Investors Alerted by BaFin Regarding Potential Risks in Investing in Spaces
Special Purpose Acquisition Companies (SPACs), once the realm of financially strong venture capital investors, are seeing an increase in listings on European exchanges. However, investing in these shell companies, which are founded to later acquire one or more unlisted companies, comes with significant risks.
One of the primary concerns is the lack of operating history and detailed financials for investors to analyze. As SPACs have no prior track record, risk assessment can be challenging, making it difficult for investors to gauge potential returns[1].
Another key issue is the time pressure associated with SPACs. These companies typically have a 24-month deadline to complete a merger or acquisition. If they fail to do so, they must be liquidated, and investors can only expect to get back their initial principal, minus fees[4].
In addition to these concerns, there are risks of dilution, valuation, and market risks. Founders’ shares and anti-dilution provisions can reduce the equity value held by public shareholders after the business combination, impacting returns[4]. Macroeconomic factors, sector-specific regulatory changes, or shifts in market sentiment can also adversely affect the valuation of the merged entity[4].
Regarding regulatory advice, European Securities and Markets Authority (ESMA) has highlighted the need for caution when investing in SPACs, especially for retail investors, due to the difficulties in assessing risks linked to the absence of historical financial data and the speculative nature of the investment[1]. While a direct quotation from BaFin, the German financial regulator, was not found, it is likely that they reinforce these warnings, advising retail investors to be aware of the high uncertainty and potential for loss inherent in SPAC investments.
In summary, retail investors should be particularly cautious with SPACs due to:
- Limited transparency on underlying targets - Time-bound pressure to complete deals - Possible dilution of their shareholdings - Sensitivity to market and regulatory changes
It is essential for investors to carefully consider these factors before investing in SPACs in Europe[1][4]. Moreover, investors should check if they are willing and able to bear the risks associated with investing in a SPAC, as these investments involve significant risks, including the difficulty in assessing chances and the risk of capital loss.
As of now, there are three SPACs listed on the Frankfurt Stock Exchange, including Klaus Hommels' Lakestar Spac 1, which listed in February and announced in June its intention to acquire the German vacation rental portal Hometogo[2]. Other recent listings include 468 Spac 1 and Obotech Acquisition, which listed in April and May, respectively[3].
Investors should exercise due diligence and seek professional advice before making any investment decisions. Confirmation emails have been sent, and clicking the button in the email activates the subscription. Remember, investing in SPACs is not a decision to be taken lightly.
[1] ESMA, "ESMA publishes Q&As on SPACs," 14 April 2021,
The investment strategy involving Special Purpose Acquisition Companies (SPACs) in finance requires a thorough understanding of the associated risks, as the lack of historical financial data and the time-bound pressure to complete deals can significantly impact potential returns.
Before engaging in SPAC investments, investors should carefully assess factors such as the risk of dilution, sensitivity to market and regulatory changes, and be prepared for the high uncertainty and potential for loss.
