Can it really be worth the $ 33 billion?

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

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

It would be the first of several occasions Ruiz and Sternberg would do business together, including in May, when they teamed up to buy Cigarette Racing Team, a luxury motorboat company.

For a zero-income company, this is a class in itself. Comparables would be spacecraft companies or flying cars, but they even have lower ratings.

But none of those transactions could match the deal they presented this week: the Sternberg deal acquisition company for special uses intends to make public Ruiz’s health litigation business, MSP Recovery, with an impressive valuation of nearly $ 33 billion.

Even in the greenhouse environment of the current Spac boom, where companies with big dreams but little revenue have gone public at incredible valuations, the price of the MSP deal stands out.

“For a zero-income firm, this is a class in itself,” said Michael Klausner, a Stanford Law School professor who studies Spacs. “The comparable ones would be the spacecraft companies or he flying cars but they even have lower valuations ”.

A former member of the elite combat unit of the Israeli Defense Forces that helped buy real estate, first in New York and then in Miami, Sternberg was initially looking for a company to real estate technology to make public. Lionheart Capital raised $ 230 million in August last year and set a maximum deadline of 18 months to find a deal.

After his serene real estate transaction with Ruiz, Sternberg changed his mind when he found a target in the real estate industry and decided to merge with MSP Recovery.

MSP Recovery was founded in 2014 by Ruiz, a wealthy Miami-based lawyer with his own legal program 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 should have been borne by another party, such as a health insurance company. vehicles. He then asks to recover the full amount.

Lionheart is already listed on the Nasdaq Stock Exchange and, if its agreement with MSP Recovery ends, 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 reached an agreement valuing the litigation company at $ 32.6 billion did not attract the kind of publicity typically generated by Spac deals of this size, all and that it is the second largest transaction of his kind.

Lionheart has assigned MSP Recovery a rating that is 10.5 times its projected gross revenue for 2023, based on potentially recoverable claims. One person involved in the transaction called it a “blatantly overvalued” deal, while one person with knowledge of Lionheart’s strategy said it was “striking”.

Ruiz discusses these characterizations. “It simply came to our notice then. . . and not based on the model we built, ”he told the Financial Times, adding that the company’s projections were achievable when market size was taken into account. According to MSP Recovery, it is estimated that 11 % of annual Medicaid and Medicare spending is $ 1.6 million.

Some of the executives who worked on the transaction have left. Three members of the Lionheart acquisition board have left since MSP Recovery and Spac signed a letter of intent in March. Trevor Barran, who was also chief of operations for the Spac, resigned on July 4, just days before the deal was announced. Barran did not respond to any requests for comment.

The agreement is consolidating as the U.S. Securities and Exchange Commission has begun to adopt a stronger posture to Spacs warning them to present too pink projections and indicating that they could be held responsible for any misleading claims about the business.

In the meantime, market participants they have criticized the structure of Spac offerings, which often allow the privileged to reap huge profits while inciting executives to hire at any cost without regard to other investors.

Companies like MSP Recovery buy claims at a hefty discount before prosecuting those responsible for the full amount and sharing the product if litigation is successful. The business is not unique and its versions proliferate in the US.

But Ruiz says he has a secret sauce: algorithms designed by himself and a team of engineers who can go through medical records to find claims the government has erroneously paid for. Indeed, it is these claims and their value in charging the public shareholders who will participate. The law firm itself will remain a private company.

MSP Recovery, which does not expect to generate money this year, predicts that its gross revenue will rise from nearly $ 1 billion next year to $ 23 billion in 2026. Every time MSP Recovery wins a case, the loot will be shared with the programs. government firms, which receive 50%, while law firms, including Ruiz’s own with the same name, will get up to 20%. The rest goes to the company itself.

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

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

However, in a presentation presented to investors as part of the merger, MSP Recovery stated that its valuation was in line with private equity giants such as Blackstone, KKR and Apollo, which it considered equal due to the long-standing nature. term of your investments.

Unlike most Spac transactions, there are no other investors involved in the deal, including private investment in public equity agents or so-called Pipe investors, which have fueled the blank check boom. Typically, these transactions involve lengthy negotiations on the combined company’s valuation, giving an implicit seal of approval to the agreement.

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

The transaction has generated impressive expenses, with $ 70 million of the $ 230 million MSP recovery he expects to receive from Spac for advisors. According to Ruiz, the rates are justified because “200 or 300 people” worked on the agreement for several months.

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

Those shareholders who do not change will receive at least 35 warrants, which gives them the option to buy a stock of MSP Recovery at $ 11.50, even if the share price is appreciated beyond that level.

In an unusual twist to a deal like this, MSP Recovery said Ruiz and other executives have agreed to sell shares to the company for each term held by investors, instead of the company issuing new shares and diluting shareholders.

“The MSP shareholder is transferring value to Lionheart shareholders who do not change as a means to induce them to accept the MSP valuation,” said Klausner, a Stanford professor. “An easier way to limit redemptions is to value MSP at a level that Lionheart shareholders would accept.”

Still, whether or not investors stay is important to getting the transaction passed, according to Sternberg. “The deal is happening independently,” he said.

If that’s the case, Ruiz will add his share of the company (an asset worth more than $ 20 billion in listing) to his fortune, placing him as one of the richest Floridians, at least according to a television station. local.