A Look Back at Health Care SPACtivity of 2020-2021

ABSTRACT

During the COVID-19 pandemic, special purpose acquisition companies (SPACs) emerged as a popular alternative to traditional initial public offerings (IPOs) for health care companies seeking access to public capital. Fueled by near-zero interest rates, abundant capital, and a regulatory environment favorable to digital health, SPACs offered faster timelines, flexible deal terms, and access to experienced sponsors. This article examines the health care SPAC boom of 2020-2021, its drivers, and its aftermath. In our review of 29 health care and life sciences companies that went public via SPAC between 2020 and 2023, most lost substantial value after their mergers: More than half either experienced declines of more than 85% in market capitalization or went bankrupt or shut down, and only 2 achieved meaningful positive returns. Poor postmerger performance, rising interest rates, and heightened scrutiny from the US Securities and Exchange Commission, culminating in final rules adopted in 2024, have since sharply curtailed health care SPAC activity. We argue that the SPAC boom reflected a temporary market inefficiency that allowed companies with unproven business models to bypass traditional due diligence. Although SPACs may retain a narrow role, the episode offers lessons for investors, health care leaders, and policy makers evaluating how capital structures shape the durability of health care innovation.

Am J Manag Care. 2026;32(11):643-648

doi:10.37765/ajmc.2026.90043

• Investment decisions: Scrutinize health care companies that bypass traditional initial public offering processes, as expedited routes may indicate fundamental weaknesses.
• Capital allocation: Recognize that exceptional market conditions can temporarily distort rational investment mechanisms and quality filters.
• Strategic planning: Focus on companies with proven business models rather than those benefiting primarily from favorable financing environments.
• Risk management: Implement additional due diligence safeguards when evaluating health care investments during periods of market speculation.

At the beginning of the COVID-19 pandemic, health care innovation skyrocketed across many subindustries, both creating new technologies and expanding on existing ones in data interoperability, telemedicine, drug discovery, and wearables.¹ The demand for therapies, treatments, and technology continued to proliferate, and investment was vital to matching that growth. A 2020 McKinsey report estimated that CMS’s approval of more than 80 new telehealth services could shift up to $250 billion, around 20% of all US outpatient, medical office, and home health care spending, to digital channels.²

As innovation and investment surged, many health care start-ups and their investors began eyeing public markets as a pathway to scale their impact and provide returns to early investors. However, start-ups face significant challenges when attempting to enter public markets. Initial public offerings (IPOs) are time-intensive and require extensive regulatory scrutiny, especially in the health care sector. Yet the appetite for “going public” is strong, especially among venture-backed health care start-ups, where investors seek a liquidity event, a transaction that converts their equity stakes into cash.

The COVID-19 pandemic created an unprecedented environment for public offerings, driven primarily by the Federal Reserve’s zero interest-rate policies, which flooded markets with capital and led to historically high stock prices and valuations. Companies could achieve significantly higher valuations through public offerings than in typical market conditions. However, this favorable environment was tempered by increased uncertainty and volatility. Companies sought to reduce risk wherever possible, with research by Baig and Chen revealing that IPO underpricing increased by 23% during 2020 compared with the pre–COVID-19 period.³

In this environment, special purpose acquisition companies (SPACs) emerged as a popular alternative to traditional IPOs, offering a faster, more flexible route to public markets. SPACs allowed companies to bypass the traditional gatekeeping mechanisms inherent in standard IPOs, accessing capital in months rather than the 12 to 18 months required for regulatory review. However, this speed came at a cost: Companies that bypassed rigorous due diligence before going public often lacked validated business models at scale. As health care capital increasingly flows through alternative structures, such as venture capital, growth equity, and private equity, understanding what distinguishes capital models that drive durable innovation from those that accelerate failure becomes essential. This article examines health care SPACs during the 2020-2021 boom, analyzes their subsequent performance, and explores what their collapse reveals about the relationship among capital structure, diligence, and the durability of health care innovation.

What Are SPACs?

