Insurance coverage consideration for a SPAC and De-Spac

Much has been mentioned in the press about the use of SPAC / DE-SPACS as vehicles for a company to raise capital. Directors & Officers insurance along with other risk transfer mechanisms can be wrapped around SPAC / DE-SPACS mechanisms and our specialist team and partner brokers would be happy to advise.

A SPAC, an abbreviation for Special Purpose Acquisition Corporations, is a company that has no commercial operations and is formed strictly to raise capital through an initial public offering (IPO) or the purpose of acquiring or merging with an existing private company.

While their numbers have increased massively in the US over the past few years, SPACs have been around for decades. In 2020, 247 SPACs were created with $80 billion invested, and in 2021, there were a record 613 SPAC IPOs; by comparison, only 59 SPACs came to market in 2019. SPACs hold no material assets other than cash; therefore, they are also often referred to as ‘public shell companies’ or ’blank check companies’.

A De-SPAC is where the SPAC has identified a target company and acquired that company in a reverse acquisition / merger where the acquired company is the surviving entity and has effectively ‘gone public’, at this point the SPAC ceases to exist. The target company receives the funds from the SPAC and in conjunction there is often a round of funding known as a PIPE, (Private Investment in Public Equity) which is a private placement of shares of an already listed company to a select group of accredited investors. It is a way for companies to raise a large amount of money quickly, and the PIPE investors have the advantage of buying the company shares at a discounted price.

PIPE deals are often seen in SPAC transactions because sponsors need to raise more money than they get in their IPO to complete the acquisition of companies that are viable for the purpose of the SPAC.

Early engagement with specialist insurance brokers is key to securing the correct coverage to protect the main assets of a SPAC, including its management team, directors and investment strategy.

Griffiths & Armour have recently been involved in the arrangement of Directors’ & Officers’ insurance for a number of significant SPAC placements, and would be happy to discuss this further with you.

If you have any questions about the contents of this article, or any insurance requirements, please click below to submit your enquiry to Client Services Director, Jack Wolstencroft.