SPACS: Special Purpose Acquisition Companies

What are Special Purpose Acquisition Companies (SPACs)? 

SPACs are special purpose, non-operating companies that consist of a seasoned management team, called the sponsor, which raises capital through an IPO, then uses that capital to acquire and operate a business. 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.

The SPACs (special purpose acquisition companies) 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.

SPACs and COVID-19

Recent COVID-19 driven market volatility and turmoil has slowed down numerous traditional IPO plans, but has proved incredibly 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.

When thinking about insurance for a SPAC, it is helpful to think in terms of the SPAC’s life cycle. From an insurance perspective, there are three main phases:

Phase One: IPO

The main assets of SPACs as they go through the IPO process are their management team, the management team’s investment strategy, and the SEC’s approval of the SPAC Form S-1 registration statement.

Phase Two: SPAC Business Combination

After the IPO, SPACs have the funds to purchase or merge with another company. The SPAC’s management team must find an attractive target and complete the merger or acquisition, typically within 18 to 24 months after the IPO. When the management team approaches potential acquisition targets, which are typically private companies, M&A representations and warranties insurance (RWI) comes into play. However, the management team must also consider and plan for D&O insurance coverage of the post-business combination entity.

Phase Three: SPAC Operations

At this point the combined company is up and running—and carrying with it all the attendant risks of an operating public company. As such, the company needs to be ready for public company scrutiny, which calls not only for ongoing compliance with all necessary regulations, but for a review and usually an upgrade of the company’s overall insurance coverage. This can mean upgrading everything from the company’s property insurance to the company’s cyber liability insurance.

Learn more about trends in the de-SPAC process.

Woodruff Sawyer is a leading insurance broker in the SPAC market, protecting tens of billions of dollars in SPAC assets.

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 insurance carriers are also more efficient in their diligence review process, which allows them to reduce the processing time of the policy to between one and two weeks. In addition, some of the policy exclusions that used to be standard a couple of years ago have been curtailed or even eliminated. The exclusion for COVID-19 related losses has been pared down substantially and can be narrowed significantly, depending on the target company’s particular situation.

The representations and warranties insurance coverage makes a lot of sense for SPAC management teams and 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.

D&O Costs are Increasing

The litigation environment has gotten much worse recently as a consequence of a 2018 Supreme Court decision, Cyan v. Beaver County Employees Retirement Fund. Lawsuits are now brought in multiple jurisdictions, including federal and state courts. Plaintiff law firms have been quick to capitalize on the Supreme Court’s ruling, which in turn has driven up the cost of D&O insurance dramatically for new IPO companies compared to the cost for mature public companies.

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.

Learn what a Special Purpose Acquisition Company is, how it functions, and what specific insurance coverages are essential during and after the process.

How is a SPAC like a Reverse Merger? Read more about the reverse merger process and its advantages and disadvantages.

A SPAC is the most popular type of Blank Check Company; find out more about how these companies work.

Learn about SPACs and Reverse Triangular Mergers.


Contact Us

To learn more about our brokerage and consulting services for SPACs, please contact:


SPAC Securities Class Actions – Featuring Yelena Dunaevsky and Emily Maier

A person sitting at a desk with a laptop computer, focused on work

SPACs Poised to Turn a Corner in 2024: Annual Risk Update

It’s not all doom and gloom in SPAC-land. There are still good deals to be made using the SPAC vehicle, despite the media’s insistence on painting a different picture.

Read More »
Stack of papers

SEC Finally Finalizes the SPAC Rules

To help us make sense of the 581-page release, we spoke with securities offerings expert Anna Pinedo, a partner in the New York office of Mayer Brown.

Read More »
man analyzing the graph of the stock market

SPAC Risk Update with Doug Ellenoff: What to Expect in 2024

SPAC experts Yelena Dunaevsky and Doug Ellenoff evaluate SPAC activity in 2023 and discuss what to expect this year.

Read More »
Board of Directors meeting room

The Ins and Outs of D&O Indemnification Agreements

Learn about D&O indemnification and SPACs from Yelena Dunaevsky and special guests James Hu, M&A partner at White and Case, and Chauncey Lane, transactional partner at Holland and Knight.

Read More »
Boardroom tabletop with documents and meeting notes

SPAC Current Events Roundup: SPARCs, Settlements, and Liquidations

To celebrate the two-year anniversary of the SPAC Notebook, we’ve curated a list of recent SPAC developments that are worth keeping an eye on.

Read More »
legal department signing document

SPAC Bankruptcies: Challenges and Practical Tips

We spoke with two industry leaders to analyze the issues involved in SPAC-related bankruptcies and provide tips for newly de-SPACed companies facing bankruptcy or restructuring.

