Student ID: 20210590
Exam/ module code and title: Venture Capital and Private Equity (MSc) (BUSI4422 UNUK)
(SPR1 19-20)
Degree programme: MSc Finance and Investment
Current academic year: 2019/20
Table of Content
1. Executive Summary
2. Company Overview
3. Recent Performance and Likelihood for Sale
4. Current Ownership and Organisational Structure
5. Investment Analysis (OUTSIDE-IMPACT)
a. Idea/Industry
b. Market (characteristics, size, and growth)
c. Positive Value
d. Acceptance
e. Competition
f. Time
g. Speed
6. Uncertainties and Risk
SWOT Analysis
7. Team/Management
Current Management Team
8. Strategy
Key Areas of Growth & MBO Value Added
9. Investment Requirements
a. Objective of Investment
b. Price/Valuation
c. Deal Structure and Possible Financing Structure
d. Estimated Exit Valuation
10. Potential Exit Routes
11. IRR Scenario Analysis
12. Investment Summary
13. References
14. Appendix
a. Appendix 1: Profit and Loss accounts of Health Bridge Limited 2018.
b. Appendix 2: Profit and Loss accounts of Health Bridge Limited 2017.
c. Appendix 3: Profit and Loss accounts of Push Doctor for the period ended 30
July 2018
d. Appendix 4: Profit and Loss accounts of Babylon Health for the period
ended 31 December 2016
e. Appendix 5: Profit and Loss accounts of Babylon Health for the period
ended 31 December 2017
f. Appendix 6: Profit and Loss accounts of Babylon Health for the period
ended 31 December 2018
Word count: 1495
ZAVA
1. Executive Summary
Zava, a leading telemedicine company, is driven by incredibly competent teams. Zava
raised £20m Series A Funding for service and market expansions (TechCrunch, 2019).
The current coronavirus pandemic caused an upswing in demand for telemedicine
services and this effect is expected to last even after the pandemic ends (The New York
Times, 2020) (Erevena, 2020) (CNBC, 2020) (Sifted, 2020). We want to catch this
opportunity by investing £48,874,553 for 20% of the Company, with 50% IRR, and we
expect to exit after 6 years via Secondary Buyout at £556,711,699.4. The IRR could
fluctuate between 29% and 83% depending on the Company performance and, most
importantly, the market. The funding will be used for adding leverage to maximize the
service supply capacity (100 day plan) (Short-term growth) and further technology
development and market expansion to meet the long-term demand during and after the
pandemic (Long-term growth).
2. Company Overview
Zava is a leading digital healthcare company that provides remote diagnostics,
consultations, and mediation service.
Business and revenue model: The medical form (questionnaire): completed by patients
and reviewed by Zava‟s own clinical team, from which prescription treatment is given.
Such model is “20 times more efficient than that experienced in primary NHS cares”
(Johnson, 2020). One-off fee is charged every time a service is used. Medicines are from
either Zava‟s in-house pharmacy or pharmacy partners (Erevena, 2020).
Zava plans to use £20m Series A Funding for: European market expansion (two new
markets); launching new services; Statutory healthcare market expansion (UK, Germany,
France) (TechCrunch, 2019).
3. Recent Performance and Likelihood for Sale
Year ended of 31 December Year ended of 31 December
2018 2017
Revenue 24.16% Increase 118% Increase
Cost of sales 17.93% Increase 292% Increase
(COS)
Gross profit 32% Increase 40.12% Increase
Administrative
52.75% Increase 29.65% Increase
Expense
(Companies House, 2019, 2018)
Zava experienced great upsurge in European market growth in 2017 (118%). Despite the
slow revenue growth rate in 2018, Zava managed to control COS which resulted in fairly
stable gross profit growth rates. The significant increase in administrative expense might
be for clinical team expansion and this trend is expected to maintain for many years
(TechCrunch, 2019).
Meinertz –Zava CEO- plans to further expand its European markets, clinical team, and
technology, mentioning Zava is “in investment mode” (TechCrunch, 2019). Most
importantly, considering the recent coronavirus pandemic, the need for further and more
rapid expansion is utterly high so as to fully capitalize on the current upswing in demand.
Hence, it‟s likely that the company is open for Series B funding.
4. Current Ownership and Organisational Structure
Current Ownership:
Before Series A Funding
David Meinertz 100,000 shares
Amit Khutti 100,000 shares
Juviqu Gmbh 133,160 shares
Wathory Gmbh 6,290 shares
Jens Apermann 7,800 shares
(Companies House, 2017)
Assuming HPE Growth investment length is 6 years:
2019E 2020F 2021F 2022F 2023F 2024F 2025F
Revenue
26,776,416.20 45,805,803.34 78,358,941.10 195,897,352.75 489,743,381.87 837,792,812.62 1,040,230,416.04
COS
(14,884,620.09) (25,462,779.47) (43,558,595.01) (108,896,487.52) (272,241,218.79) (465,716,832.21) (578,248,949.89)
Gross Profit
11,891,796 20,343,024 34,800,346 87,000,865 217,502,163 372,075,980 461,981,466
Administrative
Expenses (16,340,179.39) (35,948,394.66) (79,086,468.25) (120,809,957.25) (184,545,423.43) (281,905,681.33) (365,514,823.02)
Other Operating
Income 1,800 1,800 1,800 1,800 1,800 1,800 1,800
Operating Profit
(4,446,583) (15,603,571) (44,284,322) (33,807,292) 32,958,540 90,172,099 96,468,443
Interest Receivable
and similar income 375 375 375 375 375 375 375
Interest Payable
and similar (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592)
expenses
Profit before
taxation (4,460,800) (15,617,788) (44,298,539) (33,821,509) 32,944,323 90,157,882 96,454,226
Tax on profit
- - - - (6,259,421.30) (17,129,997.60) (18,326,302.96)
Profit for the
financial year (or (4,460,800) (15,617,788) (44,298,539) (33,821,509) 26,684,901 73,027,884 78,127,923
Profit after tax)
(PAT)
Assumptions rationale:
Notice that Zava raised Series A Funding on June, 2019 -before the coronavirus
pandemic-.
