Financial Advisors Recommend Steering Clear of SPACs

Posted on April 5th, 2021 at 12:20 PM
Financial Advisors Recommend Steering Clear of SPACs

From the Desk of Jim Eccleston at Eccleston Law LLC:

While special purpose acquisition companies (SPACs) have become popular among investors,  most financial advisor refuse to handle them.  That is because while SPACs are leveraging celebrity endorsements to drive investor demand, financial advisors are struggling to protect customers from the risks associated. 

For example, a senior advisor at Atlas Fiduciary Financial stated, “SPACs are a gamble not based on a company with a solid business model that has proven to provide goods and services people want and therefore are not expected to earn future profits.” The senior advisor added, “This cannot be called an investment.” 

SPACs are tracked by SPACInsider, which counts 276 of the companies going public since the start of 2021, compared to 248 for 2020, and 59 in 2019. 

SPACs are similar to some private equity investing and certain hedge fund strategies in that investors give their money expecting the fund managers to invest in multiple businesses for a profit. With SPACs, the blank-check company sells shares through the public equity markets  with the intention of buying a single private company  within two years after the initial public offering (IPO). 

The new interest in SPACs corresponds with the surge in technology stocks. Many of the current SPACs are looking for deals in technology, healthcare and energy transition with promising futures that have yet to materialize. Paul Schatz, president of Heritage Capital stated, “In normal times, SPACs are very valuable and good tools for a sponsor to affect an outcome.” 

Eccleston Law LLC represents investors and financial advisors nationwide. Please contact us to discuss any issues that you may have.

Tags: eccleston, eccleston law, recommendations, spacs

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