Read More »
SPAC Boardroom with paperwork on tabletop

Are SPAC D&O Tails Still Worth Buying?

With a sudden SPAC D&O market shift, the standard practice of electing a tail to cover the SPAC’s directors and officers post-merger will likely fade into history.

Read More »
Working on project with laptop and paperwork

SPAC Litigation Mid-Year Update: Delaware Opens the Gates

With SPAC IPOs virtually gone but SPAC mergers (aka de-SPACs) continuing at a steady pace, how can the current litigation and regulatory risks be avoided, or at least minimized?

Read More »
Wall Street sign with Woodruff Sawyer shield

Guide to D&O Insurance for SPAC IPOs, 2023 Edition

Our Guide to D&O Insurance for SPAC IPOs will help you take a sophisticated approach when it comes to securing the right D&O insurance coverage for your SPAC.

Read More »
Business people shaking hands

SPAC Mergers with Public Companies: A New Trend?

Some SPACs are acquiring public companies, which presents us with interesting questions. We talked to two industry experts to sort out some of these legal, financial, and insurance issues.

Read More »
Business people using calculators

1% Excise Tax, SPACs, and Independent Director Personal Liability: The Rock and the Hard Place

The Inflation Reduction Act of 2022 includes a 1% excise tax on stock repurchases by certain publicly traded corporations. Unfortunately, there is a lot of uncertainty surrounding how the excise tax applies to SPACs

Read More »
gavel scales courtroom

SPACs: Delaware Opts Out of “Untold Chaos”

Last week, the Delaware Court of the Chancery issued a decision that restored relative peace to dozens of SPACs whose capital structures were called into question by a prior decision.

Read More »
Lawyer writing contract justice scale

A Discussion of the Current SPAC Litigation Environment

What’s the latest in SPAC litigation and enforcement? Woodruff Sawyer’s Yelena Dunaevsky discusses these topics with SPAC attorneys at Holland & Knight.

Read More »
Woman working on data charts

SPAC Litigation by the Numbers: Surprisingly Positive Trends in 2022

Tumultuous, exasperating, difficult, nerve-wracking, and frustrating are all apt descriptions of the 2022 SPAC market and the hard data yields some surprising trends and conclusions.

Read More »
businessmen shaking hands over deal

SPAC Recap with Doug Ellenoff: A Rocky 2022

After a rocky 2022, Doug Ellenoff is optimistic about the SPAC market in 2023.

Read More »
Team meeting with charts

Two Hot Button SPAC Issues as We Wrap Up 2022

SPACs have been through a lot this past year. As we approach the end of 2022, we address two questions that are top of mind for many SPAC teams right now.

Read More »
woman reviewing tablet notebook

SPAC Notebook: A Year in Review

For a year now, the SPAC Notebook helps our readers negotiate the risks and traps of the SPAC market.

Read More »
businessmen reviewing contract

SPAC Liquidations and Extensions Create D&O Insurance Riddles: Part 2

Many SPACs may be looking to liquidate and unless the company has purchased tail coverage, the D&O insurance policy also expires.

Read More »
business man woman shaking hands graphs papers

SPAC Liquidations and Extensions Create D&O Insurance Riddles: Part 1

What happens to D&O insurance policies and coverage if you need an extension to close a SPAC deal?

Read More »
Modern glass skyscrapers at sunset

SPAC Deals Gone Sour: Questions to Consider and Problems to Avoid

Since the SEC announced its proposed rule changes, the SPAC market has been in turmoil. Learn about what’s going on now and what we expect in the future.

Read More »
stock market graphs

SPAC Market in Limbo: Takeaways from the Annual SPAC Conference

Read highlights from the annual SPAC Conference organized by DealFlow Events that discuss latest developments, trends, innovations, and areas of concern.

Read More »
Sunny walkway with glass wall

Insurance For SPACs Just Got a Lot Better

Read more for insight into what this means for SPAC deal teams, what steps they should take, and the costs of an RWI policy.

Read More »
Buildings blue sky sun flare

Taking Stock of SPACs: 2022 Trends in Review

Read more for insight into what is impacting the SPAC market as well as a few interesting trends that may inform current and future plans for our SPAC clients and friends. 

Read More »
Low angle view of modern skyscraper buildings

What Will the SEC’s New SPAC Rules Bring to the Troubled SPAC Market?

Read more for insight from Mike Blankenship and Yelena Dunaevsky about the proposed SEC rules and SPAC market pressures.

Read More »
Columns on Supreme Court Building in Washington DC

Another SPAC Lawsuit That Could Have Benefitted from a Reps Policy

Read more for insight into this case as well as how reps and warranties insurance is a good solution for protecting a SPAC merger.

Read More »