SPACS: Special Purpose Acquisition Companies

The SPAC (special purpose acquisition company) market has undergone a transformation over the last few years. SPAC IPOs make up an ever-increasing chunk of the overall US IPO market every year. SPACs have grown from a shunned fundraising vehicle to a sophisticated financing tool that now attracts billions of dollars in investment, sophisticated market players and advisers, and results in billion-dollar acquisitions.

What is a Special Purpose Acquisition Company (SPAC)?

SPACs are non-operating companies that essentially consist of a seasoned management team, called the sponsor. The sponsor forms a SPAC to raise capital through an IPO. It files an S-1 registration statement with the Securities and Exchange Commission to do so and then uses that capital to acquire and operate a business. The investors in a SPAC are looking to combine the skill and expertise of an experienced management team with an operating business that has the potential to grow and become a publicly traded entity, but does not have the funds or the expertise to do so on its own. Many private companies use the SPAC structure to become publicly traded entities.

SPACs and COVID-19

Recent COVID-19 driven market volatility and turmoil has grounded numerous traditional IPO plans, but is proving beneficial to SPACs. SPACs have been touted as a safe asset class because they hold their IPO-raised funds in trust prior to entering into an investor-approved acquisition and allow the investors to redeem invested funds.

Getting a SPAC through an IPO and the De-SPAC

Like other sophisticated finance and acquisition vehicles, SPACs face many hurdles as they go through the IPO and the subsequent business combination. However, with some smart planning and the help of the right advisors, SPACs can take advantage of several insurance options that can help them achieve their goals while minimizing risk.

Woodruff Sawyer, a market leader for placing IPO Directors and Officers (D&O) insurance, has a dedicated SPAC IPO practice with an experienced team. We are also a nationally recognized leader when it comes to Representations and Warranties (RWI) insurance, a critical element of the SPAC M&A process.


RWI policies aren’t just for big deals anymore. The minimum limits for these policies have come down from $5 million to, in some cases, $2.5 million. Minimum premiums now range between $150,000 to $200,000 and fierce competition among 20+ insurers has significantly driven down the policy premiums from 4%–4.5% of the policy limit bought to 2.5%–3.0%, dipping even lower for larger deals. RWI insurance being placed for transactions with enterprise value as low as $20 million is no longer unheard of.

And this kind of insurance coverage makes a lot of sense for SPAC management teams and for their targets. SPAC sponsors can put forth a much more attractive offer when the offer is backed by an RWI policy, while the target entity can minimize escrow and indemnity. Because RWI is now almost a market standard in an auction process, is widely used by PE firms and is likely to be offered and used by the rest of the competition, excluding RWI from its offer effectively puts a SPAC buyer at a serious disadvantage.

For SPACs that are under extra pressure to close their acquisition transactions before their post-IPO 18- or 24-month deadline runs out spending management time and efforts on failed auction processes or extensive purchase agreement negotiations can be fatal.

Special Purpose Acquisition Companies Need D&O Coverage

Operating companies that go through an IPO process are sued frequently and for a variety of reasons. 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. The vulnerability brought on by public company exposure creates a need for directors and officers (D&O) liability insurance coverage for the SPAC’s management team and its existing board. Moreover, a majority of a SPAC’s board must consist of independent board members to satisfy stock exchange listing rules. Professionals who serve as independent board members typically do not accept a board appointment without a good D&O insurance already in place.

How We Can Mitigate Your SPAC Risk

Our experts can lead you through the complexities of your exposures, with services in:

  • Directors & Officers coverage for your management team before and after the IPO
  • M&A Representations & Warranties Insurance for your business combination
  • Risk management and claims support at all times
  • Creative company and deal-specific solutions, including:
    • Errors & Omissions Coverage
    • Cyber Liability
    • Tax Liability
    • Contingent Liability

What Your D&O Insurance Broker Must Know

Given the quickly changing nature of the D&O insurance market, the peculiarities of SPAC IPO companies, and the high cost of D&O insurance for IPO companies, choosing the right insurance brokerage is a must. Working with an insurance broker who merely works with a lot of public companies will not optimize your outcome. To get the best D&O insurance coverage at the best possible price, it is critical that your D&O insurance broker has extensive and current experience working with IPO companies. In addition to having the expertise to recommend the best insurance policy placement options, it will benefit you if your broker also has extensive experience managing claims for IPO companies.

To learn more about our brokerage and consulting services for SPACs, please contact Priya Huskins at, Dan Berry at, or Yelena Dunaevsky at

Information and Features

Read our blog posts and publications, such as our Guide to Insurance for SPACs, for expert insights and perspective on insurance and risk management specific to SPACs:

Insights and Advice for SPACs – Woodruff Sawyer blogs and eguide

Why More SPACs Could Lead to More Litigation (and How to Prepare) – Woodruff Sawyer featured insight.

“Why SPACs Are Turning To Reps And Warranties Insurance” – feature article in Law360

“Developments in the Special Purpose Acquisition Company (SPAC) Market” – feature article in Business Law Today

Insights for Directors and Officers D&O Notebook blog series

Insights related to Mergers & Acquisitions M&A Notebook blog series

SPAC Mid-Year Update Webinar Recording and Resources – SPAC event resource page

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