By David Summers (London School of Economics)
Summary of IPO
With mental health emerging as a scaling problem for our time, Kooth provides digital mental health advice and support to the UK market. With 20% of children in the UK experience having illness in their mental health each year. The COVID-19 pandemic has led to further wellbeing challenges across the world due to lockdown restrictions being put in place. The AIM-listed company is well-positioned has a clear competitive advantage through the proprietary technology and data held.
Working from home initiatives have supported Kooth’s expansion into ‘Kooth Work’ - which focuses on the wellness of corporate clients, yielding £260,000 in annual revenue from just 8 customers. Having been the first IPO on AIM of Q3 2020, Kooth has had strong traction amongst investors, shown by a YTD return of 19.84% (as of 24/03/2021). The plan by the National Health Service (NHS) to increase public spending on mental health services by £2.3 billion by 2023/24 shows the scale of growth in the market, taking the NHS’s allocation for mental health to over £15 billion.
The selling stake of £26 million raised £16 million for Kooth and the remaining proceeds to exiting shareholder, Root Capital (VC firm that acquired the company in 2015). Going public will now offer improved liquidity for expanding its operations into ‘Kooth Adult’, ‘Kooth Work’ outside of its current service offering for children and young adults.
"This is a great moment for Kooth. In joining AIM we see a significant opportunity to scale up our company to support the growing demand for mental health services in both the UK and internationally. As a public company with a positive social impact, we are proud to become the first digital mental health platform to list on the London Stock Exchange. We have an ambitious plan to invest in our team and technology to deliver on our purpose to make personalised mental healthcare available to all.” - Tim Barker, CEO (Kooth)
Company and IPO Profile:
Sectors: Technology (consumer digital services), Healthcare (mental health and wellbeing)
Exchange floated: AIM (London Stock Exchange)
Amount raised: £26 million
Offered price and number of shares: £2.00 and 33.1 million shares including 25.1 million existing shares and 8 million new shares.
Equity offered: 39%
Market Capitalisation at IPO: £66.1 million
Nominated advisor and sole broker: Panmure Gordon
Notable investors: Cannacord Genuity, Gresham House, Premier Miton
The Company aims to use technology to provide mental healthcare services at all levels of necessity, including ‘prevention, early intervention, and ongoing care’. Its artificial intelligence seeks to ensure an improved user experience with services and content being recommended to the visitor. Lockdown restrictions has worsened the mental health of all age groups, with a recent ONS report noting that 16-29 year-olds are significantly less satisfied with their life nowadays than in 2017. It brings about a greater and scalable opportunity for Kooth but relies on careful expansion to ensure it can create revenues while also increasing the size of its userbase.
Its digital presence, as opposed to in-person counselling, has allowed Kooth to remain at the forefront during the pandemic and supports those who would not feel comfortable receiving regular councselling. Its IPO is likely to create long-term value for shareholders by utilising a business model that is socially responsible and seeks large-scale growth. This is done by its service offering to corporates, which is on the agenda of all management teams following recent whistleblowers from large multinationals.
Kooth was acquired by ScaleUp Capital (formerly known as Root Capital) in 2015 from Kooth’s founder, Elaine Bousfield. Having now delivered in excess of 150,000 hours of online conselling with year-on-year growth of more than 40%, ScaleUp looked to list on AIM to support its next chapter of expansion through the public capital markets. The company raised £16 million through the placing of 8 million ordinary shares in addition to the 5 million existing ordinary shares from Root Capital Fund II. As the only healthcare provider filing an IPO on AIM in 2020, the attractiveness of the sector amidst the pandemic paved the way for an ideal opportunity to list.
The stock (AIM:KOO) jumped from 200 pence to 240 pence per share on its first day of trading on the LSE. The strong momentum is likely to have been driven by the strong expansion strategy, with plans to break into new markets, as well as its developing partnerships with the NHS. The aim of making mental health services accessible to all is fitting with the new generation of ethical investors (78% of investors saying ethical investing carries greater significance to them now than five years ago). With the price per share rising to 302.5 pence (as of 26/03/2021), the investor sentiment on Kooth has outperformed the AIM All-Share Index, which has seen ~25% growth in the same period. This IPO leads the way for similarly sized companies looking to improve their liquidity post-pandemic.
Potential Risks and Downsides
The challenge to monetise the work of Kooth, a site that is free to use for children and young people, can be questioned in the likely shift towards government cutbacks in response to the increase in national debt. With the NHS being Kooth’s largest client (across multiple regional trusts), it could see scalable drawbacks in the future. This carries a risk for investors who are not only interested in the social impact of Kooth but also its profitability. With that in mind, it is unlikely to occur given the NHS’ commitment to mental health as a focal point as outlined in their plans to increase spending over the next few years. In addition, Kooth’s expansion strategy into the USA could be undermined by an incumbent healthcare provider gaining traction in the mental health space. The first-mover advantage poses a risk to Kooth’s competitive advantage through its proprietary technology.