The European Union’s markets watchdog has warned that investments in so-called blank cheque companies “may not be appropriate… for all”.
The European Securities and Markets Authority said on 15 July that special purpose acquisition company transactions “may not be appropriate investments for all investors due to risks relating to dilution, conflicts of interests in relation to sponsors’ incentives and the uncertainty as to the identification and evaluation of the target company”.
Spac issuances on European exchanges are reaching record levels — there were 16 Spacs raising a total of $4.4bn on European exchanges in the six months to the end of June 2021, according to data provider Dealogic. That activity meant that it is already the best year on record for blank cheque companies in the EU. Senior investment bankers told Financial News in June that they estimated another 50 deals are in the wings likely to land over the summer.
“There has been a significant rise in Spac activity in EU capital markets this year, and with this comes growing interest from investors,” Anneli Tuominen, Esma’s interim chair said on 15 July. “Therefore, it is essential that investors are provided with the information necessary to understand the structure of Spac transactions before making any investment decisions.”
The watchdog said that it and local EU regulators would “continue to monitor Spac activity to determine if additional action is necessary to promote coordinated supervisory action aimed at preserving investor protection”.
In the meantime, Esma said that it expected that European regulators would “take a coordinated approach to the scrutiny of Spac prospectuses”, provide Spac issuers “with an understanding of the disclosure” expected, and “support investors’ analysis of these transactions”.
“They are saying, ‘We will be looking at you very, very closely. So be careful what you do,’” said Ivan Ćosović, founder of Breakout Point, a firm that analyses short selling and retail trading data.
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