Investors who bought into a SPAC that took a healthcare-services company public last year in an $11 billion deal have suffered steep losses. Promoters of the SPAC still stand to make millions, The Wall Street Journal reports.
The paper gains for insiders, even as shares of MultiPlan fall, result from the unique incentives given to SPAC creators, also known as sponsors. They are allowed to buy 20 percent of the company at a deep discount, a stake that is then transferred into the firm the SPAC takes public. Those extremely cheap shares let the creators make, on average, several times their initial investment. They also let the SPAC backers make money even if the company they take public struggles and later investors lose money, a source of criticism for the process.
The MultiPlan deal was one of the largest SPAC mergers ever, helping blank-check firms become the hottest trend on Wall Street in the past year. But the stock is also among the worst performers for companies that recently went public via SPACs. Read more.
