Embrace business opportunities with peace of mind, knowing you’ve got it all covered.
NFP’s Special Purpose Acquisition Company (SPAC) practice is comprised of a dedicated team of specialists focused on assisting SPAC teams throughout the entity’s lifecycle, from initial public offering (IPO) to ultimate business combination. We work closely with our SPAC clients and their advisors to provide tailored insurance solutions making certain that the directors’ and officers’ personal assets, the SPAC entity’s balance sheet and the target business are all adequately covered against loss.
SPAC IPO Directors and Officers Insurance
Utilizing our proprietary peer benchmarking and individually tailored SPAC policy forms, we advise, negotiate and place directors and officers (D&O) liability insurance for the SPAC and its directors and officers at the IPO. This includes pre-set tail (runoff) policy pricing and co-defendant coverage for the SPAC sponsor.
Insurance Due Diligence
Full due diligence analysis of a SPAC merger target’s insurance portfolio, identifying and evaluating red flag items, limit adequacy and gaps in coverage, in addition to cost of risk relative to market. Our advisors focus on issues that affect earnings quality or create balance sheet exposures. We work across disciplines to analyze risk exposures, and facilitate insurance and risk financing strategies that preserve value and enhance returns.
Dedicated team of former M&A and tax advisors focused on the structuring and placement of transaction insurance policies, including Representations and Warranties insurance, Tax Indemnity insurance and Contingent Liability insurance, in connection with the SPAC business combination.
De-SPAC Insurance Advisement
Placement of tail and go-forward D&O insurance to cover the pre- and post-close D&O liabilities of the SPAC and its target business, while simultaneously delivering on the additional property and casualty insurance recommendations noted within our Due Diligence report.
The SPAC D&O marketplace has hardened significantly over the past quarter, as insurers assess their position within the market in light of a surge in claims against SPACs, combined with SEC Chairman Jay Clayton’s comments and the overall pace of SPAC IPOs.
Notes on SPAC Exposure and Litigation
Why do SPACs need insurance?
- For traditional public companies undergoing a listing, the exposure relating to the S-1 is the main driver of the director and officer claim frequency and severity. Claims are typically brought as Securities Class Actions, alleging violations of Section 11 of the 1933 Securities Act because of investors suffering a loss in share value.
- However, given that the proceeds of a SPAC IPO are held in trust, they are insulated from share price volatility and we do not see claims frequently arising out of S-1 filings.
- As a SPAC is evaluating business combination targets, there is the potential for those targets to sue the SPAC and its directors and officers, alleging violations such as breach of confidentiality, breach of contract and theft of trade secrets.
- In 2018, OpenGov accused GTY Technology Holdings of stealing information and then cutting it out of a merger deal. The firms settled out of court for $5.8M not including defense costs.
- In today’s SPAC environment, each 8-K Proxy filing is being met with a plaintiffs’ firm trolling for a litigation class, in some cases resulting in a Securities Class Action filing prior to the business combination closing, with an allegation that the proxy filing is materially deficient and the SPAC directors and officers are in violation of the fiduciary duties to shareholders.
- There were two recent claims that have the potential to be severe from a defense cost and settlement perspective. In both cases, Akazoo S.A. and Nikola Corporation, shareholders brought claims against the SPAC directors and officers after the business merger closed, alleging that the 8-K they relied upon was fraudulent based on the target company’s representations contained within it.
General Partnership Liability
NFP’s General Partnership Liability practice takes a deeply analytical approach to advising its alternative asset management clients and their portfolio companies on the management liability risks and exposures they face. Our team advises clients throughout the lifecycle of their investments — manuscripting (1) General partnership liability (GPL) policies, to cover the firm, funds and individuals, and (2) company management liability policies, to protect the balance sheets and boards of the firm’s portfolio companies. We tailor our solutions to each client’s individual strategy – whether private equity, credit, hedge or venture capital – relying on years of historical claims data and proprietary peer benchmarking to assist in making the most informed decision.
GPL insurance protects alternative asset managers, their funds and employees against lawsuits that may allege breach of duty, negligence, errors and omissions, or other wrongful acts. The policy is intended to cover the defense costs and potential settlements or judgments that a firm or individual insured may become liable for as a result of a covered claim. A significant increase in the frequency and severity of claims made against firms and individuals relating to portfolio company bankruptcies, regulatory enforcement actions, broken deals and employment issues has created an unprecedented need to obtain manuscript GPL insurance with broadest possible coverage terms and few or no coverage exclusions.