Affected person capital: The gradual burn on returns from the Eucalyptus sale

Whereas the headline determine of a A$1.6 billion sale worth for Eucalyptus was a trigger for celebration, seen by many an vital payday for an Australian startup sector the place liquidity is a matter, the superb print of the deal exhibits there’s an extended approach to go earlier than the money trickles right down to buyers and shareholding staff.

The web healthcare startup, based in 2019, had been trying to increase new funding at a valuation that will have minted it as a unicorn when the US$1.15 billion cope with NYSE-listed rival Hims and Hers dropped.

The acquisition worth is round 10x of the US$111 million in venvture funding the startup raised over 4 years. Eucalyptus final raised $50m at a $520m valuation in April 2023.

It’s a daring marriage by either side, banking that the entire might be higher than the sum of their rival elements.

Shares in San Francisco-based Hims & Hers Well being have tanked 64% during the last yr, together with a 55%+ slide within the first two months of 2026 – an 8% fall within the days for the reason that deal was introduced.

The well being and wellness platform isn’t any Robinson Crusoe in falling out of favour with buyers – Nasdaq-listed office software program agency Atlassian’s shares have plunged greater than 70% in 12 months and greater than 50% in 2026 as software program corporations usually wrestle amid the AI transformation.

However Hims & Hers, based in late 2017, earlier than itemizing on the NYSE in January 2021 through a particular function acquisition firm (SPAC), will not be a software program firm per se. Like Eucalyptus, it sells on-line consultations and coverings for well being points equivalent to weight reduction, sexual dysfunction, hair loss, skincare and psychological well being.

Authorized and regulatory troubles

A part of the issue is a bitter battle with Novo Nordisk, producer of GLP-1 weight reduction medication Ozempic and Wegovy.

Hims & Hers signed a cope with the Danish drugmaker in April 2025 to promote Wegovy. It lasted about three months earlier than Novo Nordisk ripped it up, claiming their buyer was promoting Wegovy copies illegally, in addition to objecting to the advertising and marketing techniques of the US startup.

The dispute escalated final month when Novo Nordisk launched US authorized motion, suing Hims & Hers for damages over promoting compounded variations of its medication, claiming they infringe on the Danish firm’s patents, in addition to asking the court docket to ban their sale.

It’s a pincer motion, for the reason that US Drug and Meals Administration can also be gunning for Hims & Hers over its advertising and marketing and compounded medication, asserting its personal investigation and crackdown just a few weeks in the past.

By the way, Eucalyptus has some inkling of what’s taking place having pursued the same path just a few years again earlier than compounding weight reduction medication had been banned by the federal authorities in early 2024, amid objections from the startup.

In the meantime, Hims & Hers (NYSE: HIMS) shares now sit round US$14.50, down from a 12-month excessive of $70.43, for a market cap simply above US$3.3 billion.

Meaning Eucalyptus is now price round a 3rd of acquirer’s present market cap. 

However none of this battle – an existential menace to Hims & Hers – prevented breathy reporting by some information websites of how 100 staff within the Eucalyptus ESOP might be millionaires, whereas VCs “stand to make a motza”, particularly Blackbird’s 2018 fund delivering a 34.5x return “as soon as paid out”.

That’s an vital qualifier within the reporting, as a result of there are many devils within the particulars of this M&A deal.

Excessive bars to clear

A variety of work to be executed by the Eucalyptus crew to attain the entire acquisition worth.

Blackbird owns round 1 / 4 of Sydney startup, having invested seven occasions. So theoretically, they’re sitting on one thing circa a A$400m return.

Accomplice Nick Crocker advised Capital Temporary that: “the transaction will see greater than 2x our total 2018 fund returned over the approaching years”.

However the A$1.6bn headline determine remains to be a great distance from the truth for a lot of shareholders. Persistence can also be required, since it is going to be FY2029 earlier than the entire acquisition worth is finalised.

First up, if and when it goes via in mid-2026 – Eucalyptus operates in a number of areas throughout Europe, Asia and North America, so the deal is probably going topic to multi-jurisdictional regulatory clearances – Hims & Hers is making an preliminary 40% downpayment in money: US$240m (c. A$340m), cut up between employees and buyers, the previous getting slightly over half that determine, US$133m.

