New SPAC share: Florida TV lawyer, ex-Israeli command forges 33 billion dollar deal

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John H. Ruiz is not on any of Wall Street’s big shots list.

Over the years, the Miami attorney has hosted a Spanish-language cable TV show, ran a high school sports website, and worked on class action lawsuits. At one point, according to a published report, his luxury cigarette boat was repossessed – an episode Ruiz has described as a misunderstanding.

WATCH: John Ruiz is set to make millions on a SPAC deal.

But today, Ruiz is on the cusp of a $ 23 billion fortune in his real estate career.

When the deal is closed, it will go down as one of the most unusual SPAC transactions to date. Aside from the diverse backgrounds of its directors, the company is forecasting no sales this year, none of the traditional co-investors are participating, and three of Lionheart’s directors have resigned in recent months. And with a valuation of $ 32.6 billion, it is the second largest planned SPAC transaction after the $ 40 billion merger of Grab Holdings, slated for later this year.

SPAC assets

SPACs have become synonymous with enormous fortunes that seem to have been created overnight, like the $ 11.3 billion stake Mat Ishbia realized when his mortgage company went public. But other fortunes have faded just as quickly. Trevor Milton of Nikola Corp. peaked at nearly $ 10 billion, according to the Bloomberg Billionaires Index, before allegations of fraud weakened the stock and forced him out of leadership of the company.

The frantic deal-making has also caught the attention of regulators, who have focused on the sometimes dubious business practices and questionable disclosures of merging companies, as well as the misalignment of interests between the sellers and buyers of SPACs. The Securities and Exchange Commission took the rare step this week of sanctioning a SPAC and its merger target – a space cargo company – for misleading investors.

Read more: The SPAC-Man Method: Lutnick, Klein and the Rush for Riches

The choice for MSP Recovery, a healthcare payment recovery company, was made despite Lionheart saying in its prospectus and website that it was looking for an acquisition in the real estate sector, where founder Ophir Sternberg spent most of his career.

After emigrating from Israel in 1993 and residing in New York, Sternberg has bought and sold properties in South Florida for most of the past decade. But he discovered an opportunity in the glowing world of SPACs and in December led the merger of the restaurant chain BurgerFi International Inc. with the Opes Acquisition Corp.

BurgerFi stock closed Tuesday at $ 10.66, just above the $ 10 offer price of the SPAC with which it merged. For the year they are down 22%.

BurgerFi’s $ 100 million deal is dwarfed by Lionheart’s combination with MSP. Sternberg floated Lionheart Acquisition Corporation II last August.

‘Deal done’

“Most SPACs ask for 24 months before they have to throw in the towel and cash in,” Sternberg told Bloomberg News at the time. “I told my investors at the IPO level that I was very confident that we could close a deal within a shorter timeframe, so I reduced the term to 18 months.”

This put additional pressure on Lionheart to find a deal quickly, even though it competed against a larger number of SPACs who had a limited number of potential targets. If no agreement is reached 18 months ago, Sternberg and his team earn nothing from the SPAC.

Leading up to Following the MSP transaction, three directors on Lionheart’s five-person board resigned. One of them, Trevor Barran, who was also the company’s chief operating officer, left last week, just days before the deal was announced on Monday. A fourth died in June.

“Lionheart has brought on new board members to resolve potential or perceived conflicts of interest, to better align the board’s collective expertise with MSP’s business, and to have a total of four independent board members, one more than required,” a Lionheartheart spokesman said in a statement.

MSP Recovery describes itself as a pioneer in obtaining reimbursements for Medicare and other healthcare claims that should have been covered by other parties. Based in Coral Gables, Florida, the company searches records and uses sophisticated data analysis techniques to identify potentially erroneous payments. MSP said it owns nearly $ 50 billion in billed claims from its customers.

“Incredible Mistake”

“The scalability of this business extends beyond any existing business,” said Ruiz, founder and chief executive officer of MSP. “There is a huge flaw in the way medical claims data is collected and how those claims are insured. This is a disruptive process that we created and we are changing the way it is done. “

Typically, when MSP is able to collect a payment, it will split half the money with the debtor, such as an insurance company that paid an incorrect amount, and then pay 40% of the balance to lawyers. MSP keeps what’s left.

A law firm owned by Ruiz and MSP’s chief legal officer will be the exclusive lead counsel for MSP, which means it will receive 20% of all collected payments according to one filing.

MSP cites the total amount collected (before the cedant and attorneys are paid out) of gross earnings and expects to generate approximately $ 3.1 billion in 2023 with well-known private equity firms it identified as competitors, including Blackstone Group Inc., Brookfield Asset Management, Ares Management Corp. and KKR & Co.

It forecasts net sales for this year of $ 963 million and net income of $ 632 million. Gross sales of $ 23.8 billion are expected by 2026.

Evaluation questions

Lionheart will invest up to $ 160 million in MSP, subject to shareholder redemptions, in exchange for approximately 0.7% of the merged company. Unlike most SPAC deals, no private investments in public equity or PIPE are made alongside the SPAC.

This may be due in part to questions about the rating. Hedge fund Marshall Wace, an existing Lionheart investor, was discussing stake in a PIPE valued closer than $ 10 billion, according to a person aware of the matter who asked not to be identified for confidential information to discuss.

“Almost six months ago, there was a wide range of assessments discussed at a very early stage that did not encompass the full scope of what is now in the company,” said Ruiz.

A Marshall Wace spokesman declined to comment.

Shareholders who do not buy back prior to the business combination will be offered at least 35 additional warrants that will allow them to purchase shares at an exercise price of $ 11.50. When these warrants are exercised, the founders of MSP – mainly Ruiz – will sell their shares back to MSP at the strike price, meaning no new shares will be issued on a net basis. More than a billion such warrants are being distributed.

Transaction costs

Ruiz has agreed to sell a large portion of its stock at a price 15% above the $ 10 implied value of the transaction, limiting its upside potential. Ruiz says it was part of the cost of closing the deal.

The Lionheart sponsor, which is controlled by Sternberg, will receive around $ 60 million in shares, according to an investor presentation. The transaction costs, including bank fees, will gobble up $ 70 million, or about 30% of the cash Lionheart raised from investors last year. The remaining cash will be used to fund business operations and growth. MSP expects to spend $ 37 million without revenue this year.

Read more: Gary Gensler wants to find out more about bank fees: Chris Bryant

“In the large to plan of things, it’s really de minimis, ”said Ruiz, referring to the fees. “If I had to put a figure, there are more than 200, 300 people working on this deal.”

Of all the players, Ruiz will win the most. His 70 percent stake in the company is worth nearly $ 23 billion at the combination price. MSP and Lionheart executives are allowed to sell 10% of their shares once the transaction is complete, with the remainder subject to a six month lockup period.

It should be enough to buy as many cigarette boats as Ruiz wants. In fact, in May, he bought the Cigarette Racing Team – the company, not the boat. His partner in the deal? None other than Sternberg.

– With the support of Crystal Kim, Gillian Tan and Nishant Kumar

(Updates with Lionheart comment in paragraph 14.)

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