SPACs, beneficial for large investors but not for retailers, according to the Bank of Spain

MADRID Nov. 1 () –

Special purpose acquisition companies (known as SPACs), a vehicle that became the main way to go to market in fiscal years 2020 and 2021 but has already fallen into disuse to the detriment of traditional Public Offering of Sale (IPO), served for large investors to obtain positive returns, while retailers had to deal with losses.

This has been expressed by the Bank of Spain through a report titled ‘Navigating the global rise and fall of SPACs’ and which addresses the period in which this medium attracted the interest of investors by presenting itself as a potentially faster and more flexible for the IPO of certain companies.

In this sense, the organization has stated that this model raises important concerns for investors due to the inherent information asymmetry and possible conflicts of interest, since its structure encourages sponsors to complete a business combination to secure a shareholding. substantial and involves often “hidden” costs that must be borne by the final shareholders.

Furthermore, separating warrants and shares allows some investors, primarily hedge funds, to strategically minimize risk (i.e. redeem their shares) and maximize profit potential ( maintaining their warranty rights).

“This creates a situation in which sponsors and hedge funds can benefit disproportionately compared to retail investors,” the Bank of Spain has stressed, going on to attribute that the former have generally obtained positive returns with this formula while the seconds have suffered losses.

More broadly, the report found that these concerns about the structure of SPACs and negative outcomes for retail investors have led to increased regulatory oversight and contributed to the rapid decline in SPAC activity since 2022.

However, in some jurisdictions this tool continues to be used -albeit to a lesser extent- to make the jump to the stock market, as exemplified by Truth, the social network of US election candidate Donald Trump, which debuted last March on the index. Nasdaq with a SPAC with Digital World Acquisition Corp.