Special Purpose Acquisition Company (SPAC) Risk Specialists

The directors and officers of a special purpose acquisition companies (SPACs) face unique exposures and a direct risk to their personal assets as the funds held in SPAC trusts cannot be used to indemnify them. In the absence of a properly crafted insurance program individuals could be forced to dip into their own pockets to cover the defense costs and potential settlements as a result of a claim.

Protecting the personal assets of the board of a SPAC requires a deep understanding of the risks and liabilities faced by directors and officers of these companies as they raise capital, pursue a target, and ultimately complete their business combination. Marsh has assembled a team of specialists who can help SPACs quantify their risks, manuscript their coverages, and secure a policy tailored to their unique exposures.

Marsh’s SPAC Insurance Specialists have served as the insurance broker for 30% of the SPACs that have emerged from IPO in the last 18 months. Marsh is a leading insurance broker in this market, protecting more than $20 billion in SPAC assets. 

Marsh’s SPAC clients rely on us to provide:

• D&O insurance policy terms that line up with a SPAC’s due diligence period.
• Proprietary SPAC peer benchmarking inclusive of pricing.
• Pre-negotiated tail coverage to cover claims against the SPAC brought after completion of a business combination.
• Claims advocacy in the event of a loss.
• Broad policy conditions including coverage for:
  • Claims brought by prospective targets and PIPE investors.
  • Alleged violations of the Securities Exchange Acts of 1933 and 1934, Dodd-Frank, and Sarbanes-Oxley.
  • Investigations by regulators.

A record 428 federal securities class action lawsuits were filed in 2019 – the third consecutive year of more than 400 lawsuits. The 2019 filings drove more than $1 trillion in market capitalization losses. These lawsuits highlight the liabilities that SPACs and their directors and officers could face arising from: 

• Representations made within IPO road shows, S-1s, and quarterly and annual filings.
• Due diligence and business combination proxy filings.
• Ongoing operations of post-combination entities.

Additional SPAC Solutions and Services

1. Transaction risk
   • Pre-acquisition insurance and risk management due diligence.
   • Insurance capital solutions to address deal risks: representations and warranties, environmental, tax liability, successor liability, contingent risk, and other deal related solutions.
   • Post-acquisition insurance placement and transaction related insurance needs: key person, claims-made run-off.
   • Exit solutions that address legacy liabilities in strategic sales, bankruptcies, and initial public offerings (IPO).
2. Portfolio-level risk
   • Execution of pre-acquisition proposed savings using Marsh’s unique purchasing platform.
   • Optimize costs across a portfolio of investments with portfolio buying approaches.
   • Institute loss reduction strategies to drive down costs for life
     of investment.
   • Deep industry knowledge
     • More than 20 global gropus providing industry-specific experience and insights.
     • Customized insurance and risk solutions for the post-close entity, ensuring a smooth transition from SPAC to operating company.
   • Annual metrics based performance review.
3. Cost-savings and liquidity strategies
   • Property and casualty cost take-out strategy and actions
   • Health and benefits options that reduce cost and improve employee retention.
   • Risk finance optimization.
   • Surety solutions to replace LOC obligations.
   • Trade credit to provide balance sheet protection and potential growth levers.
4. Value-added services
   • Project finance, structured credit, and political risk.
   • Enterprise-level risk optimization assistance (ERM).
   • Oliver Wyman actuarial services.

Contact our specialists to learn more.