Shares in second-largest Spac target sink by half in trading debut

Shares in MSP Recovery, a healthcare litigation company that went public in one of the largest ever blank-cheque deals, fell by 53 per cent on its first day of trading, casting doubt over its staggering valuation.

The Coral Gables, Florida-based company started trading on the Nasdaq exchange on Tuesday, a day after completing a reverse merger with a special purpose acquisition company called Lionheart Acquisition Corporation II.

Spacs are shell companies that list on stock markets in search of a company to acquire. They have lost popularity among investors after a boom in 2020.

The $33bn MSP deal was the second-largest Spac transaction on record when it was announced last July, even as experts questioned its valuation. MSP had $33mn in losses last year but projected that it would generate $3.2bn in revenue by 2024.

John Ruiz, a Miami-based lawyer, founded MSP Recovery, which purchases medical claims from US government-funded healthcare programmes and assigns lawyers to sue to recover the amount when costs should have been borne by another party.

Ruiz and Ophir Sternberg, the Spac’s sponsor, also co-own a luxury power boat company called Cigarette Racing Team. Sternberg previously lent Ruiz $20mn to buy a condominium unit located at the Ritz-Carlton Residences in Miami Beach, which will be repaid in MSP Recovery shares.

Unlike most Spac transactions, there were no external investors involved and Ruiz did not set a minimum cash requirement for the deal to be completed.

Approximately 90 per cent of the Spac’s shareholders opted to redeem their shares before the merger despite sweeteners offered by Sternberg to those who chose to stick with the deal. Remaining shareholders were given 118 warrants per share they hold with an $11.50 exercise price, above the MSP’s closing share price of $5.06.

Signs of trouble emerged this month when Lionheart signed a deal with investment bank Cantor Fitzgerald to purchase shares from investors who decided to redeem.

The New York-based investment bank bought 1.1mn shares in the Spac for $11mn, but even that was not enough to stem the wave of redemptions in a sign that investors were sceptical of the deal. The approximately $25mn remaining in the trust account includes $11mn belonging to Cantor.

“I have not seen anything that we didn’t anticipate and that isn’t tied to market conditions,” Ruiz said of MSP’s plunging share price on Tuesday. “The market is extremely weak. Technology stocks have gone down, some as much as 80 per cent.”

Ruiz has the ability to sell 10 per cent of his holdings in advance of a six-month lock-up but said he was not selling shares on Tuesday and did not intend to do so in the weeks to come.

At the open of trading, Ruiz’s 70 per cent shareholding in the company was worth more than $20bn, but the value of the stake more than halved by the market close.

Underwriters and advisers on the deal, including law firm Weil, Gotshal & Manges and Nomura Securities, were paid a total of $70mn in fees.

Ruiz remained optimistic about the company and his decision to go public through a Spac. “We believe in the company. I am in the company for the long haul,” he said.