In 2019, there were 59 SPAC IPO transactions—a record number, up from 48 in 2018. SPACs (special-purpose acquisition companies) continue to become a popular alternative and viable option for taking a company public.
As a reminder, a special purpose acquisition company (SPAC) raises capital in an IPO with the intention to acquire or merge with a private operating company and take it public.
Indeed, SPACs are special companies with special needs, notably when it comes to placing D&O insurance programs that cover management liability, and M&A representations and warranties insurance that facilitate the business combination.
Given that SPACs are not operating companies, their IPOs see far less litigation than typical IPO companies. However, lawsuits—usually alleging material misstatements and omissions in the IPO registration statement—against a SPAC’s management team and its directors are still possible.
In addition, M&A reps and warranties insurance, judiciously used in the SPAC’s business combination, can provide a crucial safety net to the buyer if the seller’s representations and warranties turn out to be flawed.
This type of coverage also allows SPACs to position themselves as competitive bidders in a strong, private equity-led seller’s market.
Knowing how to mitigate the specific risks that SPACs present and when to begin discussions with an insurance broker could mean the difference between a successful SPAC and a flop.
In Woodruff Sawyer’s Guide to Insurance for SPACs, we discuss the hurdles SPACs face as they progress from their IPO stage to their business combination stage.
At every stage, SPACs can benefit from a well-planned insurance strategy. Our guide provides tips on available insurance products and the best timing within the SPAC’s life cycle to consider and implement them.
For much more on how to think about insurance during a SPAC’s life cycle, the latest developments in D&O insurance and SPACs, and the use of M&A reps and warranties insurance, explore your copy of the Guide to Insurance for SPACs now.