IPOs and SPACs are happening in record numbers in 2021. Zack Sopcak, Vice President of Investor Relations at UnitedHealth Group, explains why in this episode.
Initial public offerings reached record highs in this year, both in volume and the amount of money raised. No less than 365 companies went public in the first quarter alone, a 677% increase compared to the prior year. Many of these public offerings are driven by SPACs, or special purpose acquisition corporations set up for the sole purpose of raising capital to acquire a company and take it public. So why are so many companies opting to go public now? Zack Sopcak, Vice President of Investor Relations at UnitedHealth Group, offers his insights.
Evan Sweeney 00:06
Welcome to the UnitedHealth Group’s Weekly Dose Podcast, where we'll get you up to speed on the latest trends shaping the future of healthcare. I'm your host, Evan Sweeney. This week we're taking a closer look at the growing number of health care companies going public in 2021. us initial public offerings or IPOs reached record highs this year, both in terms of volume and the amount of money raised. 365 companies went public in the first quarter alone, a 677% increase compared to a year prior healthcare companies are riding that wave. New insurance companies like Oscar health and clover health have gone public this year alongside health technology companies like doximity. Many of these public offerings are driven by SPACs, or special purpose acquisition corporations set up for the sole purpose of raising capital to acquire a company and take it public. So why are so many companies opting to go public now? And what is driving the investment in 2021? here to answer those questions is Zack Sopcak, Vice President of Investor Relations at UnitedHealth Group. Zack, welcome to the podcast.
Zack Sopcak 01:12
Thank you Evan, happy to be here.
Evan Sweeney 01:14
Great. One quick disclosure, before we get started, any stocks and public companies discussed on this episode are for informational purposes only, and not meant to be taken as a recommendation to buy, sell or hold any investments. Zack. Well, I'm glad to have you on to talk about a couple of interesting trends in the healthcare marketplace. But maybe first, can you just start with sort of what investor relations that UHG does and your role within the company?
Zack Sopcak 01:40
Sure. Thanks, Evan. So our role with an investor relations and within the team is really to help outside investors and analysts understand the company at a at a deeper level than they might be able to otherwise, there's really sort of two constituents that that we work with a lot. One is the equity research analysts or sell side of which I was one prior to coming to join UnitedHealth Group. They're the ones who write reports make recommendations have price targets. So we really tried to help them understand what the company is doing and what our future looks like to help them model and to write about the company for the investors that read their read their work. The other is institutional investors, which could be large funds, he may have heard of, like fidelity or tiro price, as well as hedge funds, which you may have heard about. These are investors are actually putting money to work in UnitedHealth, or, or not, with not putting money to work within UnitedHealth. And we're trying to help them understand what they need to understand to make their investment decision. So I wouldn't say we tried to convince them to buy the stock, but we tried to put our best foot forward. So they understand whether or not they want to buy the stock. The other side of it is just really helping management at the company understand what is going on in the market. So we spent a lot of time doing competitive analyses of other stocks and other companies to understand how we stack up to what's going on.
Evan Sweeney 03:15
Well, that's a great segue to sort of what I wanted to talk to you about today, which is what we've been seeing in the healthcare marketplace, at least in the first half of this year, in sort of the number of IPOs and even beyond healthcare sort of across across industry, seeing just a tremendous number of companies going public and curious to start, you know why we're seeing that trend and why so many companies are going public at this time?
Zack Sopcak 03:39
Yeah. It's a great question. And you know, it, it certainly stretches back to last year, and even a few years before that, and not to go econ 101 on you. But it's really a interesting supply demand relationship that's probably been going on for 12-13 years now. And I'd really probably boil it down to four things. First, would be an unprecedented amount of fiscal stimulus within the financial markets dating back to the last the big great recession in 2008-2009. Second would be, you had outsize market return. So if you look since the lows in 2008-2009, the US market, and this is going on all over the world, by the way, is up over 500% you know, his annualized return of about 18%, which, compared to the 140 year history of us socks exchange, the average has been about 9%. So you've really seen excise, outsized growth over the last dozen years or so, which has made it more attractive to be a publicly traded company to search for funding. The third reason would probably be the mechanisms to go public have gotten a little More interesting over the last couple of years, you may have heard of SPAC, which stands for special purpose acquisition Corporation. These are fairly new entities that make it easier to take companies public. In addition, you have large companies looking to grow like UnitedHealth, like our peers, and other companies outside of healthcare who have more capital than they've had in a long time able to make acquisitions, which makes it attractive to IPO as well. The last one, I might just say, is innovation. Obviously, in tech, there's been a lot of innovation and energy, there's been a lot of innovation and in healthcare, you know, we've seen a tremendous amount of change, if you just look within our own books that Optum and how Optum has evolved in the last decade, there's clearly a lot going on, and a lot of ideas out there, you know, which is spurred more and more companies who specifically get at the different gets to pick within healthcare.
Evan Sweeney 05:59
So sounds like a culmination of a lot of different things sort of coming to a head over, you know, the past decade or so, or even more, and now sort of coming to a head now in 2021, where we're seeing these these companies sort of capitalize on that. Absolutely. What is the advantage to going public sort of generally speaking,
Zack Sopcak 06:20
yeah, it's, it's really, it's a source to grow, it's a way to get capital, to your company, and to grow faster. It's also you know, it's a way to advertise, you know, what you do so, four times a year, you report earnings, new earnings calls, but it makes the world more aware, more aware, excuse me, of what of what your brand is, and what you're doing. So you know, when stock market is going up, like it has been public provides you you know, with a currency, which is your stock, which gets more and more valuable, assuming that it keeps going up and allows you to grow faster, and to put that stock to work, whether it's doing other acquisitions or, or other mechanisms. So the there's a lot has been a big advantage to doing it recently.