2017 2018 2019E 2020F 2021F 2022F 2023F 2024F 2025F
Revenue 117.97 24.16 24.16% 71.07% 71.07% 150.00 150.00 71.07 24.16
Growth rate % % % % % %
(%)
Rationale _HPE Growth might _Since 2020 is the year _2022 is expected to be the year that
want to be after Zava received HPE Zava has already expanded to two
conservative and not Growth funds, HPE Growth more European markets along with
overvalue the might expect the revenue its newly introduced services
Company so they will increase due to Zava's (TechCrunch, 2019). HPE Growth
might expect the new services being might expect the Company revenue
revenue growth to launched in the UK and growth rate to surpass its 2017 level
stay the same at the other market during the to be at 150% (roughly equal to Push
end of 2019. second half of 2019 Doctor's 2018 growth rate) in the
(TechCrunch, 2019) and next two years. This will still not be
branding awareness about as high as Babylon Health's 3-year
these new services should average growth rate of 235.55%
be somewhat developed for since the investor might, again, be
customers. However the conservative and not want to
increase rate won't be as overvalue the Company. The 150%
high as 2017 or as other revenue growth rate is expected to
peers (Babylon Health last for two years and then slow back
(235.55% down to 71.07% in 2014 and 24.16%
average)(Companies in 2025 (which is the Company
House, 2017, 2018, 2019); growth rate the year before receiving
Push Doctor (148,4% in Series A funding). This means that
2018) (Companies House, HPE Growth might expect the
2019)) since the investor Company's revenue growth to stop
might want to be accelerating and return to its 2018
conservative and Zava is growth rate at 2025 -the year HPE
still in the process of Growth is expected to exist-.
expanding in two more
European markets by 2021
(TechCrunch, 2019).
Hence, the growth rate is
expected to be the average
of 2017 and 2018 growth
rate.
COS/Revenue 55.59 52.80 55.59% 55.59% 55.59% 55.59 55.59 55.59 55.59
ratio % % % % % %
Rationale _Since COS usually highly correlated with revenue (higher sales requires higher COS and
vice versa), hence the COS/Revenue ratio tend to be constant when the company's business
has become stable. Zava's COS/Revenue in 2017, 2018, and 2019 are 30.91%, 55.59%, and
52.8%. HPE Growth might choose 55.59% as the ratio for the next 7 years because it's the
highest, showing their cautious and trying not to overestimate the Company's value.
Moreover, the ratio is also closest to its peer's (Push Doctor 2018 COS/Revenue was
61.61%).
Administrative 29.66 52.76 52.76% 120.00% 120.00% 52.76 52.76 52.76 29.66
Expenses % % % % % %
Growth rate
(%)
Rationale _Zava managed to _Since Zava planned to _The years after 2021 are expected
control the expand their services to two to be the periods Zava's revenue
administrative additional European growth rate will start accelerating
expenses growth markets before 2021 from the prior year investment.
rate to be (TechCrunch, 2019), HPE Hence, the expansion of clinical
significantly lower Growth might expect the team might be expected to be slowed
compared to its Company to invest heavily down: To 52.76% to keep up with
other peers (Babylon in expanding clinical team the increased revenue growth in
Health (162.16% in the year 2020 and 2021, 2022, 2023 and 2024; and to 29.66%
average) which Zava also confirmed as the revenue growth slowed down
(Companies House, to be the plan, to meet in 2025.
2017, 2018, 2019); potential rise in demand
Push Doctor from the two new markets
(140.91%) (TechCrunch, 2019). And
(Companies House, since Zava managed its
2019)), and since the administrative very well for
Company revenue the last several years
growth rate in 2019 compared to its peers,
and 2020 are hence, the growth rate
expected to be fairly (120%) might be expected
slow, HPE Growth to be significantly high but
might expect the still slightly lower than the
administrative average of peer companies'
expense to stay (Babylon Health (162.16%
stable. average) (Companies
House, 2017, 2018, 2019);
Push Doctor (140.91%)
(Companies House, 2019)),
which is around 150%.
P/E ratio of Telemedicine/ Digital Healthcare sector is not currently available, hence, we
use P/E ratio of UK Healthcare Providers and Services sector as proxy which is 24.11
(GuruFocus.com), and with 2025F PAT to be £78,127,923 and assuming their IRR is
50%:
Zava‟s PV:
HPE Growth invested £20,000,000. Since Zava had negative profit in 2018, it‟s unlikely
that any of the fund is debt, hence, this should be 100% equity.