SPACs are, in essence, shell corporations formed with the sole goal of acquiring or merging with an existing company. Unlike traditional IPOs, where a company raises capital directly from public investors, SPACs first raise funds through an IPO and later identify a private company to merge with. This approach allows the private company to go public through a merger rather than the more disclosure-heavy and time-consuming traditional IPO process.

Investors may be drawn to the SPAC model not only for the potential of a future strategic acquisition but also for the sense of early access it provides. By backing a SPAC, they position themselves to invest in a company before it reaches the public through traditional IPO channels, essentially front-running the usual investment timeline. The funds raised are held in a trust account and can be used only for the acquisition; if no deal occurs within the typical 18- to 24-month window, those funds are returned to investors. This structure appeals to investors seeking potential gains with limited downside risk. Following the IPO, the newly constructed SPAC must seek shareholder approval for a merger. Assuming shareholders approve the merger proposal with the company of interest, the SPAC and the target company can merge. The ticker symbol changes, and the formerly private company now has access to any capital raised to accelerate its growth. Meanwhile, investors in the SPAC now have an equity stake in the target company. Following the successful acquisition, the SPAC and target company reorganize into a publicly traded company in a process known as a de-SPAC transaction.

Proponents of the SPAC model argue that it offers several advantages over traditional IPOs. The target company transitions into the public sphere much more quickly than a traditional IPO process. Furthermore, the deal terms are flexible, as negotiated by the SPAC shareholders and the company being acquired. On top of that, the valuation determined before the IPO can prevent volatility, which, as we will address, is critical in the health care domain. At the same time, certain challenges remain: dilution via sponsor shares (equity stakes automatically awarded to SPAC organizers upon deal closure), the downside of public opinion due to a company willingly bypassing regulatory scrutiny associated with traditional IPOs, and, most important, the empirical underperformance of SPACs in public markets post merger. The question remains whether these theoretical advantages translate to superior outcomes for investors and the health care companies themselves.

Upside and Growth

The beginning of the pandemic saw a surge of company IPOs via SPACs. According to Nasdaq, 57% of all IPOs in the United States were SPAC IPOs in 2020 and 2021 (a total of 861 across all sectors) (Figure).⁴ Evercore reported that across the health care and life sciences sectors, SPACs raised $11.1 billion in 2020 alone, compared with the 2017-2019 period, when the total value raised was just under $3 billion.⁵ As of late 2021, health care and life sciences accounted for approximately 13% of SPACs seeking acquisition targets, ranking second only to technology, media, and telecom.⁶ However, compared with private equity investment in health care (more than $200 billion in 2021⁷) and venture capital in digital health specifically ($29.1 billion in 2021⁸), SPACs constituted a relatively small percentage of total health care capital formation, a concentrated phenomenon in public markets rather than a dominant force across all health care financing.

This boom was a result of a health care ecosystem ripe for innovation and change. The COVID-19 pandemic created an urgent demand for health care innovation. SPACs emerged as an opportunity to more quickly funnel capital to companies at the forefront of fighting the pandemic, especially in the digitization of health care. Social distancing measures and lockdowns resulted in shutdowns of in-person health care services, contributing to a significant rise in digital health and telehealth services. As such, health care SPACs primarily targeted digital health platforms, telehealth services, care coordination tools, remote monitoring technologies, and health care technology infrastructure that digitized or improved existing care delivery processes rather than creating new clinical modalities.

The evolving regulatory landscape, particularly in the US, with policy shifts favoring innovation in health care payment and delivery models, created a fertile ground for investment. Many government changes contributed to this conducive environment. First, in 2017, the FDA issued its Digital Health Innovation Action Plan, introducing new regulatory frameworks for digital health and telehealth. This initiative aimed to clarify and guide the sector by simplifying approval processes for technologies such as mobile applications, artificial intelligence platforms, and telemedicine, thereby encouraging innovation and making these areas attractive for SPAC transactions. CMS significantly relaxed telehealth regulations, particularly in response to COVID-19,⁹ and the Coronavirus Aid, Relief, and Economic Security Act was passed, rapidly increasing funding and expanding Medicare coverage for telehealth.¹⁰ Finally, in late 2020, the US Department of Health and Human Services revised the regulations implementing the Stark Law and the Anti-Kickback Statute to reduce administrative burdens and protect value-based payment arrangements, allowing practitioners to partner with technology companies and thereby expanding the digital health solutions market.¹¹

