Beware of investing in SPACs, EU markets watchdog tells investors

FILE PHOTO: European Union flags flutter outside the European Commission headquarters in Brussels, Belgium, March 24, 2021. REUTERS/Yves Herman/File Photo/File Photo

LONDON (Reuters) – Investing in special purpose acquisition companies (SPACs) may not be appropriate for everyone, and additional action may be needed to preserve investor protection, the European Union’s markets watchdog said on Thursday.

SPAC transactions, which have soared in popularity on Wall Street and more recently in Europe, “may not be appropriate for all investors” due to risks relating to dilution, conflicts of interests and uncertainty as to the identification and evaluation of the target company, the European Securities and Markets Authority said in a statement.

A SPAC is a company with no commercial operations that is formed to raise capital through an IPO for the purpose of acquiring an existing company.

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