HPE Growth holds:
Assuming Zava issued new shares so that the Series A fund stays in the business. Zava
new outstanding shares:
shares.
HPE Growth holds: shares
After Series A Funding
David Meinertz 0 share (0%)
Amit Khutti 0 share (0%)
Juviqu Gmbh 0 share (0%)
Wathory Gmbh 0 share (0%)
Jens Apermann 0 share (0%)
Zava Global BV 347,251 shares
(87.9059%)
HPE Growth 47,775 shares
(12.0941%)
(Companies House, 2019)
Organizational Structure:
“CEO, supported by a senior management team: Overall responsibility for the
service.
Medical Director, supported by a deputy Medical Director: Responsibility for any
medical issues arising.
COO: Responsibility for any pharmaceutical issues arising.” (CQC, 2019)
5. Investment Analysis (OUTSIDE-IMPACT)
a. Idea/Industry
Telehealth/Telemedicine sector: Providing remote diagnostics, consultation,
medical service, etc. for long-distance patient via online and telecommunication
technologies (Shaw, 2009).
b. Market (characteristics, size, and growth)
_Telemedicine market is said to “surpass $40 billion globally by 2021” (The New
York Times, 2020). In UK, digital health market size was “£2.9bn by 2018”
(Deloitte, 2015). All of this estimation did not considered the massive impact of
coronavirus on the demand for online healthcare. Hence, future market growth is
highly promising.
_£1bn private GP appointment market (The Next Web, 2015).
c. Positive Value
The model “reduces error and misdiagnosis risks, especially as usage scale”
(TechCrunch, 2020). This enhances satisfaction and secure loyalty resulting in
increasing customer growth rate as old customers will be more likely to return (as
seen in reality, with NPS>80 and trustpilot>4.7/5).
Coronavirus pandemic impact: Increased demand for telemedicine services;
Loosen national healthcare regulation; Increased usage of online healthcare
service expect to remain even after the pandemic (Erevena, 2020) (CNBC, 2020)
(The New York Times, 2020) (Sifted, 2020).
d. Acceptance
Zava is European leading players by revenue and market: 100,000 monthly
patients across six European countries (Zava, 2020) and high revenue growth rate
(118%, 2017) (Companies House, 2018). Hence, customer base was formed and
is expected to significantly increase due to recent rise in demand for telemedicine.
e. Competition
Two core values that make it hard to be competed away:
Developed questionnaire (Erevena, 2020)
Highly capable clinical and management teams.
f. Time
Zava hit profit 2017 (overcame the “Valley of death”) and has already settle
markets in six European countries.
The current Covid 19 impact escalated demand for remote medical treatment,
especially Zava‟s Covid testing services which is always sold-out.
g. Speed
Since the demand for digital healthcare as well as coronavirus testing service is
surging up, plus Zava has already had strong customer base (100,000 monthly)
across many markets (Zava, 2020), this can be implemented immediately.
6. Uncertainties and Risk
a. SWOT Analysis
Strength: Weakness:
_Highly capable teams: Not only in the _Although Harry Dolman, partner at HPE
executive team, but this also stays true to Growth, commented Zava business model
clinical team –the very core team for the to be “highly scalable” (TechCrunch,
Company operation-, with experienced 2019), some concerns still remain:
doctors and pharmacists graduated from
top universities (Zava, 2020). Whether the Company can
maintain positive ROI per one
_Leading player in the market: As the added doctor (as more patients
largest online healthcare service in Europe require larger in-house clinical
(Hartigan, 2020) in both terms of number team). Only when the answer is
of patients and markets (across UK, yes is the model scalable.
France, Germany, Ireland, Austria,
Switzerland) (Zava, 2020), it‟s arguable Zava showed some flaws of
that Zava has one of the largest customer lost/delayed customers‟ Covid 19
base in this sector in Europe. Moreover, as sample package when there is a
Zava received very positive feedbacks sudden surge in demand for this
with Trustpilot>4.7/5 and NPS>80, it service in most recent customer
shows that the Company has solidified its review (trustpilot, 2020). Not only
brand loyalty and arguably brand can this severely damage Zava‟s
awareness. This supports steady growth reputation, revenue, and potential
rate of revenue in the future at the very customers, but also raises concern
least. about Zava‟s ability to respond
accordingly and effectively to
_The Company was rated “Good” in all changes in demand. This is the
categories in 2019 CQC inspection (CQC, most crucial problem that Zava
2020). needs to have immediate response
if the Company wants to capitalize
on the current upswing in demand
for online healthcare.
Opportunities: Threat:
_Both CEO and CPO of Zava mentioned _Telemedicine and online healthcare
the future plan of working with statutory services is a new and lucrative sector with
system and private insurance companies great potentiality that has attracted lots of
in UK, France, and Germany (Erevena, new start-ups in recent years, especially
2020) (TechCrunch, 2019). This will help during the most recent pandemic –the
expand the Company‟s customer base Covid 19 outbreak-. This attracts lots of
because not only are the customers from new startups in recent years and is
“an already £1 billion of private GP expected to increase significantly in near
appointments market” as stated by Eren future.
