The domestic Special Purpose Acquisition Company (SPAC) market, once a pathway for unlisted quality firms to go public, is facing a significant downturn. Many SPACs are at risk of dissolution due to their inability to find suitable merger targets after going public. Concerns are growing that SPAC listings in South Korea are nearing a crisis. This trend contrasts sharply with the U.S. SPAC market, which has shown a clear rebound after enduring a wave of regulatory challenges from the Securities and Exchange Commission (SEC). Industry experts are calling for comprehensive reforms to address the situation.
According to the financial investment industry, the number of SPAC IPOs in the U.S. reached 154 as of October 10, with a total offering amount of $30.156 billion. With three months remaining in the year, this figure has already surpassed the total number of IPOs in 2022, which was 144.
The U.S. SPAC market peaked in 2021 with 613 listings worth $162.5 billion. However, following the SEC's introduction of stricter regulations on inflated performance forecasts and disclosure obligations, the number of SPAC IPOs plummeted to just 31 in 2023, with a total offering amount of $3.8 billion. Nevertheless, the final implementation of the regulatory framework in July 2024 alleviated market uncertainties, leading to a rapid restructuring centered around quality sponsors and a successful rebound.
In contrast, the Korean SPAC market is in a state of crisis. During the COVID-19 pandemic, the IPO market thrived, and in February 2022, the introduction of the 'SPAC merger dissolution' method allowed unlisted companies to continue operating, sparking a historic surge in SPAC listings. Previously, SPACs had to remain as legal entities, which complicated the approval of unlisted companies' operational history and corporate succession. The new process significantly streamlined these requirements, making SPACs an attractive alternative for IPOs.
However, this boom was short-lived. Since last year, both new listings and merger attempts have sharply declined, and many SPACs are now struggling to find quality companies to merge with, leaving them to wait for their three-year expiration period.
Market analysts point to structural factors in the domestic market as the cause of the SPAC crisis. The prolonged high-interest rates have diminished the expected returns that make SPAC mergers attractive, such as the lack of discounts applied during the offering. Additionally, the increasing approval rates for traditional IPOs have significantly reduced the demand for SPAC listings among companies.
Moreover, measures taken by financial authorities and the Korea Exchange to raise the delisting market capitalization requirements have dealt a severe blow. Typically, unlisted companies seeking SPAC mergers are smaller in market capitalization, and the increased thresholds for delisting have led these smaller firms to prefer traditional listings or to delay going public altogether. As merger targets dwindle, securities firms are also losing the incentive to incur costs for new SPAC listings.
To address the sluggish SPAC listing issue, the Korea Financial Investment Association has excluded SPAC IPOs from the 'mandatory holding commitment priority allocation' since April 1, reducing the burden on underwriters to attract institutional investors. Consequently, the number of SPACs that submitted initial IPO registration statements from April to September this year increased slightly to nine (with a planned offering amount of 118 billion won) compared to the same period last year. However, this is still a 55% decrease in the number of companies and a 44.7% drop in the planned offering amount compared to the same period in 2024, which was a boom year for SPACs.
The unique 'underwriter-centric structure' of the domestic SPAC market has also proven to be a limitation. In global SPAC markets like the U.S., the capabilities of the CEO and sponsors to leverage their networks and identify companies are crucial to deals. In contrast, in South Korea, securities firms have been criticized for overissuing SPACs primarily for commission income and investment banking performance, while lacking the post-listing capabilities to connect with valuable unlisted companies.
An investment banking industry source expressed concern, stating, "If a listed SPAC fails to find a merger target within three years, it will be delisted, returning the principal and a modest interest to investors, leading to dissolution. If this trend of failing to find merger targets continues, it will inevitably undermine the overall credibility of the SPAC market."
* This article has been translated by AI.
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