Special Purpose Acquisition Companies (SPACs) are shell companies raising capital via Initial Public Offerings (IPO) with the intent of using that resulting capital raised to acquire or merge with existing operating companies. The net result of a successful acquisition or merger transaction (also called a “de-SPAC”) sees the initial operating company proceeding as the go-forward, publicly traded business.
The SPAC “boom” began anew in 2020, with 248 SPAC IPOs raising over $80B in gross proceeds. 2021 saw even further growth, with over 600 SPACs listing on US exchanges. Since then, however, the SPAC bubble appears to have burst, with SPACs now subjected to elevated scrutiny from the SEC, while de-SPACs have been plagued by material underperformance post-transaction. Despite the ongoing challenges faced by SPACs and de-SPACs, the Directors and Officers Liability insurance marketplace remains favorable for most insureds, an abrupt change from the hard market conditions of the past several years.
Pricing: After several years of hard market conditions, the broader market for public company directors has shifted to favor insureds, with available capacity vastly outstripping current demand. Significant rate reductions are widely available across both new and existing public company businesses. D&O insurance premiums for SPAC and de-SPAC transactions have similarly dropped drastically over the past 8-12 months. For de-SPACS specifically, D&O premiums, in many cases, are more than 50% lower relative to similarly situated transactions closing at this time last year.
Capacity: Capacity remains abundant, with slower capital markets activity limiting the flow of new public company business for insurers. The hard market of the past several years also attracted a number of new insurers into the D&O marketplace, providing significant additional capacity.
Terms & Conditions: Insurance carriers are increasingly becoming more flexible on terms/conditions. Insureds should partner with a strong brokerage team to ensure the broadest coverage.
At the midway point of 2023, we have seen only five SPAC-related securities class actions (“SCAs”) filed so far this year. The rate of filings has slowed considerably after the noticeable uptick in 2021/2022.
In addition to traditional SCA filings, plaintiffs have begun to see limited success via direct-action fiduciary duty suits in Delaware state court.
To date, there is limited data available regarding settlements, with only 12 Class Action settlements disclosed involving SPACs over the past ten years. The average settlement across those 12 cases is $8.87M, while the median settlement is $4.96M.
RECENT DE-SPAC RENEWAL TRENDS: