‘The great 2020 money grab’: Muddy Waters unloads on Spacs

Muddy Waters, the US short seller run by Carson Block, has launched a scathing attack on 2020’s hottest investment phenomenon, the special purpose acquisition company, and revealed it is betting against a company brought to market by former Citigroup dealmaker Michael Klein.

In a report published on Wednesday, Muddy Waters said it had taken a short position in MultiPlan, a healthcare company that went public in an $11bn deal with one of Mr Klein’s acquisition vehicles earlier this year.

Mr Klein has been one of the most prolific sponsors of Spacs, also known as blank-cheque companies, which raise money with a promise to acquire a business looking for a public listing.

The Muddy Waters report was titled “Private Equity Necrophilia Meets The Great 2020 Money Grab” and criticised Mr Klein for taking MultiPlan public after it had been passed from one private equity owner to another.

“A business model that incentivises promoters to do something — anything — with other people’s money is bound to lead to significant value destruction on occasion,” the report said. “That’s even more true when a Spac buys a business from the fourth consecutive private equity group to have owned it. C’mon, man.”

MultiPlan shares slid 20 per cent to $7 each in the wake of the report, setting them further below the $10 at which Mr Klein raised money in April.

Muddy Waters alleged that MultiPlan — which identifies cost reductions in healthcare plans for insurance providers and takes a cut of those savings — is on the brink of losing its largest client, United Healthcare. 

UHC is launching Naviguard, a lower-cost rival to MultiPlan, according to the short-seller, and Naviguard is expected to handle all of UHC’s accounts by the end of 2022. Muddy Waters predicted that could lead to a 35 per cent decline in revenue within two years for MultiPlan. 

MultiPlan was only public “because of a grievous oversight in due diligence by the Spac promoter”, the short-seller wrote.

In a statement, MultiPlan said: “We categorically reject the inaccurate assumptions in the Muddy Waters’ self-serving report.” The company added that it would respond in more detail during its third-quarter earnings call on Thursday.

Spacs have accounted for about half the money raised on US exchanges in 2020, after being just a fraction in previous years. Mr Klein has launched four and the deal to buy MultiPlan in July was at the time the largest acquisition by a blank-cheque company,

The Spac model has come in for criticism from some quarters for the fees and profits that accrue to their sponsors and because they can be used as a “backdoor listing” for companies that do not wish to go through a traditional initial public offering, which can involve more scrutiny by investors and regulators.

There have also been controversies over individual Spacs. In September the short-seller Hindenburg Research accused Nikola, the electric truck start-up that went public via a blank-cheque company earlier this year, of being an “intricate fraud”. Shares that briefly valued the company at more than Ford have since crashed, after the company admitted some of the claims in the report, while rebutting others.

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