Evan Sweeney 07:10
You mentioned spac's, or special special purpose acquisition corporations. Could you just briefly sort of explain what that is certainly have seen a lot of them in the first half of this year, again, beyond healthcare, and how that's different from a traditional IPO.
Zack Sopcak 07:26
Yeah, definitely. Um, so when you think about us back a, it's a bit unusual if you're not sort of heavily involved in the financial markets, but what it is, it's a, it's a blank check, essentially, where a usually a well known investor or investor and firm or you know, potentially, like a founder of a large company starts a quote unquote, back, they recruit investors or investors buy a share. In this back, they have a mission to acquire a company, often, it's specific, like we will acquire a company in the clean energy space, or we will acquire a healthcare technology company, they usually have some sort of mission that they're trying to invest in, but investors trust, you know, these individuals to acquire a company, they do that. And the the blank check company, or this back is already a publicly traded entity. So when they make that acquisition, the company that they acquire, sort of takes over he stock, let's say, of the of this back and becomes publicly traded. So from the company perspective, it's attractive because you have a much simpler process. It's almost more like an acquisition, which not to say an acquisition is easy, but it's a it's a one on one sort of transaction versus an IPO where you're working typically, with multiple banks, multiple investors, and it can get very detailed and bogged down and be a long process as back, you know, can take months or even weeks, you know, of due diligence between the back and the target itself before it becomes publicly traded. So, you know, as these backs have gone up, and they're all looking for targets that sort of help fill the fuel this frenzy for IPOs because they're looking for targets actively. And you know, is driven the market for sure. The last couple of years.
Evan Sweeney 09:28
There's just more money pouring in exactly those specs to do that. Exactly. And I traditional IPO takes longer, right there's there's sort of more involved in that more disclosures and services correct is a longer lead time.
Zack Sopcak 09:30
Yeah, exactly. It's typically six months or longer versus is spac in the like I said weeks or a couple of months,
Evan Sweeney 09:48
I say so a company that is being acquired by a spac sort of has that advantage of quickly going public and not having to necessarily deal with all of the disclosure aspects that
10:00
Exactly, exactly. And the time commitment to from the management perspective is a lot simpler and as a spac. Sure.
Evan Sweeney 10:07
So what is driving that sudden influx of spacs broadly? And then in healthcare specifically Is it is it just that money that's flowing in and those those folks who want to target those companies?
Zack Sopcak 10:19
Yeah, it goes back to sort of market there that and, you know, if getting back to the the returns we're seeing in the market, so when the markets returning in the teens, and interest rates are where they are, you know, sub four or 5%, there's a huge advantage to investing in the stock market than there is in putting your money into vehicles, you know, like bonds. So what happens is, is sort of self perpetuates, and that everybody is chasing that growth a little bit more and a little bit more. So they're looking for companies that are growing faster, to teach and to get the type of returns that they're getting. So he, it sort of is what driven this spac frenzy is that you're going after companies with high growth rates, which tend to be less mature companies, companies are earlier in their growth cycle. Those aren't necessarily always easy to IPO, because they don't have large revenues or don't have large profits. So when SPAC takes them public, you have a known entity sort of blessing it for lack of a better term, it goes public, and you see these hyper growth rates, because these companies are small. And it sort of perpetuates this growth story. And it makes it easier for the next company who may be even a little bit less mature to come to market. So if you look broadly, you just don't see a lot of big companies going spac to companies have been founded really in the last five to 10 years, going public quickly, because of the growth hunt that sort of on that.
Evan Sweeney 11:53
And that opportunity is there right now. Exactly. What you mentioned, sort of the your interaction with investors and analysts. And what did those folks look for? When a company does go public?
Zack Sopcak 12:08
Yeah. It changes a little bit in what's going on the market. But right now, growth is probably number one. tied closely to that is management quality. Because you have to have some sort of faith that that growth is going to continue over a longer term. And then ultimately, I think I'll say exit strategy, and I'm using that term very broadly. That doesn't mean are you looking to sell, but that sort of means? How are you exiting that phase of growth into being more mature companies are looking for a long term plan and how you're solving a problem, you know, within healthcare, right now, a lot of it centers around costs, reducing costs and moving to more value based care, which obviously, we talk a lot about, to the optum health. You know, for an energy company, it very much could be renewable fuels. You know, obviously, electric cars is a big source of this right now.
Evan Sweeney 13:03
And is that much different than what analysts sort of look at or investors look at for a company that's been public for some time?
Zack Sopcak 13:11
Yeah, that's a good question. It actually it is very different. Because you're really looking at, they call it the TAM, the total addressable market, but your ability to grow is a function of how small you are relative to a market and the bigger your market is, and maybe the smaller the fish you are, the more opportunity you have to grow. In a mature company, you're looking at the ability to operate Can you drive margins, you know, can you track earnings growth? If you look at the companies that IPO very few people, very few investors or analysts focus on profit, they focused on revenue because the idea is that eventually it'll become profitable. But right now prove to me that you can grow different than you know, perhaps with us are more mature company where your ability to drive profit is much more important.
Evan Sweeney 14:00
Great, Zack. Well, thanks so much for joining us. Really appreciate it.
Zack Sopcak 14:03
Thank you, Evan. It was a pleasure.
Evan Sweeney 14:05
That's it for this week's episode of UnitedHealth Group. Join us next week for discussion about maternal health disparities. Thanks for listening and have a great rest of your week.