FCA to consult on SPACs

interactive investor welcomes news of consultation on ‘blank cheque IPOs’.

Richard Hunter, Head of Markets, interactive investor, says: “SPACs are designed to raise money from an Initial Public Offering (IPO) with the intention to acquire a company within two years. As such, they are known as “blank cheque IPOs” and immediately fail one of the golden rules of investment – “invest in what you know”.

“It also makes asset allocation and portfolio balancing difficult for the investor since the SPAC target company may simply not be known at the outset.

“Of course, the IPO is designed to tempt investors with further incentives such as the ability to exercise warrants at a future date, although not all platforms will trade the US SPACs with the warrants attached (as it makes them a packaged product). Once the warrants are separated that’s when interactive investor will offer access to the SPAC.

“There will, of course, be successes along the way and recent (UK) examples such as electric bus maker Arrival (NASDAQ:ARVL) choosing this route show increasing popularity (although Arrival shares are currently trading below the IPO price).

“Investors should take a long, hard look before committing to SPACs and the fact that they have moved on to the radar of the FCA should set some alarm bells ringing for potential investors.”