Guide to D&O Insurance for De-SPAC Transactions, 2023 Edition

While it’s true that the recent SPAC craze has significantly cooled, there are still more than 300 SPACs searching for a deal, according to SPAC Insider. The good news for those still searching for a deal is that there isn’t a huge number of new SPACs flooding into the market. So far, there have been less than 10 SPAC IPOs in 2023.

The bad news is that—as we all know—it’s become a tough market for accomplishing de-SPAC transactions. Still, with 300-plus SPACs searching, there are sure to be some interesting de-SPAC transactions in 2023. Indeed, for the right company, a de-SPAC transaction will be an effective way to obtain funding and enter the public markets.

Your public company’s D&O insurance program must be ready to bind before your stock starts trading on a public exchange. Placing D&O insurance for de-SPAC transactions is complex. It is made even more complex if you are a foreign private issuer listing on a US exchange.

The 2023 edition of Woodruff Sawyer’s Guide to D&O Insurance for De-SPAC Transactions aims to demystify the process. In it, you will learn how to align the D&O insurance program with key milestones in a de-SPAC transaction. Access the guide below and read on for highlights.

SPACs and Litigation

The right D&O insurance program is key for protecting against litigation after a de-SPAC transaction.

This is true notwithstanding the fact that litigation against de-SPAC companies slowed in 2022 compared to 2021. Much of the 65% decline can be attributed to the fact that there have been fewer de-SPAC transactions. If traditional IPOs are a good analogy—and they are since that is the other time we see young companies exposed to public company scrutiny—then SPACs will continue to be a target of litigation by the plaintiffs’ bar.

SPACs will also face an enhanced threat of liability if the Securities and Exchange Commission’s proposed rules, issued in March 2022, are finalized. The SEC is eager to ensure that de-SPACs are held to the same heightened liability standards faced by IPO companies.

Key Milestones in a De-SPAC Transaction and
Your D&O Insurance Program

The following is an overview of the key steps in placing your D&O insurance program in accordance with milestones in your de-SPAC transaction:

As you gear up for an IPO, your broker will help you with the D&O insurance process, including the following four phases:

1. Preparation: Your D&O insurance broker needs to start moving around the time you’re considering a business combination and filing your 8-K. This, of course, means you need to have identified a qualified broker, which—in and of itself—can take time. Ideally, you have already selected a broker, and this broker goes to work on the strategy piece right away. This includes evaluating the entire existing insurance program and offering governance counseling.
   
   
2. Launch: Another milestone for a de-SPAC transaction is filing the S-4 registration statement with the SEC. This is when your broker helps you refine the details of the D&O insurance program that will protect you as a public company. This includes refining limits, negotiating the policy form on your behalf, and presenting the insurance program to management and the board.
   
   
3. Implement: Here is where the program gets finalized and the broker binds the program just in time for the completion of the business combination and the first day of trading on the market.
   
   
4. Ongoing support: Broker support should not stop on the first day of trading. Your D&O insurance broker should be available for counseling, support for new corporate activities, board training on D&O risk and corporate governance, and claims advocacy.

For more detailed information on how to time your D&O insurance program with each milestone in a de-SPAC transaction, access the 2023 edition of Woodruff Sawyer’s Guide to D&O Insurance for De-SPAC Transactions below:

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