Ozagir –CEO of Push Doctor- (The Next
Web, 2015), but also from the ones using _Moreover, considering it only took one
national healthcare service such as NHS week for accuRx to set up video calling
in UK. service, the digital healthcare model of
video consulting is highly replicable,
_National healthcare services were stated which can result in market saturation in
to be “over-stretched” (TechCrunch, near future (The New York Times, 2020).
2019) and “slow-moving progress of When this happens, only companies with
technological change” (CNBC, 2020). unique feature in the business model or
Hence, a success in working with national highly reputation ones can survive.
healthcare system would help improve the
system efficiency (TechCrunch, 2019) _Babylon Health use chatbot technology
which could potentially draw customers for healthcare consultation. Despite its
from other private competitors to using controversy (The Lancet, 2018), it could
NHS service, especially in recent times of generate large sale thanks to its “triaging
coronavirus pandemic, when demand for scale and immediacy” faster than Zava
health system witnessed a huge upsurge questionnaire model (TechCrunch, 2019)
(CNBC, 2020). This greatly benefits
Zava.
_From business point of view, not only
the coronavirus pandemic created massive
upsurge in demand for telemedicine
(Erevena, 2020) (CNBC, 2020) (The New
York Times, 2020) (Sifted, 2020), but it
also loosen the regulatory system in
healthcare industry in many countries
such as US, UK, and Germany (Erevena,
2020) (The New York Times, 2020). This
allowed telemedicine companies to
capitalize on the current situation. More
importantly, the shift from face-to-face
service to telemedicine is expected to
maintain after the pandemic (The New
York Times, 2020) (Erevena, 2020)
(CNBC, 2020) (Sifted, 2020). This helped
ensure the increased in demand is long-
term.
7. Team/Management
a. Current Management Team
Incredibly competent management team with impressive profiles in both experience
(proven track-records) and education background.
CEO, Cofounder: David Meinertz:
David contributed to “the international expansion of a leading telemedicine
company in the UK” (Meinertz, 2020).
CFO: Ronald Jan Schuurs:
Aside from his MBA (INSEAD), Ronald also has a remarkable resume of
managing/optimizing/growing business/market expanding:
o CFO/COO of Mascus: Grew company value from €10.5m to €24m in 3
years by: “optimizing financial and operational process; improving
working capital; attracting strategic cash injection” (Schuurs, 2020);
generating revenue to €10m with 10% growth rate; and doubling EBITDA
to 20% (Shuurs, 2020).
o CEO of Delivery Hero Germany: Successed in German, one of the most
competitive market; expedited growth; maintained leading status;
successfully IPO. Possesses impressive track-record of generating large
sale from limited workforce (Shuurs, 2020).
CPO: Joe Rinaldi Johnson:
Impressive and highly relevant education background: Completed Management
Studies Tripos at Cambridge Judge Business School and had 3 Class I paper
covering Strategy, Business Innovation, and Negotation (Johnson, 2020).
Outstanding resume: holding responsible for big projects to developing models
generating significant outcomes (values/awards/reputations/growth).
Experience in strategy developing, product developing/managing/launching, team
building, model developing (Johnson, 2020):
o Contributed to 40% revenue growth of Lloydspharmacy Online Doctor
(Johnson, 2020).
o Helped Zava “reach market leadership by revenue in Europe and UK”
(Johnson, 2020).
CCO: Kayleigh Hartigan:
Kayleigh possesses extensive knowledge in healthcare sector through her career
as Senior Strategy Manager in NHS and as Managing Director at Marwood
Group. She is a MSc. in Health Policy Planning and Financing from LSE
(Hartigan, 2020).
COO: James Davies:
James was Policy and Planning Manager at The Company Chemists‟ Association.
James got his PhD. in Pharmacy from University College London (Davies, 2020).
CIO: Craige Pendleton Browne:
Craige was CTO in many companies including iCareHealth, “Australia‟s leading
provider of residential aged care software” (Browne, 2020). Craige has “a proven
track record of putting businesses into leading position” (Meadows, 2010). Craige
has MBA from London Business School.
Medical Director: Dr Lousia Draper:
“Louisa studied medicine at the University of Oxford and trained at University
College London. She had 8 years experiences working in top hospitals in
London” (Zava, 2020)
8. Strategy
Key Areas of Growth & VC Value Added
Short-term: Zava‟s coronavirus testing services, which have always been sold-
out (Zava, 2020), is expected to continue earning significant profit for 2 years
since the coronavirus pandemic is predicted to be last for 1.5 to 2 years (CIDRAP,
2020).
Long-term: The increased demand for telemedicine is expected to remain after
the pandemic (The New York Times, 2020) (Erevena, 2020) (CNBC, 2020)
(Sifted, 2020). Hence, Zava‟s revenue growth can be long-term.
This series B funding purpose: Adding leverage to maximize the service
supply capacity to capitalize on this upswing in demand on this service
(100 day plan) (Short-term growth); Further develop technology and
market expansion to meet the long-term demand during and after the
pandemic (Long-term growth).