One other US$710m is paid out to non-staff, post-close, over 18 months.

Solely key worker sellers rating the 40% of their entitlement upfront – the remaining 60% is predicated on earnouts, price as much as US$200m, and tied to income/EBITDA targets over three years, spanning 2026-28.

Meaning staff are in golden handcuffs till then if they need the upside. There’s US$50m in HIMS shares on the desk below the corporate’s 2020 Fairness Incentive Plan – $12.5m a yr over 4 years – “to sure staff” who be part of the US firm from Eucalyptus.

Sure it’s a sensible retention mechanism to maintain key employees to assist guarantee the continued success of Eucalyptus, however stroll away earlier than then and people staff possible forfeit a big slice of their payout.

What buyers get

Buyers initially rating round 18 cents within the $1 – 20% of 90% of their entitlement upfront when the deal closes. Then they’re paid the remaining 70% six occasions, each three months, over the subsequent 18 months.

So by across the finish of 2027, buyers in funds equivalent to Blackbird, Airtree, Woolworths VC fund W23, OneVentures, Athletic Ventures, and Mary Meeker’s BOND Capital ought to have a fairly clear concept of how they’ve executed, together with the ultimate 10% of investor returns tied to the efficiency targets.

On high of all that, then the US$1.15 billion sale worth can also be topic to internet debt and dealing capital changes.

Its final filed accounts, in FY2024, Eucalyptus had income of $120.9 million, a rise of $41m on the earlier yr, whereas chopping its after-tax losses by greater than half to $15.2m.

Given the enterprise was nonetheless almost definitely operating at a loss and burning money – therefore increase plans ( it was rumoured to have secured $190m in VC funding at a A$1.37bn valuation final November) – the changes might additionally scale back the deal dimension.

It will get higher, as a result of Hims & Hers has, at “its sole discretion”, is in a position pay as much as 60% of deferred and earnout funds in HIMS inventory fairly than money. The value might be set by a VWAP at time of issuance, not when the deal was minimize in mid February, so if issues go badly within the courts and HIMS inventory drops additional between now and fee, Eucalyptus stockholders are shortchanged on the deal, whereas additionally being uncovered to HIMS fairness danger with out a hedge.

M&A is a tough win

To grasp the danger right here, it’s essential take a look at the info round M&A offers. Greater than half (50–70%) are thought-about failures by way of metrics equivalent to shareholder worth, post-merger efficiency and price synergies (advising on one is profitable, nonetheless, for the consultants concerned).

Critiques by Harvard Enterprise Assessment and others concluded that round 30–50% of M&A offers create worth for the buying firm’s shareholders, whereas usually, many see the share worth fall. A majority of acquirers overpay and underdeliver on synergies (hiya to the Ellisons, house owners of Paramount, and congrats on the Warner Bros deal).

Sure, a majority of shareholders within the firm being acquired rating a premium, but when it’s being paid within the acquirer’s inventory, then its a problem to win whenever you’re on either side of the commerce.

Only a fast reminder of how robust mergers will be.

In 2021, Simply Eat Takeaway (JET) – the UK firm that shut down Menulog in Australia final yr – purchased US rival Grubhub for US$7.3 billion. Lower than 4 years later, in late 2024, JET offloaded the enterprise for US$650m – a $6.5bn loss. JET itself was taken over for US$4.2bn 12 months in the past.

And Australian startup Sendle, which merged with two related US supply companies in mid-2025, is now in liquidation, having ceased buying and selling in January because the post-merger.

And who can neglect Rupert Murdoch shopping for MySpace 20 years in the past for US$580 million, then promoting it for $35m.

In fact, everybody has fingers crossed that the Eucalyptus deal is a roaring success and a shot within the arm for Australian startups and buyers having been pining for amid an absence of liquidity occasions as a number of VC funds attain the top of their 10-year lifespans.

However first up, it’s all arms in founder mode for the Eucalyptus crew to earn what they’ve labored the previous seven years for.