The appeal of SPACs during this period can be understood through several mechanisms, though subsequent performance data call into question whether these advantages were realized in practice. SPACs offered a streamlined, efficient pathway for companies navigating regulatory hurdles, while also benefiting from the speculative momentum and trend-driven enthusiasm that drew both sponsors and investors into the space.

First, SPAC mergers typically involved less regulatory scrutiny and moved significantly faster, often closing within 3 to 6 months, compared with the 12 to 18 months required for a traditional IPO. However, this reduced scrutiny may have allowed fundamentally weaker companies to access public markets without the rigorous vetting process required by traditional IPOs.

Second, SPACs offered a faster and more predictable path to accessing capital, critical for health care companies in capital-intensive growth phases. Although SPACs did not consistently raise more than traditional IPOs or late-stage venture rounds, their appeal often lay in the speed of execution, negotiated terms, and ability to include supplemental private investment in public equity (PIPE) financing. For example, Butterfly Network, which specializes in portable ultrasound technology, raised approximately $584 million through its SPAC merger, capital it used to accelerate research and development (R&D) and market expansion.¹² The stock initially performed well, reaching an all-time high of $25.97 in February 2021 shortly after the merger’s completion. However, the stock has since declined, trading at $2.30 on June 13, 2025.¹³ This trajectory illustrates a common pattern among health care SPACs: initial enthusiasm followed by substantial value erosion. It is worth noting that high shareholder redemption rates can reduce the final capital delivered, and, in many cases, traditional IPOs or growth equity deals remain competitive in size.

Third, experienced SPAC sponsors can offer health care companies not only financial backing but also valuable industry expertise and guidance, much like venture capital funds provide financing and strategic input. For instance, Glenview Capital Management, which sponsored Longview Acquisition Corp, brought decades of health care investment experience to its merger with Butterfly Network. Following the SPAC deal, Butterfly established several partnerships, including its collaboration with health care technology company Ambra Health (together serving 8 of the top 10 hospitals in the US) and major health system Baylor Scott & White Health in 2022, as well as its expansion into 81% of US medical schools and more than 540 residency programs by 2023.^14-16

Lastly, SPAC transactions can offer greater flexibility in deal structuring than traditional IPOs. This is notable in the health care and life sciences sectors, where even after transitioning to public markets, volatility can cause companies to fail. One example is MultiPlan, a health care cost management solutions provider, which completed a SPAC merger with Churchill Capital Corp III in 2020, valued at approximately $11 billion.¹⁷ The deal was structured to provide up to $3.7 billion in new equity or equity-linked capital, including $1.1 billion from Churchill’s cash-in-trust and $2.6 billion from PIPE financing. The PIPE included $1.3 billion in common stock at $10 per share and $1.3 billion in 6% interest convertible debt, convertible at $13 per share. This capital infusion was intended to substantially reduce MultiPlan’s debt and fund new value-added services. Additionally, existing shareholders, such as Hellman & Friedman, rolled over more than 70% of their collective stake, retaining over 60% ownership in the public company. The transaction’s structure, combining immediate capital with performance-aligned financial instruments, positioned MultiPlan to enhance its core offerings, extend into new payer customer segments, and expand its platform to capitalize on a total addressable market exceeding $50 billion.

Each of these reasons led to an increase in SPAC deals across all industries. In December 2020, Goldman Sachs reported that SPAC deals had grown 462% year over year while outpacing traditional IPOs by $6 billion.¹⁸ Compared with the S&P 500, postmerger SPACs’ initial pricing was up 47% vs 20% between January 2020 and the first quarter of 2021.¹⁹ In the health care industry, Rock Health reported that more than 80% of digital health public exit activity in early 2021 was SPAC-related.²⁰

Although these data points appeared promising at the time, they primarily reflect the initial market enthusiasm rather than sustained value creation. The subsequent performance of these vehicles reveals a more troubling pattern.

