Barry Sternlicht-Backed SPAC To Acquire Cano Health In $4.4B Deal
Jaws Acquisition Corp., a special purpose acquisition company backed by real estate investment mogul Barry Sternlicht, has inked a deal to acquire Cano Health. The transaction, which will take Miami-based Cano public, values the company at $4.4B.
Jaws is kicking in about $690M as part of the deal, and there will be an $800M concurrent private placement, or PIPE, of common stock of the combined company, priced at $10 per share. The PIPE includes $50M from Sternlicht, along with other investments from Fidelity Management & Research Co., BlackRock, Third Point and Maverick Capital.
Founded in 2009, Cano provides care for more than 103,000 members in Florida, Texas, Nevada and Puerto Rico. The company specializes in services to Medicare Advantage members and has grown through establishing new clinics and the acquisition of practices and facilities.
Sternlicht, who founded Starwood Capital, which has about $60B of assets under management, is the chairman of Jaws. After the deal closes, he will also be on the board of directors of Cano, which will receive as much as $935M in transaction proceeds to pay down debt and provide capital for further growth.
Jaws is a recent entry as a SPAC, or blank check company, going public only in May. A SPAC is a public entity, but it doesn't have its own operations. Instead, investors put capital in, and the SPAC uses the funds to acquire other companies, taking them public in a reverse merger.
As an investment vehicle, SPACs are having a golden year in 2020. So far this year, there have been 174 SPAC IPOs, compared with 59 during all of 2019, SPACInsider reports. Investors have put $63.6B into the vehicles this year so far, compared with $13.6B last year, and the average IPO size is up from $230.5M in 2019 to $365.8M in 2020.
At the time of their formation, SPACs cannot specify investment targets, per Securities and Exchange Commission regulations. But it didn't take long for Jaws to focus on healthcare, according to a presentation by Sternlicht and Cano CEO Marlow Hernandez, filed with the SEC.
After looking at as many as 100 investment possibilities, Jaws narrowed it down to healthcare, a sector that wouldn't be affected by interest rates or impacted by trade wars with China or currency fluctuations, the filing says. In fact, even the wider course of the U.S. economy isn't going to impact healthcare much since that sector is growing so rapidly.
"So, the market is huge," Sternlicht said in the filing. "Medicare Advantage is supposed to grow to over a $500B market. I believe this company can grow almost $1M a day next year, reaching $1.5B in sales and surpassing that, and we really think the company is poised to do better ... grow faster and cover more geographies and expand within their existing markets."
Cano will be entering California in the first half of 2021, and it is also planning future expansion in the Southwest, Northeast and other regions, Hernandez said in the filing. Its goal is to reach about 300,000 members by 2023.