Conventional investor wisdom is to steer clear of next month's election, due to its inherent uncertainty and consequential volatility. But, this morning, Chamath Palihapitiya bet big on a company whose fortunes may be significantly impacted by the presidential victor.
Driving the news: Clover Health, a tech-enabled provider of Medicare Advantage plans, agreed to go public via a reverse merger with a Palihapitiya-led SPAC called Social Capital Hedosophia Holdings III (NYSE: IPOC).
- The deal values Clover at around $3.7 billion, inclusive of a $400 million PIPE.
- Clover had raised over $900 million in VC funding from firms like First Round Capital, Greenoaks Capital Partners, Sequoia Capital, and GV.
The politics: Both presidential candidates support Medicare Advantage, a program whereby private insurers provide extra benefits to seniors enrolled in Medicare (e.g., dental, vision, etc.).
- The big difference, however, is that Joe Biden wants to lower the Medicare enrollment age from 65 to 60 — which could result in nearly 20 million more eligible Medicare Advantage customers.
- He would, of course, need an amenable Congress.
Palihapitiya tells me that he struck the deal independent of politics.
- "More than 10,000 people turn 65 each day. Even if Biden doesn't win, that's around a billion dollars in new revenue possibly created each week, and Clover has a share of that, competing against companies like United Health and Humana. It doesn't take a genius to work out the compounding effect."
- The number of Medicare Advantage enrollees more than doubled between 2009 and 2019, and certain regulations were subsequently relaxed due to the pandemic.
- Palihapitiya adds that he kicked the tires on Clover during its Series A funding round in 2015, but passed. "I didn't understand Medicare Advantage yet and was just coming up to speed on the intricacies of Obamacare."
The bottom line: Medicare Advantage is likely to be a growing, lucrative business no matter who sits in the Oval Office for the next four years. But the degree of growth may be on the ballot.
