SPAC (Special Purpose Acquisition Company) is an investment structure that has gained attention in the global capital market in recent years. Often referred to as a ‘paper company,’ a SPAC exists only to acquire and list unlisted companies, without any actual business activities. This structure reduces the procedures and costs for listing and serves as a fast track for promising unlisted companies to enter the capital market.
The basic structure of a SPAC is simple. It first raises capital from investors through a public offering and then lists on the stock exchange. Within a set period, it searches for an unlisted company to acquire. If the SPAC fails to identify a merger target within typically three years, it is automatically liquidated and the invested capital is returned to the shareholders. The essence of SPAC lies in preparing for a ‘future acquisition’ by gathering the capital in advance.
While regular listing procedures require a company to directly undergo the stock market’s review, a SPAC allows for ‘backdoor listing’ via mergers and acquisitions (M&A). For instance, if an unlisted company A wants to list on the KOSDAQ market, it can meet the listing requirements immediately by merging with an already listed SPAC. This method shortens the process and reduces uncertainty in the public offering market, making it attractive to startups and growth companies.
SPAC offers advantages to both companies and investors. For unlisted companies, it minimizes the time and costs taken to list, and SPAC investors can participate in the early public offering stage with relatively low risk. If liquidated, principal protection is possible, and if the merger is successful, high returns are expected. In fact, there was an explosive increase in SPAC listings in the USA between 2020 and 2021, leading to a ‘SPAC boom.’
However, not everything about SPAC is positive. The biggest risk with SPAC is ‘bubble.’ If it merges with a company whose acquisition purpose is unclear or has low intrinsic value, investor losses can be substantial. Some SPACs appeal to investors using celebrities for attraction but often face poor performance after the merger. To address these issues, the U.S. Securities and Exchange Commission (SEC) has strengthened regulations on SPAC and implemented measures to protect investors.
In Korea, the SPAC system was introduced in 2009. They are only allowed to list on the KOSDAQ market, and the funds raised through public offering are placed into trust accounts. If the merger is not completed within three years, the funds, including principal and interest, are returned. The merger target company gets certain exemptions from listing requirements but must pass the KOSDAQ Market Committee’s review.
Recently, technology-based startups and unlisted bio-companies are attempting to go public through SPAC mergers to secure market funding quickly while avoiding complex procedures. Especially during times of rising interest rates or a depressed public offering market, SPAC is gaining attention as an alternative listing tool.
Investors should be aware of the uncertainty in the post-merger company’s value. At the SPAC stage, it is challenging to assess the company’s value due to the lack of actual operations, and stock price volatility is high, depending on the financial condition or growth potential of the merged company. Experts advise that investors thoroughly investigate the SPAC sponsor’s (founder’s) and merge candidates’ industry competitiveness.
SPAC is essentially a ‘financial platform where opportunity and risk coexist.’ It offers companies a fast track to growth and provides investors with a new revenue model, but its foundation lies in transparent information disclosure and sound market operations. Reckless speculative approaches can ultimately undermine market trust. Therefore, institutional improvements and investor education must go hand in hand for the sustainable development of SPACs.
