview was founded in 2000 by Larry Robbins and is currently in its 20th year of active public markets investing with a focus on the healthcare market. Initially capitalized with $414 million in cash in May 2020 trading under the ticker LGVW
- The transaction is expected to deliver up to $589 million of gross proceeds, including up to $414 million of cash held in Longview’s trust account (assuming no redemptions are effected). The transaction is further supported by a $175 million PIPE at $10.00 per share, led by Eldridge, Fidelity Management & Research Company LLC, Glenview, Ridgeback, Tenet Healthcare Corporation, UPMC Enterprises, the innovation, commercialization and venture capital arm of leading Pittsburgh-based health system UPMC, and Wellington Management. The company is projected to have approximately $584 million in cash on the balance sheet after closing
- The Ropes & Gray team that represented Longview Acquisition Corp. was led by mergers & acquisitions partner Carl Marcellino (New York), and included securities partners Paul Tropp and Rachel Phillips (both of New York), mergers & acquisitions partner Regina Sam Penti, employment, executive compensation & benefits partner Loretta Richard, tax partner Elaine Murphy (all of Boston), and life sciences, regulatory & compliance partner Kellie Combs (Washington D.C.)., and mergers & acquisitions associates Victoria McGuire (New York) and Lisa Folkerth (Boston)
Transactions Details
SEC Dets
// Advisors, let’s spit out the big names
J.P. Morgan Securities LLC acted as financial advisor to Butterfly Network. UBS Investment Bank acted as financial advisor to Longview as well as the exclusive placement agent for the PIPE
// Sources
// I don’t’ know how to read all this, bottom line? TL;DR
- Butterfly Network is an innovative digital health company addressing the $8bn Point of Care Ultrasound (POCUS), which represents the biggest paradigm shift since X-ray. Butterfly's early investors include Baillie Gifford, The Bill and Melinda Gates Foundation and Fosun Industrial Co., Limited. Butterfly's aim is to make superior medical imaging at more affordable prices, led by a robust team and characterized by strong financials (2020E revenue of $44 million, projected to grow to $138 million in 2022E)
- On November 19, 2020, Longview (LGVW) entered into a definitive business combination agreement with Butterfly Network, valuing the latter at an Enterprise Value of $1.5Bn. The deal is expected to close in Q1 2021
- LGVW closed @ $16.55 the most recent trading session. At the very opening of the session, the stock price was $17.59 and reached a high price of $17.60, with a 52W high of $17.98. Today’s level may be a renewed good entry point to position and hold all the way through further rumors and deal completition
Disclaimer: all images should be credited to Butterfly Network, LGVW or the above- mentioned sources. This does not constitute and has not to be intended as financial advice of any kind, always do your own research. I do not currently hold any long or short position in commons or warrants of LGVW (I will edit if that’s the case)
submitted by /u/Ostoni
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