10 Years Since Spec Introduction... 6 Out of 10 Companies Succeed in Mergers

[Asia Economy Reporter Eunmo Koo] It has been revealed that 6 out of 10 Special Purpose Acquisition Companies (SPACs) listed over the past decade have successfully completed mergers. SPACs are evaluated as providing promising small and medium-sized enterprises with stable funding and listing opportunities, while offering investors gains from increased equity value following mergers.

According to the Financial Supervisory Service on the 24th, since the introduction of SPAC listings in 2010 until last month, a total of 183 companies have been listed, of which 94 have either successfully merged or are in the process of merging. The merger success rate stands at approximately 64.3%. A SPAC is a nominal company listed through a public offering with the sole business purpose of merging with another corporation.

Recently, the proportion of SPACs in the KOSDAQ market has been steadily increasing. From 2010 to last year, SPACs raised a total of 1.9278 trillion KRW in the KOSDAQ market, accounting for 7.7% of the total stock public offering amount (25.1209 trillion KRW) during this period. Especially since 2014, SPACs have accounted for 20.4% of stock issuance cases (153 out of 751), establishing themselves as a useful funding method for companies in the KOSDAQ market.

On the other hand, the average public offering size has been decreasing. The average public offering amount for SPACs was about 26.9 billion KRW in 2010, but it shrank to approximately 9.65 billion KRW (159 companies) after 2014. Large SPACs faced difficulties in searching for and discovering merger targets, and after the capital requirement was relaxed in June 2014 (from 10 billion KRW to 3 billion KRW), the public offering size standardized to medium-sized amounts (8 to 10 billion KRW).

Post-merger performance has been mixed. While sales increased, many companies showed a decline in operating profit. Among 68 SPACs that successfully merged by 2018, 43 companies saw an average sales increase of 34.7% one year after the merger, and 30 of these companies experienced sales growth for two consecutive years. However, operating profit decreased in 42 companies due to expanded R&D expenses from the inflow of public offering funds and merger preparation costs, with 14 companies even turning to losses.

Conversely, mergers generally had a positive impact on stock prices. Among 85 SPACs that successfully merged by last month, stock prices rose by an average of 45.6% three months after the listing approval date compared to the public offering price. Of these, 67 companies saw an average stock price increase of 59.93%, while 18 companies experienced a 7.7% decline, indicating that merger announcements tend to act as positive news. Meanwhile, the stock price of merged companies increased by an average of 5.23% six months after the merger completion date and rose by an average of 11.14% after one year.

Considering the number of mergers, merger success rates, and market opinions, SPACs appear to have established themselves as a stable listing method in the KOSDAQ market. According to a survey conducted by the Financial Supervisory Service targeting securities firms with extensive SPAC operation experience, 87.5% of respondents evaluated that SPACs have become a listing method for promising unlisted companies on the KOSDAQ market. They cited reasons for utilizing SPACs as a listing method in the KOSDAQ market including value evaluation reflecting future profits (26%), difficulties in IR for small and medium enterprises (19%), and stable fundraising through public offerings (17%).

However, in the KOSPI market where large corporations list, difficulties in finding merger target companies, lengthy processes due to shareholder meetings, and a preference for IPOs due to negative perceptions of backdoor listings of unlisted companies were pointed out as issues needing improvement.

In response, the Financial Supervisory Service announced plans to revise disclosure formats to require detailed disclosure of key information such as executives’ M&A experience in securities registration statements to support investors’ rational investment decisions, and to review improvements to related systems for efficient SPAC operation.

This content was produced with the assistance of AI translation services.