9. Investment Requirements
a. Objective of Investment
Help Zava fully capitalize on the current coronavirus pandemic and its post-
pandemic expected long-lasting effect of shifting to digital healthcare services
(The New York Times, 2020) (Erevena, 2020) (CNBC, 2020) (Sifted, 2020).
b. Price/Valuation
Investment length: 6 years
2019E 2020F 2021F 2022F 2023F 2024F 2025F 2026F
Revenue
36,891,608.07 92,229,020.18 184,458,040.37 402,067,292.79 876,395,019.77 1,910,297,714.94 3,267,902,650.20 5,590,326,391.36
COS
(19,478,863.15) (51,268,770.12) (102,537,540.24) (212,292,556.01) (462,738,805.57) (1,008,642,065.45) (1,725,460,933.67) (2,951,706,592.04)
Gross Profit
17,412,745 40,960,250 81,920,500 189,774,737 413,656,214 901,655,649 1,542,441,717 2,638,619,799
Administrative
Expenses (16,340,179.39) (40,850,448.47) (102,126,121.19) (204,252,242.37) (408,504,484.75) (817,008,969.50) (1,634,017,939.00) (2,496,073,496.87)
Other
Operating
Income 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800
Operating
Profit 1,074,366 111,602 (20,203,821) (14,475,706) 5,153,529 84,648,480 (91,574,422) 142,548,102
Interest
Receivable and
similar income 375 375 375 375 375 375 375 375
Interest
Payable and
similar
expenses (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592)
Profit before
taxation 1,060,149 97,385 (20,218,038) (14,489,923) 5,139,312 84,634,263 (91,588,639) 142,533,885
Tax on profit
(201,428.22) (18,503.07) 3,841,427.23 2,753,085.29 (976,469.37) (16,080,509.97) - (27,081,438.24)
Profit for the
financial year 858,720 78,882 (16,376,611) (11,736,837) 4,162,843 68,553,753 (91,588,639) 115,452,447
Assumptions rationale:
2017 2018 2019E 2020F 2021F 2022F 2023F 2024F 2025F 2026F
Revenue 117.97 24.16 71.07% 150% 100% 117.97 117.97 117.97 71.07 71.07
Growth % % % % % % %
rate (%)
Rationale _Considering _The coronavirus pandemic _There are 3 factors contributing to Zava's
Zava has a has caused an upsurge in expected growth rate in the period 2022 to
strong customer demand for online 2024 to reach its 2017 level: The long-term
base across healthcare services and increased in demand for telemedicine due to
many countries, coronavirus testing kit coronavirus pandemic after-effect (The New
high reputation (Erevena, 2020) (CNBC, York Times, 2020) (Erevena, 2020)
and, most 2020) (The New York (CNBC, 2020) (Sifted, 2020); Zava
importantly, Times, 2020) (Sifted, 2020)
finished expanding to two additional market
highly capable and Zava's coronavirus
(TechCrunch, 2019); and Zava's finished
management testing kit has always been
launching new services (TechCrunch, 2019).
team, we sold-out since its launch
These three factors highly complement each
believe the slow (Zava, 2020). We expect
other, this is why we expect that the Company
growth in 2018 this to be a huge drive for
can maintain a above-100% growth rate even
(24.16%) is just 2020 revenue growth. Even
after the two prior year that have already had
short-term. though other peers achieve
massive growth. The number is still very
Moreover, the very high revenue growth
conservative when compared to other peer
high revenue rate even before the
companies' figures (Babylon Health (235.55%
growth rate of pandemic, we still give a
average) (Companies House, 2017, 2018,
other peers conservative estimate of
2019); Push Doctor (148.4% in 2018)
(Babylon Health 150% growth rate in 2020
(Companies House, 2019)). We expect the
(235.55% so as to not overvalue the
market will start to be saturated in 2025 and
average) Company. The revenue
2026, hence the slowdown in growth rate.
(Companies growth rate decreases in
House, 2017, 2021 because looking at the
2018, 2019); current infection rate in UK
Push Doctor we expect it to decline
(148.4% in significantly in 2021
2018) (Worldometer, 2020)
(Companies resulting in significant
House, 2019)) decline in demand for the
shows that the testing kit. However, the
market was still rise in demand for online
very exciting, healthcare is expected to
even before the remain even after the
Covid 19 crisis. pandemic (The New York
We expect Zava Times, 2020) (Erevena,
revenue growth 2020) (CNBC, 2020)
rate in 2019 (Sifted, 2020) which
would at least significantly broaden Zava's
reach 71.07% cusomer base, hence,
which is the ensure long-term revenue
average of 2017 growth. And again, this
and 2018 100% growth rate is still a
growth rate. very humble number
compared to other peers‟
pre-pandemic growth rate.
COS/Reven 55.59 52.80 52.80% 55.59% 55.59% 52.80 52.80 52.80 52.80 52.80
ue ratio % % % % % % %
Rationale _Since COS is highly correlated with Revenue so we expect the COS/Revenue to be fairly
stable throughout the years. Zava has been able to manage its COS/Revenue very well over the
past few years so we expect the Company to be able to repeat the ratio in 2018. 2020 and 2021
have slightly higher ratio since we expect due to the rise in demand for the coronavirus testing
kit, Zava might have to invest more in the supply section in order to meet the very high demand.