The Cooldown

Despite the surge in SPAC funding in previous years, 2022 and 2023 saw a general downturn in SPAC activity, returning to 2019 levels. This shift was marked by several factors that contributed to a more cautious, more scrutinized approach to SPACs in the health care and life sciences sectors.

The decline in investor appetite for SPACs was driven in large part by poor postmerger performance. Many digital health companies that went public via SPACs significantly underperformed expectations, eroding investor confidence in the model. Of the 431 SPACs in 2022-2023, 90% had negative net returns according to J.P. Morgan Asset Management.²¹ This was significantly worse than traditional IPOs; in fact, SPACs going public in the bullish 2020 stock market had a median loss to investors of more than 80% across all sectors.²¹ An examination of US-listed SPACs between 2018 and 2021 found that a portfolio of health care SPACs underperformed the Russell 2000 Health Care index by 2.14% and the S&P 500 Health Care index by 6.72%.²² As more SPACs failed to close deals within the standard 2-year horizon—and as those that did often struggled in public markets—redemptions increased, and enthusiasm faded. Rather than pursue high-risk acquisitions with uncertain growth prospects, investors increasingly chose to redeem their shares, reflecting broader skepticism toward SPACs as a viable path to long-term returns.

The performance gap between health care SPACs and traditional IPOs is particularly stark when examining specific outcomes. A prior analysis by one of our authors found that digital health companies that went public via SPAC in 2020 to 2022 were more than 4 times more likely to go bankrupt than those that pursued traditional IPOs. Although 23% of health care IPOs during that same period are currently valued above their opening price, only 1 health care SPAC—Hims & Hers Health—trades above its initial valuation. This dramatic difference suggests that the expedited SPAC process may have enabled fundamentally weaker companies to access public markets, bypassing the more rigorous due diligence typically required for traditional IPOs.²³

The broader economic climate also played a significant role in the cooldown of health care SPACs after 2021. Rising interest rates and global inflationary pressures contributed to a shift in investment strategies and market volatility, leading to more cautious approaches across the board. Investors began favoring traditional IPOs and other conventional forms of equity financing over SPACs across all sectors amid heightened economic uncertainty.²⁴

Beyond direct market forces, regulatory scrutiny began to increase. SPACs generally had lower disclosure and accounting standards. In 2021, the US Securities and Exchange Commission (SEC) began paying closer attention to SPAC transactions, issuing new guidance and proposed rules that may have made them less attractive and more sophisticated as investment vehicles.²⁵ Soon enough, the regulatory scrutiny reduced the ease and speed that once made SPACs attractive in the health and life sciences domain.

An empirical examination of health care SPAC outcomes reveals that the theoretical advantages discussed earlier rarely materialized into sustained value creation. More than half of health care SPACs from 2020 to 2023 (Table) have lost significant value post merger. Of the 29 companies analyzed, more than half either experienced declines of more than 85% in market capitalization compared with their valuations at SPAC merger or went bankrupt or shut down. Notably, major names like Beachbody, Vicarious Surgical, and Owlet saw value declines exceeding 90%, whereas several others—Cano Health, Pear Therapeutics, UpHealth, 23andMe, and Babylon—ultimately went bankrupt, and Better Therapeutics ceased operations and was delisted. Even among those that remain public, very few have demonstrated strong financial performance; only 2 companies, Hims & Hers Health and GeneDx, have shown meaningful positive returns; Hims & Hers is an outlier at +673%. These outcomes suggest that SPACs may have primarily served as vehicles for companies with weak fundamentals to access public markets and provide early-stage investors with exit opportunities rather than as mechanisms to enhance the growth prospects of financially sound enterprises. These outcomes underscore the broader collapse in investor confidence toward SPAC-backed health care listings and illustrate the structural weaknesses that plagued many of these transactions.

