[SPACs in Crisis ②] Stricter IPO Reviews Lead to SPAC Bottlenecks... Exit Market Diversification Needed

Listing Reviews Toughened After Padu Incident
SPAC Listing Review Periods Continue to Lengthen
"Mid-Size Market Needs to Develop"

Editor's NoteSpecial Purpose Acquisition Companies (SPACs) once attracted attention as a new listing channel for unlisted companies and as a supplement to the venture investment exit market. However, there are growing concerns about the contraction of the market recently, as cases of failed mergers and delistings have surged. On the other hand, some in the market argue that SPACs still serve as a listing gateway for small and medium-sized growth companies. The Asia Business Daily examines the current state of the SPAC market, the structure of the VC exit market, and the challenges of institutional reform between investor protection and market revitalization in a three-part series.

The strengthened initial public offering (IPO) review process for screening quality companies is also impacting SPAC listings. As options for companies unable to list directly become even more limited, voices are calling for diversifying exit strategies beyond IPO-centered recoveries.

In Korea, IPO Dominates the Exit Market... U.S. Focuses on M&A

According to the Korea Venture Capital Association (KVCA) on June 23, the proportion of exits by domestic venture capital firms and funds through IPOs has been increasing each year. The IPO share, which was 24.3% in 2022, rose to 32.3% in 2023, 30.6% in 2024, and reached 37.3% last year. Meanwhile, the share of exits through sales dropped from 56.5% to 48.7% over the same period. Other exit types remained in the single digits: redemption at 7.4%, project at 5.3%, and others at 1.3%. The IPO category includes all listings on KOSPI, KOSDAQ, and KONEX, while sales include disposals following M&A after investment and off-market sales.

This is a very different structure from the United States, where the proportion of M&A in exit routes exceeds 80%. In the U.S., M&A overwhelmingly dominates as an exit channel, while IPOs account for less than 10%. Europe is also known for having a low IPO share and utilizing various other exit methods.

Stricter Reviews for 'Overvalued' IPOs... SPACs Experience the Same Bottleneck

The IPO-centric exit market has faced backlash in the form of stricter reviews, driven by market participants seeking short-term gains, as seen in the "Pado incident." In 2023, Pado, a data center semiconductor specialist that went public on KOSDAQ through the technology exception system, posted results far below expected sales, undermining trust in the capital market system. This is why financial authorities and the Korea Exchange have no choice but to tighten listing requirements and make reviews more stringent.

Stricter reviews lead to IPO bottlenecks. According to the Korea Exchange's listing disclosure system (KIND), as of June 4, of the 14 companies that applied for a preliminary KOSDAQ review before April 2, only three received review results within the typical period. Under KOSDAQ listing regulations, domestic companies must be notified of review results within 45 business days from the date of submitting the preliminary listing review application. If document corrections or supplements are required, the exchange may postpone the announcement of results.

The IPO bottleneck is also evident in SPAC listings. Over the past year, among 11 companies that applied for preliminary reviews for SPAC extinction or survival mergers, only one was approved for review and three for listing approval. None of these companies received preliminary review results within 45 business days. Four of the 11 companies withdrew from the review process. Although merging with an already listed company offers procedural speed as an advantage, SPAC listings essentially follow a similar preliminary review process as direct listings. Professor Kim Yongjin of Sogang University’s Department of Business Administration noted, "SPACs follow procedures similar to general listings," adding, "Since these are merger listings, it may be worth considering handling them with procedures equivalent to mergers rather than listings."

‘Ambiguous for Listing’ Companies Struggle... "Need to Diversify Exit Market"

When SPAC mergers are blocked in an IPO-centered exit market, exit options become even more limited for small and medium-sized companies that cannot meet direct listing requirements. According to Heungkuk Securities, from 2016 to April 2016, the market capitalization of companies based on SPAC merger standards was concentrated in the KRW 50 billion to KRW 100 billion range. In contrast, most companies with general KOSDAQ listings had market capitalizations of KRW 100 billion to KRW 300 billion.

As a result, experts point out that diversifying the exit market is essential for revitalizing the capital market. Choi Jaewon, Professor of Economics at Seoul National University, said, "Development of the mid-size market, where venture capital (VC), private equity fund (PEF) managers, and institutional investors help grow mid-sized companies through investments such as new and existing share sales, is necessary." At the ‘K-Capital Market Special Committee Seminar’ held at the National Assembly last month, there were calls for making M&A tax support permanent and dualizing the secondary market to vitalize M&A and the secondary market.

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