What Is a SPAC

A SPAC (Special Purpose Acquisition Company) is a company set up for the sole purpose of acquiring and merging with another company. At the time of listing it has no actual business and no target company to acquire, so it's also called a 'blank-check company.'

The order is the opposite of a normal listing. Usually a company that runs a business goes public (IPO), but a SPAC is an empty shell company that lists first to raise money, then uses that money to find a promising private company and merge with it. The private company that gets merged naturally becomes a listed company. In other words, a SPAC acts as a 'back door to listing.'

① Formation and listing: a sponsor (promoter) creates the SPAC and raises funds via IPO. The sponsor usually holds about a 20% stake (founder shares), and public-offering investors hold the rest.

② Fund custody: most of the money raised is placed in and held in a trust account. It can't be used carelessly.

③ Finding a merger target: within a set deadline (usually 18–24 months in the U.S., usually 3 years in Korea), it must find a company to acquire and merge with it.

④ Shareholder vote and redemption: when a merger proposal comes out, shareholders vote for or against. If they don't like it, they can request redemption—getting their shares back at the original offering price (usually about $10 per share; in Korea based on par value).

⑤ If the merger fails within the deadline: the SPAC is dissolved and liquidated, and the money in trust is returned to investors.

In the United States, SPACs exploded in popularity in 2020–2021. In 2021 alone, 613 SPACs listed and raised about $145 billion, and at the peak that year, about 64% of all U.S. IPOs were SPACs.

But what followed was the problem. Because there were far more SPACs than good companies to acquire, many failed to merge and were liquidated. Of about 986 U.S. SPACs listed since 2020, 362 were liquidated, and in particular, of the 613 listed in 2021, about 162 (roughly 36%) were liquidated.

Even cases that succeeded in merging often had poor performance. According to one tally, companies that went public via SPAC merger on average suffered large declines. In effect, the market learned expensively that the SPAC 'structure' does not guarantee a good investment.

SPACs look safe because 'principal can be redeemed,' but there are hidden risks.

Dilution: the sponsor's roughly 20% stake and separate warrants dilute the value of existing shareholders' stakes. Per-share value can thin out after the merger.

Opportunity cost: if no merger target is found, you get your principal back, but in the meantime you miss the returns that money could have earned elsewhere.

Post-merger slump: as seen above, the merger itself does not guarantee success. It was common for the share price to fall sharply after a merger announcement.

A SPAC is a product with a complex structure and wide variance in outcomes. The perception that 'it's safe because it's listed' is dangerous.