South Korea's financial regulator is preparing countermeasures as short-term speculative trading expands in the special purpose acquisition company (SPAC) market, even as the overall market continues to shrink annually.
According to the "SPAC Market Investment White Paper" released by the Financial Supervisory Service (FSS) on the 22nd, only 25 SPACs were newly listed last year—a 37.5% decline from 40 in 2024. SPAC initial public offerings have been on a downward trend over the past four years, falling from 45 in 2022 to 37 in 2023.
The merger success rate, which had held steady in the 60% range from 2021 to 2024, plummeted to 38.5% last year. While 15 SPACs successfully completed mergers in 2024—two fewer than the previous year—the number of delistings due to failed mergers surged to 24, up 16 from the prior year.
SPACs currently pursuing mergers are also aging significantly. As of the end of last year, 78 SPACs were searching for merger targets: 32.1% were in their first year since listing, 43.6% in their second year, and 24.3% in their third year. First-year SPACs declined 17.9 percentage points from the previous year, while third-year SPACs increased by 9.3 percentage points. SPACs that fail to complete a merger within three years of listing are liquidated.
The concern is that despite the clear market contraction, SPAC share prices frequently surge to double their offering price on listing day. Shares starting at 2,000 won rose to an intraday average of 4,067 won before falling back to an average of 2,227 won. An analysis of 14 SPACs that had passed three months since successful merger completion showed most experienced share price declines after listing, with losses widening over time.
SPACs are shell companies established with the sole purpose of pursuing mergers and acquisitions. Since they do not aim to generate profits, evaluating their performance or growth potential is difficult, and they typically attract little investor interest until a merger target is identified.
In response, the FSS plans to strengthen its review of SPAC disclosure documents. The regulator also intends to expand consumer alerts and provide guidance on key considerations for SPAC investors.
"The dramatic price swings on SPAC listing days represent irrational behavior by investors who do not properly understand the characteristics of these financial products," the FSS said. "We will study various examples from advanced overseas markets to develop measures for the rational development of SPACs."
