Guide to D&O Insurance for De-SPAC Transactions, 2024 Edition [Report]

It’s 2024 and, after the flurry of SPAC activity in 2020 and 2021, things are much quieter. Many are left wondering if the de-SPAC transaction pathway will continue to be a viable option for going public.

The answer is yes. Per SPAC Track, there have been 20 de-SPAC transactions this year through March 14. This compares to 29 operating company IPOs on US exchanges (a number that excludes the 4 SPAC IPOs that have taken place) during the same time frame.

Whether via traditional IPO, direct listing or de-SPAC transaction, new public companies are more likely to be sued than mature public companies.

For this reason, companies contemplating a de-SPAC transaction will want to arrange their Directors and Officers liability insurance before their stock trades on the public exchange.

Important note: Oh my, how have things changed since the SPAC/de-SPAC bubble burst.

Notably, pricing for the D&O insurance has come down very significantly – all the more so if all parties are interested in having a strategic conversation about combining coverage for the SPAC tail policy and the go-forward policy.

Placing this type of D&O insurance is a complex process and is best timed to key milestones in a de-SPAC transaction. Woodruff Sawyer’s Guide to D&O Insurance for De-SPAC Transactions, 2024 Edition, helps bring clarity to this process.

The State of SPAC Risks in 2024

In January 2024, the Securities and Exchange Commission finalized rules and regulations to enhance disclosures and implement other investor protections regarding SPAC IPOs and de-SPAC transactions.

The rules were designed to align de-SPAC transactions more closely with the liabilities of traditional IPOs.

My colleague Yelena Dunaevsky unpacked the 500-plus page release with Anna Pinedo, a partner in the New York office of Mayer Brown, including what areas will have the most impact on the SPAC markets, unexpected changes in the final rules versus the proposed rules, SEC enforcement actions and more.

New regulations can mean more legal liability for companies and their directors and officers involved in a de-SPAC transaction.

As highlighted in Woodruff Sawyer’s DataBox 2023 Year-End Report on securities class actions, de-SPACs are already being sued more often than IPO companies. The five-year average for filings against de-SPACs is 18% versus filings against traditional IPO companies at 13%.

Image Source: Woodruff Sawyer’s DataBox 2023 Year-End Report

While the de-SPAC merger itself became less of an issue in 2023, the plaintiff’s bar turned its focus on the subsequent performance of the company after going public.

There was also an uptick in direct action breach of fiduciary suits in 2023 brought in Delaware against SPACs and new types of lawsuits emerging against SPAC advisors.

You can learn more about this litigation landscape in the annual risk update for SPACs, and here’s a good overview of what is trending for SPACs as we head into the new year:

D&O Insurance and De-SPAC Transactions

If there is a de-SPAC transaction on your horizon, you will want an insurance brokerage that specializes in the D&O liability issues that arise before, during, and after going public.

The key to the best outcome is which brokerage you work with and how early you start. We recommend taking specific, strategic steps when placing D&O insurance, aligning with key milestones of the de-SPAC process.

Preparation Phase

Laying the groundwork for your D&O insurance program should start as soon as a business merger is under consideration.

This preliminary phase involves a thorough review of your current insurance framework and providing advice on governance.

Launch Phase

A significant step in the de-SPAC transaction includes the S-4 registration document with the SEC.

At this point, your insurance broker plays a pivotal role in fine-tuning the specifics of your D&O insurance plan to ensure robust protection once you transition into public company status.

Activities during this phase include adjusting coverage limits, negotiating policy terms on your behalf, and introducing the tailored insurance solution to both management teams and board members.

Implementation Phase

This stage marks where all preparations come together—the D&O program is finalized by binding it right before finalizing the business merger and commencing trading activities in the market.

Support Phase

The role of your D&O insurance broker should extend beyond Day One of market trading.

At Woodruff Sawyer, we offer ongoing assistance, including advisory services, support concerning new corporate endeavors, educating board members about D&O risk along with governance practices, plus advocating for you during claims processes.