Blank-check firms love to help companies with unusual ideas, hard-to-value business models and optimistic financial forecasts go public. The case of MSP Recovery takes that to its limit and not just because of the company’s huge $32.6 billion enterprise value.
MSP wants to disrupt the cozy world of U.S. health insurance – a sympathetic cause. It finds cases where insurers should have paid but didn’t, leaving the government to pick up the bill. There are roughly three steps: MSP uses its own analytics to find where money is due, then pursues its claims, through the courts if necessary, and carves up spoils between clients such as hospitals and doctors, lawyers and itself.
No doubt, there is treasure to be had. MSP is chasing $50 billion in billed amounts, which it thinks will increase to $263 billion. But investing in that potential is deeply uncertain. The company’s success depends on finding claims, being recognized as a plaintiff, winning cases and actually getting the money in the door. All of this, though, takes time. The filing for its SPAC merger details no forecast revenue in 2021, though it expects to hit $7.2 billion by 2026.
The company’s claim to be worth nearly $33 billion, meanwhile, is spurious. With no direct peers, MSP bases its valuation on companies as unrelated as private equity group Blackstone and credit-check agency Equifax. Troublingly, there’s no so-called PIPE – industry jargon for the side investment commonly struck by a SPAC with big-name investors like BlackRock or Fidelity that gives the transaction an implicit stamp of approval.
There are other oddities. Chief Executive John Ruiz also runs his own law firm – which MSP has promised to use and pay 40% of recoveries. And top SPAC advisers like Goldman Sachs, Credit Suisse, Citigroup and JPMorgan are absent. In their place are Nomura and Stifel, 17th and 32nd in the league tables respectively, according to Spac Research.
Finally, there’s the question of why MSP is bothering to go public at all. Merging with a SPAC will only give it $230 million of new money, of which fees will eat up $70 million. True, listings have other advantages, like raising awareness. Putting a spotlight on healthcare flaws is no bad thing. Getting investors on board is a totally different challenge.