Billionaire real estate investor Barry Sternlicht recently appeared on a virtual panel at Bloomberg’s Qatar Economic Forum. While talking about special purpose acquisition companies (SPACs), Sternlicht insinuated that Clover Health (NYSE:CLOV), and by extension CLOV stock, is a fraud.
“The stock market is detached from reality,” Bloomberg reported he said. “Clover Health Care is basically a fraud, is trading at $16 a share, and it keeps going up. The more you say it is going out of business, the higher the stock goes.”
Now, it’s true that Clover Health has been a favorite target of short-seller Hindenburg Research. It’s also true that the Securities and Exchange Commission may have something to say about the way it runs its business. But, it’s hard to imagine that it’s on the verge of closing, as the billionaire suggests.
Sternlicht is intimately familiar with SPACs. He’s been involved with at least five since the beginning of 2020. Given he’s so cocksure about Clover Health, I thought I’d take a look to see if any of his SPACs are worthy of your hard-earned capital.
Sternlicht’s Latest Bite Out of the SPAC Market
The billionaire brought JAWS Juggernaut Acquisition Corp. ( NASDAQ:JUGGU) to market on June 17, raising $240 million in proceeds from the sale of units. Sternlicht’s family office, Jaws Estates Capital, has partnered with the founders of XCOM Labs, a wireless startup led by Paul Jacobs, who also happens to be the SPAC’s CEO, while Sternlicht is Chairman.
As pg. 88 of the prospectus states, it might consider a possible merger with XCOM Labs. However, were this to happen, it would only take place if there were a third merger partner in the mix.
“[W]intend to focus our efforts on wireless communications and related technology/product/service businesses that have attractive growth-oriented characteristics and strong underlying demand drivers,” the prospectus states. “We believe we are at the early stages of another wireless communications revolution led by the transition to 5G that will drive massive social and economic value.”
While there’s no question 5G is a secular trend still in the early stages, it’s hard to recommend JUGGU units based on a target of XCOM Labs + 1. Sternlicht made his fortune in real estate and other alternative assets. While he certainly knows how to find a good target to buy, I’d exercise patience on this one.
CLOV Stock and Health Care
In May 2020, Sternlicht’s family office sponsored Jaws Acquisition Corp, a SPAC that raised $600 million to combine with a growth-oriented company that wasn’t competitive with Starwood Capital’s main focus of real estate, lodging, oil and gas, and energy infrastructure.
He didn’t get to be a billionaire for nothing.
In October 2020, Jaws Acquisition found its target in Cano Health (NYSE:CANO), a healthcare provider for seniors. It is one of the largest providers of health care services to Medicare and Medicaid patients. The company has 76 medical centers in Florida, Texas, and Florida.
The merger was valued at $3.5 billion. It closed on June 3.
Unfortunately, for Sternlicht and the rest of his SPAC investors, CANO stock hasn’t done much of anything since the beginning of the year. Year-to-date through June 24, it’s down 6.7% compared to a loss on the year of 10.2% for CLOV.
On an adjusted EBITDA basis, Cano Health made $36.8 million in 2019 from $365.0 million in revenue. Cano Health focuses on the Medicare market, the fastest-growing segment of healthcare in America.
This looks like it will be a long-term winner. Good for Barry.
The Best of the Rest
In December 2020, Jaws Spitfire Acquisition Corp. (NYSE:SPFR) raised $300 million. It focused on a target in North America or Europe, preferably technology-related. In March, the SPAC announced it would combine with Velo3D, a company that provides industrial clients with 3D printing hardware and software.
Velo was founded in 2014. In 2020, it had annual revenue of $19 million. It expects annual sales to grow to $546 million by 2025. Investors could view this projection as grandiose.
You can do better, Barry. Nonetheless, keep an eye on this one once the merger gets done.
The billionaire raised $900 million in early February for Jaws Mustang Acquisition Corp. (NYSE:JWSM). Between Sternlicht and his two other partners, they’ve collectively invested in more than 100 start-ups and publicly-listed companies over the years.
This SPAC has a clean slate. The management will consider all well-run companies in North America and Europe. Too early to tell what will come of it.
This one is way, way, too early to consider.
The Bottom Line on Clov Stock
Of the two deals where a target’s been identified, or de-SPAC’d, I’m very interested in Cano Health. Given its stock hasn’t done much in 2021, there’s still plenty of time to get on board.
I’ll continue to watch Sternlicht’s SPACs find their targets. Until then, the billionaire might be wise to save his fraud comments for private. You never know when a comment like that will come back to bite you in the keister.
Here’s to the SPAC industry continuing to mature and get stronger. Everyone wins in that scenario.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.