Future Outlook

In the aftermath of the SPAC boom, the health care and life sciences sectors have seen a sharp decline in SPAC activity, and investor appetite has yet to recover. New health care SPAC IPOs have been rare since 2022, with only a few, such as Pioneer Acquisition I Corp in June 2025, coming to market,²⁶ reflecting both poor postmerger company performance and growing skepticism about the model’s long-term viability. Many high-profile de-SPACed companies in the sector have gone bankrupt, been delisted, or seen their valuations collapse, significantly eroding investor confidence.

Moreover, regulatory scrutiny began to increase. By late 2020, concerns emerged about inadequate disclosure and poor due diligence following high-profile failures and investor losses.²⁷ Most significantly, in March 2022, the SEC proposed rules that would require SPAC sponsors and target companies to be jointly liable for forward-looking statements, eliminating the “safe harbor” protection and dramatically increasing legal risk.²⁸ In January 2024, the SEC adopted final rules that, in certain situations, require the target company to sign the de-SPAC registration statement as a co-registrant, making it liable for those disclosures, and that make the Private Securities Litigation Reform Act safe harbor for forward-looking statements, such as projections, unavailable to SPACs.²⁹ New disclosure requirements and litigation risks have eroded the timeline advantage SPACs previously held, making them less compelling from a risk-return perspective.

The evolution of SPAC regulation from minimal predeal gatekeeping to joint sponsor liability and mandatory disclosure mirrors the regulatory frameworks already established for traditional IPOs and private placements, suggesting a convergence toward uniform standards for alternative capital access in health care. This regulatory tightening may ultimately reshape how health care capital flows across alternative financing models by raising diligence and accountability standards across the industry.

Although SPACs once offered a streamlined path to the public markets for health care start-ups, particularly those with capital-intensive R&D cycles or long regulatory runways, recent history has made clear that the model is no longer seen as a reliable financing mechanism. In the current environment, traditional IPOs, private equity, and strategic mergers and acquisitions are more likely to dominate capital-raising pathways in health care.

That said, complete dismissal of the SPAC model may be premature. In niche cases—where a strong sponsor team brings operational expertise, or where a company has a clear path to profitability and needs speed—SPACs may still play a role. However, the conditions under which SPACs might provide genuine value are considerably narrower than proponents initially suggested. Going forward, their use will be more selective, more cautious, and far less frequent than during the 2020-2021 surge.

In conclusion, health care SPACs are unlikely to return as a mainstream funding tool anytime soon. Rather than a sustained trend, their recent prominence appears to have been a temporary phenomenon shaped by low interest rates, abundant capital, and a speculative market environment. Future SPAC activity, if it reemerges, will likely do so within a far more conservative and scrutinized investment landscape that demands demonstrable operational performance and clearer paths to profitability. The health care SPAC boom of 2020-2021 will likely be remembered not as an innovative financing breakthrough but as a cautionary tale about the risks of prioritizing speed and flexibility over fundamental business quality in accessing public capital markets. More importantly, it should serve as a framework for evaluating how capital structure decisions affect not just investor returns but also care delivery, regulatory policy, and the pace of meaningful health care innovation. Understanding why SPACs failed provides essential context for navigating the next wave of financial innovation in health care—helping stakeholders distinguish between genuinely beneficial capital structures and those that primarily serve to transfer risk from private investors to public markets and, ultimately, to patients and providers.

Author Affiliations: Stanford University School of Medicine (BJ, AS, SP), Stanford, CA; Columbia Business School (HT), New York, NY.

Source of Funding: None

Author Disclosures: Ms Tecco reports holding shares in Hims & Hers Health, a publicly traded stock, and in other index funds that may invest in companies mentioned. The other authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (BJ, AS, SP); acquisition of data (BJ, AS, HT); analysis and interpretation of data (BJ, AS, SP, HT); drafting of the manuscript (BJ, AS, SP); critical revision of the manuscript for important intellectual content (BJ, AS, SP, HT); and supervision (HT).

Address Correspondence to: Halle Tecco, MPH, MBA, Columbia Business School, 665 W 130th St, New York, NY 10027. Email: ht2430@columbia.edu.

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