Administra 29.66 52.76 52.76% 150% 150% 100% 100% 100% 100% 52.76
tive % % %
Expenses
Growth
rate (%)
Rationale _Due to no _The Company may have _From year 2020 to 2026, the coronavirus
significant rise to significantly expand its pandemic is expected to be over (CIDRAP,
in demand in clinical team to: Meet with 2020), and Zava has finished establishing
2019, the the huge rise in demand due expansion to its two new European markets
administrative to coronavirus pandemic; process. Hence, Zava only need to expand its
growth rate are Prepare for the new clinical team in order to meet the long-term
expected to expansion in markets and rise in demand due to the after-effect of
remain the same services (TechCrunch, coronavirus pandemic (The New York
as in 2018. 2019). This rate is roughly Times, 2020) (Erevena, 2020) (CNBC,
equal to the average rate of 2020) (Sifted, 2020). Thus, the growth rate
other peers' (Babylon
is expected to reduce down to 100% per year
Health (162.16% average)
and returned to its 2018 level in 2026.
(Companies House, 2017,
2018, 2019); Push Doctor
(140.91%) (Companies
House, 2019)).
P/E ratio: 24.11; 2026F PAT: £115,452,447; IRR: 50%:
Zava‟s Present Value (PV):
c. Deal Structure and Possible Financing Structure
Deal Structure:
We want 20% of the Company‟s shares:
Investment amount:
Zava will issue additional shares so that the money stays inside business.
Zava new total shares:
shares
We hold: shares
Financing Structure:
Zava‟s had negative profit in 2018 (-£530,415) (Companies House, 2019). It‟s
unlikely that the bank would lend money. Thus, Zava‟s financing structure is still
100% equity.
d. Estimated Exit Valuation
Exit Value:
10. Potential Exit Routes
We expect to exit via Secondary Buyout after 6 years. Considering the world is becoming
more digitalized and the current pandemic, telemedicine market is undoubtedly
appetizing for VC/PE. Moreover, with such highly capable management team, it‟s not
difficult to exit.
11. IRR Scenario Analysis
a. Positive Scenario:
2019E 2020F 2021F 2022F 2023F 2024F 2025F 2026F
Revenue
36,891,608.07 110,674,824.22 221,349,648.44 482,480,751.35 1,051,674,023.72 2,292,357,257.93 3,921,483,180.24 6,708,391,669.63
COS
(20,507,508.05) (58,436,589.45) (116,873,178.90) (254,751,067.22) (555,286,566.68) (1,210,370,478.55) (2,070,553,120.40) (3,542,047,910.44)
Gross Profit
16,384,100 52,238,235 104,476,470 227,729,684 496,387,457 1,081,986,779 1,850,930,060 3,166,343,759
Administrativ
e Expenses (16,340,179.39) (44,118,484.35) (110,296,210.88) (220,592,421.76) (441,184,843.53) (882,369,687.06) (1,764,739,374.12) (2,695,759,376.62)
Other
Operating
Income 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800
Operating
Profit 45,721 8,121,550 (5,817,941) 7,139,062 55,204,414 199,618,892 86,192,486 470,586,183
Interest
Receivable
and similar
income 375 375 375 375 375 375 375 375
Interest
Payable and
similar
expenses (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592)
Profit before
taxation 31,504 8,107,333 (5,832,158) 7,124,845 55,190,197 199,604,675 86,178,269 470,571,966
Tax on profit
(5,985.69) (1,540,393.35) - (1,353,720.62) (10,486,137.34) (37,924,888.31) (16,373,871.06) (89,408,673.46)
Profit for the
financial
year 25,518 6,566,940 (5,832,158) 5,771,125 44,704,059 161,679,787 69,804,398 381,163,292
2017 2018 2019E 2020F 2021 2022F 2023F 2024F 2025F 2026F
F
Revenue 117.97 24.16 71.07% 200.00% 100% 117.97 117.97 117.97 71.07 71.07
Growth (%) % % % % % % %
Rationale _In the positive scenario, we _We expect other figures to stay the same. That's being
only expect that Zava grows said, being able to maintain an above-100% growth rate
even more from the coronavirus after an extremely strong growth year is quite a task.
testing service (150% to 200%) However, we are confident that Zava can maintain such
in 2020 due to incredibly high growth because of the expected long-term increased in
in demand and the Company online healthcare service after the pandemic and the new
also expand their clinical team markets and services that Zava will launch.
accordingly in the same year
(150% to 170%), slightly less
than revenue growth rate thanks
to economy of scale. This
growth rate is still less than
Babylon Health's 3-year
revenue growth rate average
(235.55% average) (Companies
House, 2017, 2018, 2019).
