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Should I invest in SPACS?

22/08/2021

On August 10th, new rules came into play that are designed to encourage more SPACs – special purpose acquisition companies – to list on the London Stock Exchange. But what are SPACs, what are the new rules, and are SPACs worth investing in? 

What are SPACs?

SPACs are unusual in that they don’t create any products, offer any services or sell anything. Instead, they are set up as shell companies, with the sole intention of raising the money required to either buy or invest in another business. 

The idea is that investors will invest in the SPAC with the view to the company’s upcoming increase in assets inflating its share price. 

What do the new rules involve?

The new SPAC rules introduced by the FCA are designed to make the UK a more attractive place for SPACs – as well as to protect investors. Previously, SPACs had to suspend their shares when announcing a deal, protecting investors from any big jolts in price during the process. 

As of August 10th, this will no longer be required. However, there are other stipulations. The minimum amount needed to be raised at listing will be reduced from £200m to £100m and, in limited circumstances, some SPACs will be given an extra six months to complete takeovers “where a transaction is well advanced”. 

In addition, extra investor safeguards have been added to “promote investor protection and the smooth operation of our markets”. 

Are SPACs a good investment? 

The FCA warns that “SPACs continue to have risks and remain a more complex investment, which investors should ensure they can adequately assess and understand before investing”. However, despite having been around for years, this form of investing is becoming more and more popular as a result of the volatility that COVID-19 has caused. CNBC reports that, while some companies have postponed their IPOs because of this volatility, others have gone down the SPAC route thanks to its potential speed. 

The industry warns that, while some SPACs can certainly provide good returns – either in the short or long term – it depends on how successful they are in finding a strong acquisition target, and whether that target company has a bright future ahead. What the FCA is hoping is that its new rules will make investors better protected, meaning interest in this investment type could grow. 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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