Can this American healthcare litigation company really be worth 33 billion US dollars?


Earlier this year, when John Ruiz invested in an apartment in the luxury waterfront Ritz-Carlton Residences in Miami Beach, he met the man who later helped him become a billionaire many times-at least on paper. This is the case.

The apartment’s co-investor is Ophir Sternberg, a wealthy real estate developer and founder of Lionheart Capital, who worked with hedge fund Elliott Management to transform the former heart hospital into a series of luxury residences. The villas on the property were designed by Italian architect Piero Lissoni and have private docks, each selling for up to US$40 million.

This will be the first time that Ruiz and Sternberg have collaborated on many occasions, including in May they jointly acquired the Cigarette Racing Team, a luxury powerboat company.

But none of these deals can match the deals they announced this week: Sternberg’s Special Purpose Acquisition Company It intends to list Ruiz’s healthcare litigation business MSP Recovery at an amazing valuation of nearly 33 billion U.S. dollars.

Even in the greenhouse atmosphere of the current Spac boom, companies with big dreams but little income go public at incredible valuations, and the price tag of MSP transactions is also prominent.

“For a zero-income company, this is a course in itself,” said Michael Klausner, a Spac professor at Stanford University Law School. “Compared to Spaceship company or Flying car But even their valuations are low. “

As a former member of the elite combat unit of the Israel Defense Forces, he changed hands to buy real estate, first in New York and then in Miami. Sternberg was initially looking for a real estate technology company to go public. Lionheart Capital raised $230 million in August last year and set itself an 18-month deadline to close the deal.

After an accidental real estate transaction with Ruiz, Sternberg changed his mind about finding targets in the real estate sector and decided to merge with MSP Recovery instead.

MSP Recovery was founded in 2014 by Ruiz, a wealthy Miami lawyer who has his own Spanish legal program Television lawThe company purchases medical claims from government-sponsored health care plans (such as medical insurance and Medicaid), and then commissions a lawyer to find cases where the costs should be borne by the other party (such as a car insurance company). Then it sued to recover the full amount.

Lionheart is already listed on the Nasdaq Stock Exchange, and if it completes the transaction with MSP Recovery, the healthcare litigation group will become a public company through a process called a reverse merger.

It was announced this week that Lionheart Acquisition Corporation II and MSP Recovery had reached a deal. The litigation company was valued at $32.6 billion, but it did not attract the kind of publicity that a Spac deal of this size usually generates, even though it is its second largest transaction. species.

John Ruiz and Ophir Sternberg teamed up in May to acquire Cigarette Racing Team, a luxury powerboat company © Alamy

Based on potentially recoverable claims, Lionheart has assigned a valuation to MSP Recovery that is 10.5 times its estimated total revenue in 2023. One person involved in the transaction described it as a “severely overvalued” transaction, while a person familiar with Lionheart’s strategy described it as “stunned.”

Ruiz disputed these characteristics. “These are false statements… not based on the models we built,” he told the Financial Times, adding that given the size of the market, the company’s forecasts are achievable. According to data from MSP Recovery, it is estimated that 11% of the $1.6 trillion in annual Medicaid and Medicare expenditures are recoverable.

Some executives involved in the transaction have already left. Since MSP Recovery and Spac signed the letter of intent in March, three Lionheart Acquisition board members have left. Trevor Barran, who is also Spac’s chief operating officer, handed in his resignation on July 4, just a few days before the deal was announced. Balan did not respond to a request for comment.

As the U.S. Securities and Exchange Commission began to adopt Tough stand Warn them not to make overly optimistic forecasts and state that they may be held responsible for any misleading claims about the business.

Simultaneously, Market participants Criticized the structure of the Spac deal, which usually allows insiders to make huge profits while incentivizing executives to close deals at all costs, with little consideration for other investors.

Companies such as MSP Recovery purchase the claims at a steep discount before recovering the full compensation from the responsible party, and if the litigation is successful, they will share the proceeds. The business is not unique, and its version has proliferated in the United States.

But Ruiz said he has a secret weapon-an algorithm designed by himself and a team of engineers that can search medical records to find claims paid by the government in error. In fact, public shareholders will receive these claims and their value at the time of receipt. The law firm itself will remain a private company.

MSP Recovery is not expected to generate any cash this year, and its total revenue is expected to jump from nearly US$1 billion next year to US$23 billion in 2026. Every time MSP Recovery wins, the spoils will be shared with the government plan, who gets 50%, and law firms, including Ruiz’s own lawyer of the same name, will get as much as 20%. The rest is owned by the company.

Ophir Sternberg, a former member of the elite combat unit of the Israel Defense Forces, changed hands to buy real estate ©Startraks/Shutterstock

For Ruiz, the valuation is too low. “My numbers are much higher than 32.6 billion U.S. dollars. When we came back with the first batch of models, they were worth 50 billion U.S. dollars,” he said. Ruiz called Sternberg a “savvy businessman” who worked hard to get investors a good deal.

The valuations of other litigation funding experts are more moderate. Burford Capital-no stranger in itself dispute — Probably the most prominent player in the industry, with a current market capitalization of £1.6 billion or slightly more than US$2.2 billion.

However, in a report submitted to investors as part of the merger, MSP Recovery argued that its valuation is consistent with private equity giants such as Blackstone, KKR and Apollo, and that it is considered a peer due to the long-term nature of its investments.

Unlike most Spac transactions, this transaction did not involve other investors, including private investments in public equity participants, or so-called Pipe investors, which contributed to the prosperity of the empty check. Usually, these transactions involve lengthy negotiations on the valuation of the combined company, which implies that the transaction has been approved.

There is also a lack of bulge-bracket banks that normally handle transactions of this size. Keefe, Bruyette & Woods and Nomura Securities (one of Lionheart Acquisition’s largest shareholders) are listed as financial advisors. The lawyers for the transaction are Weil, Gotshal & Manges and DLA Piper, and its honorary chairman Roger Meltzer is a member of Spac’s board of directors.

The transaction incurred dizzying fees, of which $230 million in MSP Recovery is expected to flow from the $70 million received by Spac to consultants. According to Ruiz, these fees are reasonable because “200 or 300 people” worked on the transaction over a period of several months.

Sternberg said he had negotiated what he believed was an “amazing sweetener” for Lionheart shareholders who supported the transaction and not redeemed the investment before the transaction was completed.

Shareholders who do not redeem will each receive at least 35 warrants, and even if the stock price appreciates more than that level, they can also choose to buy one MSP Recovery stock at a price of $11.50.

MSP Recovery said that an unusual turning point for transactions like this one is that Ruiz and other executives have agreed to sell investors’ shares in each line of warrants to the company instead of issuing new shares and diluting shareholders.

“MSP shareholders are transferring value to Lionheart shareholders who are not redeeming them to induce them to accept MSP’s valuation,” said Klausner, a professor at Stanford University. “A more direct way to limit redemptions is to value MSP to a level acceptable to Lionheart’s shareholders.”

Nevertheless, according to Sternberg, whether investors stay or leave is not important to the completion of the transaction. “In any case, this transaction is going on,” he said.

If this is the case, Ruiz will add his shares in the company-an asset valued at more than $20 billion after listing-to his wealth, at least according to a local TV news station. One of the richest Florida people.

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