COS/Revenue 55.59 52.80 55.59% 52.80% 52.80 52.80% 52.80% 52.80% 52.80 52.80
ratio % % % % %
Administrative 29.66 52.76 52.76% 170.00% 150% 100% 100% 100% 100% 52.76
Expenses % % %
IRR:
b. Negative Scenario
2019E 2020F 2021F 2022F 2023F 2024F 2025F 2026F
Revenue
36,891,608.07 92,229,020.18 184,458,040.37 315,548,154.75 539,801,017.97 923,425,266.87 1,146,554,416.63 1,423,598,722.57
COS
(20,507,508.05) (48,697,157.87) (97,394,315.75) (166,610,230.47) (285,016,314.18) (487,570,895.98) (605,383,656.12) (751,663,756.22)
Gross Profit
16,384,100 43,531,862 87,063,725 148,937,924 254,784,704 435,854,371 541,170,761 671,934,966
Administrativ
e Expenses (16,340,179.39) (40,850,448.47) (102,126,121.19) (156,004,593.55) (238,307,623.23) (364,031,096.76) (471,997,447.09) (611,985,053.04)
Other
Operating
Income 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800
Operating
Profit 45,721 2,683,214 (15,060,597) (7,064,869) 16,478,881 71,825,074 69,175,113 59,951,713
Interest
Receivable
and similar
income 375 375 375 375 375 375 375 375
Interest
Payable and (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592) (14,592)
similar
expenses
Profit before
taxation 31,504 2,668,997 (15,074,814) (7,079,086) 16,464,664 71,810,857 69,160,896 59,937,496
Tax on profit
(5,985.69) (507,109.40) - - (3,128,286.08) (13,644,062.85) (13,140,570.32) (11,388,124.30)
Profit for the
financial
year 25,518 2,161,887 (15,074,814) (7,079,086) 13,336,377 58,166,794 56,020,326 48,549,372
2017 2018 2019E 2020F 2021F 2022F 2023F 2024F 2025F 2026F
Revenue 117.97% 24.16% 71.07% 150% 100% 71.07% 71.07% 71.07% 24.16% 24.16
Growth (%) %
Rationale _Since we believe that the short-term demand for coronavirus testing
service in 2020 and 2021 to be very high. Hence, we keep the growth
rate the same in those two years. However, the negative scenario
would be the expected long-term increased in demand for
telemedicine after the pandemic would not happen, or not as high
and as long-term as expected. That is why we reduced the growth
rate down to the average rate of 2017 and 2018 level (71.07%). The
growth rate is still fairly high thanks to Zava's two additional
European markets expansion and their newly introduced serviced.
Lastly, we expect the revenue growth rate will slowdown (24.16%)
to 2018 level in the last two years and so do the administrative
expense growth rate (29.66%).
COS/Revenue 55.59% 52.80% 55.59% 52.80 52.80 52.80% 52.80% 52.80% 52.80% 52.80
ratio % % %
Administrative 29.66% 52.76% 52.76% 150% 150% 52.76% 52.76% 52.76% 29.66% 29.66
Expenses %
IRR:
12. Investment Summary
We invest £48,874,553 for 20% of Zava with expected IRR to be 50%. The investment
objective is to capitalize on the upswing on demand for telemedicine due to current
coronavirus situation and its long-term after-effect. IRR could fluctuate around 29% and
83%.
13. References
Babylon Partners Limited. 2017. Annual Report and Financial Statements Year ended 31
December 2016. [Online]. [Accessed 8 June 2020]. Available from:
https://beta.companieshouse.gov.uk/company/08493276/filing-history
Babylon Partners Limited. 2018. Annual Report and Financial Statements Year ended 31
December 2017. [Online]. [Accessed 8 June 2020]. Available from:
https://beta.companieshouse.gov.uk/company/08493276/filing-history
Babylon Partners Limited. 2019. Annual Report and Financial Statements Year ended 31
December 2018. [Online]. [Accessed 8 June 2020]. Available from:
https://beta.companieshouse.gov.uk/company/08493276/filing-history
Browne, C. 2020, Person, Crunchbase. [Online]. [Accessed 27 May 2020]. Available
from: https://www.crunchbase.com/person/craige-pendleton-browne#section-overview
Browne, C. 2020, User Profile, Linkedin. [Online]. [Accessed 27 May 2020]. Available
from: https://www.linkedin.com/in/craigepb/
Care Quality Comission (CQC). 2019. Health Bridge Limited London Inspection report.
[Online]. [Accessed 6 June 2020]. Available from: https://www.cqc.org.uk/location/1-
6683249283/inspection-summary
Center for Infectious Disease Research and Policy (CIDRAP). 2020. COVID-19: The
CIDRAP Viewpoint. [Online]. [Accessed 6 June 2020]. Available from:
https://www.cidrap.umn.edu/sites/default/files/public/downloads/cidrap-covid19-
viewpoint-part1_0.pdf
CNBC. 2020. Demand for telemedicine has exploded in the UK as doctors adapt to the
coronavirus crisis. [Online]. [Accessed 4 June 2020]. Available from:
https://www.cnbc.com/2020/04/09/telemedecine-demand-explodes-in-uk-as-gps-adapt-
to-coronavirus-crisis.html
Davies, J. 2020, User Profile, Linkedin. [Online]. [Accessed 27 May 2020]. Available
from: https://www.linkedin.com/in/james-davies-5891711b/?originalSubdomain=uk
Deloitte. 2015. Digital Health in the UK. [Online]. [Accessed 8 June 2020]. Available
from: https://www2.deloitte.com/uk/en/pages/life-sciences-and-
healthcare/articles/digital-health-in-the-uk.html
Erevena. 2020. Interview with Joe Rinaldi Johnson, CPO, Zava. [Online]. [Accessed 27
May 2020]. Available from: https://erevena.com/joe-rinaldi-johnson/
Gurufocuscom. 2020. Overview of Market Industries: Valuation and Profitability
Healthcare Sector. [Online]. [Accessed 7 June 2020]. Available from:
https://www.gurufocus.com/industry_overview.php?sector=Healthcare®ion=UK
Hartigan, K. 2020, User Profile, Linkedin. [Online]. [Accessed 27 May 2020]. Available
from: https://www.linkedin.com/in/kayleigh-hartigan-2bb3bb10/
Health Bridge Limited. 2017. Health Bridge Limited 2017 Confirmation Statement.
