Can this US health litigation company really be worth $ 33 billion?


When John Ruiz invested in an apartment at the luxurious Ritz-Carlton Residences in Miami Beach earlier this year, he met the man who would later help make him a billionaire several times over – at least on paper.

The co-investor of the apartment was Ophir Sternberg, a wealthy real estate developer and founder of Lionheart Capital, who, with hedge fund Elliott Management, had transformed the former cardiac hospital into a collection of luxury residences. The property’s villas, designed by Italian architect Piero Lissoni, have a private marina and sell for up to $ 40 million each.

It would be the first of several times that Ruiz and Sternberg did business together, even in May, when they teamed up to acquire Cigarette Racing Team, a luxury motor boat company.

But none of those transactions could correspond to the deal they unveiled this week: that of Sternberg special purpose purchasing company intends to take the public out of MS MS Recovery’s health litigation activities with an astonishing estimate of nearly $ 33 billion.

Even in the greenhouse atmosphere of the current Spac boom, where companies with big dreams but few incomes have gone public at incredible valuations, the price of MSP business stands out.

“For a zero-income company, this is in a class for itself,” said Michael Klausner, a professor at Stanford Law School who studies Spacs. “Comparables are serious.” spacecraft companies or flying cars but they also have lower valuations. ”

A former member of the elite combat unit in the Israeli Defense Forces who turned his hand to buying real estate, first in New York then in Miami, Sternberg was initially on the hunt for a company of property technology to take public. Lionheart Capital raised $ 230 million in August last year and has set an 18-month deadline to find a deal.

After his serendipitous real estate transaction with Ruiz, Sternberg changed his mind to find a target in the real estate sector and decided to merge with MSP Recovery.

MSP Recovery was founded in 2014 by Ruiz, a wealthy Miami lawyer with his own legal background in Spanish. The TV Law. The company buys medical claims from government-funded health programs such as Medicare and Medicaid, before instructing attorneys to find cases where the costs have to be borne by another party, such as a car insurer. It then calls into question to recover the entire amount.

Lionheart is already listed on the Nasdaq Stock Exchange and if it enters into its agreement with MSP Recovery, the health litigation group will become a public company through a process known as reverse merger.

This week’s announcement that Lionheart Acquisition Corporation II and MSP Recovery had accepted a deal valuing the litigation company at $ 32.6 billion did not attract the kind of publicity generally generated by Spac offerings of this size, even if it is the second largest transaction of its kind.

John Ruiz and Ophir Sternberg reunited in May to acquire Cigarette Racing Team, a luxury motorboat company © Alamy

Lionheart has assigned MSP Recovery an assessment that is 10.5 times its gross earnings projected for 2023, based on potentially recoverable claims. One person involved in the transaction called the deal “excessively overrated” while one person familiar with Lionheart’s strategy said it was “fascinating”.

Ruiz disputes these characterizations. “These are false statements. . . and not based on the model we built, ”he told the Financial Times, adding that the company’s forecasts were achievable when the market size was taken into account. According to MSP Recovery, an estimated 11 percent of the annual expenditure of $ 1.6tn Medicaid and Medicare is recoverable.

Some of the executives who worked on the transaction have left. Three members of Lionheart’s acquisition board have left since MSP Recovery and Spac signed a letter of intent in March. Trevor Barran, who was also Spac’s chief operating officer, resigned on July 4, just days before the announcement of the agreement. Barran did not respond to a request for comment.

The agreement comes together as the U.S. Securities and Exchange Commission has begun to take a stand stronger position on Spacs warning them to present excessively rosy projections and indicating that they could be held responsible for any misleading claims on the business.

Meanwhile, market participants they have criticized the structure of the Spac business, which often allows insiders to make huge profits while urging executives to make deals at all costs with little regard for other investors.

Companies like MSP Recovery buy claims at a hefty discount before prosecuting the parties responsible for the entire amount and sharing the revenue if the disputes succeed. The business is not unique and its versions proliferate in the United States.

But Ruiz says he has a secret sauce – algorithms devised by himself and a team of engineers who can scour the medical records to find claims that were wrongly paid for by the government. Indeed, it is these claims and their value to the public that public shareholders will receive a share. The law firm itself will remain a private company.

MSP Recovery, which is not expected to generate any cash this year, predicts that its gross revenues will jump from almost $ 1bn next year to $ 23bn in 2026. Every time MSP Recovery wins a case, the bang will be shared with government programs, which receive 50 percent, while law firms, including Ruiz himself of the same name, get up to 20 percent. The rest goes to the company itself.

Ophir Sternberg is a former member of the elite combat unit in the Israeli Defense Forces who has turned his hand to buying real estate © Startraks / Shutterstock

For Ruiz, the rating is, if anything, too low. “My number was much higher than $ 32.6 billion. When we came back with the first models, they were at $ 50 billion, “he said. Ruiz called Sternberg an” astute businessman “who had fought hard to get a good deal from his investors.

Other specialists in litigation financing have more modest valuations. Burford Capital – herself is no stranger controversial – is perhaps the most important player in the sector and currently has a market capitalization of £ 1.6 billion or just over $ 2.2 billion.

However, in an investor presentation filed as part of the merger, MSP Recovery said its valuation was in line with private equity giants such as Blackstone, KKR and Apollo, which it considered similar in nature to long run of their investments.

Unlike most Spac transactions, no other investors are involved in the deal, including private investments in publicly traded players, or so-called Pipe investors, which have fueled the blank verification boom. Usually these deals involve lengthy negotiations on the valuation of the combined company, giving an implicit stamp of approval to the deal.

There is also a lack of backup banks that typically work on transactions of this size. Keefe, Bruyette & Woods and Nomura Securities, which is a major shareholder in Lionheart Acquisition, are listed as financial advisors. The attorneys for the deal are Weil, Gotshal & Manges and DLA Piper, whose emeritus president Roger Meltzer is on board the Spac.

The transaction generated shipping costs, with $ 70m of the $ 230m MSP Recovery expected to be received from the Spac by going to the advisors. According to Ruiz the rights are justified because “200 or 300 people” have been working on the deal for several months.

Sternberg says he has negotiated what he considers “an amazing sweetener” for Lionheart’s shareholders who support the deal instead of redeeming its investment before it is consumed.

Those shareholders who have not redeemed will each receive at least 35 mandates, which gives them the option to buy a portion of the MSP Recovery stock at $ 11.50 even if the stock price appreciates beyond that level. .

In an unusual move for an agreement like this, MSP Recovery said Ruiz and other executives have agreed to sell shares to the company for every term exercised by investors, instead of the company issuing new shares and diluting the shares. shareholders.

“MSP shareholders transfer value to Lionheart shareholders who do not redeem it as a means to induce them to accept MSP’s valuation,” said Klausner, the Stanford professor. “A clearer way to limit redemptions is to value MSP at a level that Lionheart shareholders accept.”

However, whether investors stay or go is immaterial to getting the transaction over the line, according to Sternberg. “The deal goes all the way,” he said.

If that’s the case, Ruiz will add his share of the company – a fortune of more than $ 20 billion to the list – to his fortune, ranking it as one of the richest Floridians, at least according to one station. local TV printing.

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