- Medicare Advantage provider Clover Health is going public by merging with a special purpose acquisition company in a deal valuing the seven-year-old startup at $3.7 billion — about 5.5 times expected revenue this year.
- The deal with SPAC Social Capital Hedosophia III is expected to yield $1.2 billion in cash proceeds for the combined company, including a private offering for existing investors of $400 million and up to $828 million in cash in SCH's trust account from when it went public earlier this year. Clover should receive up to $728 million of proceeds to drive further growth, with up to $500 million allocated for existing shareholders.
- The combined company will be traded on the New York Stock Exchange and plans to announce a new ticker in the next week or so, a spokesperson said. SCH shares fell more than 11% in early morning trading Tuesday following the news. The transaction is expected to close in the first quarter of next year.
Clover direct contracts with primary care physicians for its plans, and has a software platform to help clinical decisionmaking in a bid to keep costs low. The startup has grown quickly since its founding in 2013, swelling to cover 57,000 members in 34 counties across seven states this year.
Clover is the fastest-growing MA plan, with more than 50,000 members over the past three Medicare annual enrollment periods, per internal company data.
MA currently makes up about a third of the overall Medicare market, but is forecast to grow to about half by 2025. Most major commercial insurers are making significant footprint expansions for 2021, with Clover linking with Walmart earlier this month to peddle joint plans to half a million Medicare-eligible consumers in eight Georgia counties.
The MA market is worth about $270 billion today, with an estimated value of $590 billion by 2025, according to CMS.
Clover currently holds about 8% of the MA market share in its current geographies, which have an addressable market of 3.1 million Medicare lives. This represents a significant growth opportunity for the startup, which plans to expand into another 74 counties and an eighth state next year to cover Arizona, Georgia, Mississippi, New Jersey, Pennsylvania, South Carolina, Tennessee and Texas.
By 2021, Clover expects to be in 108 counties covering 73,000 members, with a total addressable market of 4.4 million Medicare lives.
The San Francisco-based company has seen its gross premium revenue grow at a compound annual growth rate of 37%. It brought in $354 million from premiums in 2018, $457 million in 2019 and expects $664 million this year, per an investor presentation on the deal filed with the SEC.
But Clover is not yet profitable, operating at a net loss of $202 million in 2018 and $364 million last year.
Private companies join with blank check companies as an alternative method to going public. giving them guaranteed access to capital in lieu of a traditional IPO. This year, Wall Street has seen a number of digital health companies take this route, including telehealth vendor Hims & Hers earlier this month and provider-focused telemedicine company SOC Telemed in July.
Clover's blank check deal is with SCH, a joint venture of investment firms Social Capital and Hedosophia that went public in April. SCH plans to use the funds raised from its IPO to buy Clover and take it public.
The transaction is boosted by a private investment in public equity (PIPE) offering of 40 million shares of Class A stock at $10 per share, including $100 million from billionaire SCH CEO Chamath Palihapitiya and $50 million from Hedosophia, with the remainder from existing investors including financial services corporation Fidelity.
Clover CEO Vivek Garipalli and President Andrew Toy will stay on at Clover following the transaction. They, and other officers, will roll 100% of their equity into the new company.
Correction: A previous version of the article misstated the amount in SCH's trust fund.