[Online]. [Accessed 7 June 2020]. Available from:
https://beta.companieshouse.gov.uk/company/07392646/filing-history
Health Bridge Limited. 2018. ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017. [Online]. [Accessed 29 May 2020].
Available from: https://beta.companieshouse.gov.uk/company/07392646/filing-history
Health Bridge Limited. 2019. ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018. [Online]. [Accessed 29 May 2020].
Available from: https://beta.companieshouse.gov.uk/company/07392646/filing-history
Health Bridge Limited. 2019. Health Bridge Limited 2019 Confirmation Statement.
[Online]. [Accessed 7 June 2020]. Available from:
https://beta.companieshouse.gov.uk/company/07392646/filing-history
Johnson, J. 2020, User Profile, Linkedin. [Online]. [Accessed 27 May 2020]. Available
from: https://www.linkedin.com/in/joerinaldijohnson/
Meinertz, D. 2020, User Profile, Linkedin. [Online]. [Accessed 27 May 2020]. Available
from: https://www.linkedin.com/in/david-meinertz-we-re-hiring-331b9/
Push Dr Limited. 2019. Push Dr Limited Report and Financial Statements 30 July 2018.
[Online]. [Accessed 7 June 2020]. Available from:
https://beta.companieshouse.gov.uk/company/08624572/filing-history
Schuurs, R. 2020, User Profile, Linkedin. [Online]. [Accessed 27 May 2020]. Available
from: https://www.linkedin.com/in/ronaldjanschuurs/
Shaw, D.K., 2009. Overview of telehealth and its application to cardiopulmonary
physical therapy. Cardiopulmonary physical therapy journal, 20(2), p.13.
Sifted. 2020. The make-or-break opportunity for telehealth startups. [Online]. [Accessed
4 June 2020]. Available from: https://sifted.eu/articles/telehealth-startups-coronavirus/
Symcox, J. 2019. HEALTHTECH INNOVATOR ZAVA SECURES $32M
INVESTMENT. [Online]. [Accessed 27 May 2020]. Available from:
https://www.businesscloud.co.uk/news/healthtech-innovator-zava-secures-32m-
investment
TechCrunch. 2019. Zava bags $32M to expand its AI-free telehealth service in Europe.
[Online]. [Accessed 28 May 2020]. Available from:
https://techcrunch.com/2019/06/13/zava-bags-32m-to-expand-its-ai-free-telehealth-
service-in-europe/
The lancet. 2018. Safety of patient-facing digital symptom checkers. [Online]. [8 June
2020]. Available from: https://www.thelancet.com/journals/lancet/article/PIIS0140-
6736(18)32819-8/fulltext
The New York Times. 2020. Telemedicine Arrives in the UK: „10 Years of Change in
One Week‟. [Online]. [Accessed 4 June 2020]. Available from:
https://www.nytimes.com/2020/04/04/world/europe/telemedicine-uk-coronavirus.html
The Next Web. 2015. Push Doctor could get the UK used to paying for healthcare.
[Online]. [Accessed 31 May 2020]. Available from:
https://thenextweb.com/apps/2015/07/08/push-doctor-could-get-the-uk-used-to-paying-
for-healthcare/
Trustpilot. 2020. Customer review Zava UK. [Online]. [Accessed 28 May 2020].
Available from: https://uk.trustpilot.com/review/zavamed.com/uk?languages=en&stars=1
Worldometer. 2020. Daily New Coronavirus Cases in the United Kingdom. [Online].
[Accessed 8 June 2020]. Available from:
https://www.worldometers.info/coronavirus/country/uk/
Zava. 2020, Company, Linkedin. [Online]. [Accessed 27 May 2020]. Available from:
https://www.linkedin.com/company/zava-med/about/
Zava. 2020. Clinical team. [Online]. [Accessed 30 May 2020]. Available from:
https://www.zavamed.com/uk/doctors.html
Zava. 2020. Coronavirus antibody and swab testing service. [Online]. [Accessed 6 June
2020]. Available from: https://www.zavamed.com/uk/coronavirus-service.html
14. Appendix
a. Appendix 1: Profit and Loss accounts of Health Bridge Limited 2018.
(Companies House, 2019)
b. Appendix 2: Profit and Loss accounts of Health Bridge Limited 2017.
(Companies House, 2017)
c. Appendix 3: Profit and Loss accounts of Push Doctor for the period ended 30
July 2018
(Companies House, 2019)
d. Appendix 4: Profit and Loss accounts of Babylon Health for the period
ended 31 December 2016
(Companies House, 2017)
e. Appendix 5: Profit and Loss accounts of Babylon Health for the period
ended 31 December 2017
(Companies House, 2018)
f. Appendix 6: Profit and Loss accounts of Babylon Health for the period
ended 31 December 2018
(Companies House, 2019)
