Strategic Implications of Horizon Space Acquisition I Corp's Termination for SPAC Sponsors and Investors

The termination of Horizon Space Acquisition I Corp's (HSPO) merger agreement with Squirrel Enlivened Technology Co., Ltd. in October 2025 offers a critical case study for SPAC sponsors and investors navigating the evolving market dynamics of 2025. This decision, marked by a $120,000 trust account extension and a $2.415 million deferred underwriting fee conversion into equity, underscores the strategic recalibrations required in a post-SPAC 3.0 landscape. For sponsors, the move highlights the necessity of liquidity management and liability restructuring, while for investors, it raises questions about the viability of SPACs under compressed timelines and heightened regulatory scrutiny.

Horizon's Termination: A Case of Financial Restructuring

Horizon's termination of its merger agreement with Squirrel Enlivened Technology Co., Ltd. was executed without penalties, a rare feat in SPAC transactions, according to Panabee. To secure a one-month extension of its merger deadline, the SPAC issued an unsecured promissory note to its sponsor, effectively converting a $120,000 cash obligation into 12,000 private units at $10.00 per unit, as Panabee reported. Simultaneously, the company restructured its deferred underwriting commission by converting $2.415 million into 805,000 ordinary shares at $3.00 per share-a 70% discount to the typical $10.00 redemption price, Panabee noted. This restructuring not only reduced contingent liabilities but also enhanced the SPAC's appeal to potential targets by aligning sponsor incentives with post-merger equity value.

Such strategies contrast with traditional SPAC termination practices, where sponsors often face litigation or reputational damage for abandoning deals. For instance, Quantum Fintech Acquisition Corp. sued Monex Group Inc. for $50 million over alleged sabotage of its merger plans, while Pioneer Merger Corp. faced a securities class action over retained termination fees, according to a Bain report. Horizon's approach, however, prioritizes financial flexibility over adversarial tactics, reflecting a broader industry shift toward pragmatic risk mitigation.

Broader Market Dynamics: SPAC 4.0 and Regulatory Evolution

The SPAC market in 2025 has entered a "SPAC 4.0" phase, characterized by stricter timelines, performance-based sponsor compensation, and enhanced SEC oversight, as Foley's analysis explains. Regulatory reforms, such as the SEC's 2024 rules mandating detailed disclosures on sponsor fees and conflicts of interest, have aligned SPACs with traditional IPO standards, according to a Harvard Law Forum piece. These changes aim to address historical issues like dilution-where SPACs contributed only $5.70 in net cash per share during the 2019–2020 boom, far below the $10.00 valuation benchmark described in that analysis.

For sponsors, the new environment demands disciplined target selection and reputational accountability. Repeat sponsors, such as private equity firms, now prioritize quality over speed, as their long-term credibility hinges on successful de-SPAC outcomes, Foley's analysis argues. Conversely, SPACs backed by celebrity sponsors or former executives face higher scrutiny, with investors increasingly favoring sponsors with proven track records in private equity or venture capital, as noted in a Columbia CBLR article.

Investors, meanwhile, are adopting a more discerning approach. The 2025 market favors SPACs in sectors with sustainable growth, such as healthcare and renewable energy, over speculative tech ventures-a trend highlighted in the Harvard Law Forum piece. This shift is evident in the success of SPACs like DraftKings and SoFi, which leveraged strong fundamentals and market readiness to deliver value post-merger, Foley observed.

Risk Management: Liquidity, Insurance, and Strategic Resilience

Horizon's termination also highlights the importance of liquidity management. As of June 2025, the SPAC reported a $3 million working capital deficit and only $13,259 in cash, with its trust account reduced by 68% due to redemptions, per the Foley analysis. This precarious financial position contrasts with the aerospace and defense sectors, where SPACs leverage M&A activity to reshape portfolios amid reduced private investment, as the Bain report shows.

To mitigate such risks, SPACs are increasingly securing affordable directors and officers (D&O) insurance, a cost-effective measure in the current competitive insurance market, Foley recommends. Sponsors are also adopting tailored liability coverage, such as general partnership liability (GPL) policies, to protect against litigation tied to post-merger governance issues, the Columbia CBLR article suggests.

For sponsors facing looming deadlines, strategic resilience is paramount. Nasdaq's 2024 rule limiting SPAC extensions to 36 months from the IPO date has intensified pressure to finalize deals within 18–24 months, a dynamic highlighted in the Bain report. Sponsors must balance speed with due diligence, avoiding rushed acquisitions that could jeopardize long-term value.

Conclusion: Lessons for Sponsors and Investors

Horizon Space Acquisition I's termination strategy exemplifies the adaptive measures required in SPAC 4.0. By restructuring liabilities and securing extensions through creative financing, the SPAC buys time to identify a viable target while aligning sponsor and investor interests. However, its liquidity challenges underscore the risks of operating under compressed timelines and high redemption rates.

For sponsors, the key takeaway is the need for proactive financial planning and regulatory compliance. For investors, the focus should remain on SPACs with credible sponsors, robust target pipelines, and transparent governance. As the market continues to mature, the ability to navigate termination scenarios with strategic agility will define the success of SPACs in the post-2025 era.