Why Babylon Health chose 'more innovative' New York over London for listing

The Babylon Health app. Photo: Babylon
The Babylon Health app. Photo: Babylon

The founder of Babylon Health has said his company chose to list in New York instead of London because capital markets in the US are "more innovative" and American investors are more receptive to fast-growing tech companies.

Babylon, which offers virtual doctors appointments and uses AI to inform healthcare decisions, announced on Thursday night it would join the Nasdaq (^IXIC) through a merger with a special purpose acquisition company, more commonly known as a SPAC. The deal values Babylon at $4.2bn (£3bn).

The move is a blow for the London Stock Exchange (LSEG.L), which has been trying to lure more homegrown tech businesses to list on its markets. Babylon was founded in London in 2013 and remains headquartered there.

Read more: UK healthcare app built by Iranian refugee set for £3bn New York stock listing

Dr Ali Parsa, Babylon's founder, said he chose New York over London because of the better reception for tech businesses from the US markets.

"We shouldn’t mince our words about this thing: each of us get what we demand," he told Yahoo Finance UK. "In UK, there is more of an appetite for cash generative slow-growing businesses and in the US there is more of an appetite for backing the next generation of world leaders.

"There’s no surprise that basically seven out of the 10 world’s largest companies are in the US or China and they were not there 20 years ago."

Babylon Health's London office. Photo: Babylon Health
Babylon Health's London office. Photo: Babylon Health

Dr Parsa said that Babylon was also drawn to New York by the SPAC process. SPACs — also known as "blank cheque" companies — are empty cash shells that list on the stock market and then seek out companies to buy. While legal in both the UK and US, American rules are more permissive and SPACs exploded in popularity there in 2020.

"SPACs do not happen in London, they are a US innovation, and the reality is the US stock exchanges and capital markets have been more innovative and they value growth stories more than British investors do," Dr Parsa said.

Read more: Everything you need to know about SPACs, the hottest trend in finance

The British-Iranian entrepreneur said SPACs were appealing to a business like his because it allowed Babylon to better reflect its fast growth.

"In an IPO you cannot share your current state of affairs, you just share your historic result," Dr Parsa said. "If you’re growing at the rate we’re growing, your historic result is meaningless. You don’t want a valuation based on last year’s results, you want a valuation based on where we are today and tomorrow."

UK chancellor Rishi Sunak is spearheading reforms of the UK market to make it more attractive for SPACs to list here but there are fears the overhaul could come too late. Besides Babylon, other fast-growing British tech businesses like Cazoo and Arrival (ARVL) have already chosen to list in New York via a SPAC. The red hot market is also cooling, with SPAC issuance slowing markedly in recent months and SPAC share prices falling into a bear market earlier this year.

Dr Ali Parsa, right, at the Babylon Health offices. Photo: Babylon Health
Dr Ali Parsa, right, at the Babylon Health offices. Photo: Babylon Health

Despite Babylon's decision to list in New York, Dr Parsa said the company remained committed to the UK.

"The US is the deepest and largest capital market in the world," he said. "It doesn’t mean where your loyalty is. We still will keep over 1,000 employees in the UK, we just signed a lease on a new HQ in the UK. We remain fully committed to the country that gave birth to us."

But Dr Parsa warned that Britain and Europe were falling behind when it came to the global race for innovation.

“When I entered Europe in 1982, Europe was responsible for 30% of the world’s GDP," he said. "Today it’s 15% of the world’s GDP. The choices we make has an effect on the quality of life we have. When I entered the UK, UK had a higher living standard than most countries in the world. Today, GDP per capita in the UK is significantly below the United States. Those are choices we make."

Watch: What are SPACs?