Investors risk getting burned by the ‘frothy’ market for so-called Spacs, the boss of the London Stock Exchange has warned.
David Schwimmer said putting cash into special purpose acquisition companies (Spacs) could ‘end poorly’ and caution was required.
His comments came as LSE shares tumbled more than 14 per cent as investors were spooked by the costs of integrating data and analytics company Refinitiv, which it bought in January for £20billion.
Spacs, or blank-cheque companies, are acquisition vehicles that list and then hunt for private businesses to buy and bring to the stock market.
Listings of these firms have rocketed in New York and exchanges elsewhere are keen to jump on the bandwagon. UK officials are considering overhauling the listing rules to make it easier for Spacs to float in London.
But sounding a note of caution, Schwimmer said: ‘There is clearly some froth in the US market for Spacs. Some of that could end poorly for some of either those opportunities or some of those investors.’
He added that there have always been speculative cycles and Spacs did have a role to play in capital markets. But he warned that it was important investors use them ‘thoughtfully and carefully’.
His comments came as the LSE hiked its annual dividend by 7 per cent to 75p, following the completion of its takeover of data company Refinitiv in January. LSE said revenues grew 3 per cent to £2.1billion in 2020, while profits rose 5 per cent to £685m.
But shares dived as analysts at Citi warned that costs stemming from the Refinitiv takeover could be higher than expected. The 300-year-old LSE hopes to transform into a one-stop shop for data, trading and analytics through the Refinitiv deal.
‘While early days, the work we have done so far confirms the quality of the business and the extent of the opportunities across the group as we focus on integration and delivering the strategic and financial benefits of the transaction,’ Schwimmer said.