Spectral AI (NASDAQ: MDAI) stock dropped 55% yesterday. MDAI’s de-spac did not go well we might say. It’s possible to think of this as being slightly odd. For Spectral seems to be doing well enough in a field where there likely is quite a lot of value to be added. Yes, we know, everyone and their Granny is doing AI but pattern recognition in medicine is one of those areas where AI really should do rather well. On the very basic premise that AI is really what AIs do and they are much better at it than humans.
This was a SPAC merger of course, or some would call the arrival on Nasdaq yesterday the de-spac part: “Spectral AI, Inc. (Nasdaq: MDAI; MDAIW) (“Spectral AI” or the “Company”), an artificial intelligence (AI) company focused on medical diagnostics for faster and more accurate treatment decisions in wound care, announced today that it will commence trading on the Nasdaq Global Market on September 12, 2023 under the ticker “MDAI” following the closing of its previously announced business combination with Rosecliff Acquisition Corp I (“Rosecliff”).”
The thing is everyone has the opportunity to withdraw their $10 per share from a Spac operation when that merger target becomes known. The more people who do then the less is raised for the company and, presumably, the less the shares are worth.
Spectral AI stock price from Google Finance
Which, we think, is where the price problem comes from: “The SPAC’s shareholders approved the deal last week, although 46% of the remaining outstanding shares were redeemed ahead of the vote. As of Sept. 6, the SPAC held about $2.6 million in trust. Rosecliff I raised $220 million in a February 2021 IPO. At deal announcement April, terms called for Spectral MD to receive in excess of $20 million (that assumed no redemptions). The consideration was to include approximately $4.5 million held in Rosecliff’s trust before redemptions and an expected private placement investment of at least $15 million.”
The way we read that a further 50% or so of the Spac money left once the deal was definitely on. That’s not, no it isn’t, a good deal.Unlike many Spacs (or de-spacs) and many AI propositions we do think that wound recognition is something that could work. Whether Spectral AI are going to be the people who make it do so is another matter of course. But that first hurdle - is this a sensible idea - has been crossed for us.