Many private companies looking to DeSPAC wait until their business combination agreement is signed before turning their attention to D&O insurance. That is a mistake. The better approach is to gain an understanding of D&O insurance options before entering into DeSPAC talks with a potential SPAC. Once you are in talks or close to an LOI, you should already have an idea of what your D&O structure will look like and how much it will cost. And you can start working with your insurance broker on how to maximize coverage leading into the DeSPAC. Ultimately, the goal should not be simply to purchase more insurance—it should be to build the most practical, comprehensive and efficient D&O program designed not only for your company’s new life as a public company but also for covering the various risks of the DeSPAC process.
Early planning is particularly important given the litigation environment surrounding DeSPAC transactions. While governance standards have improved and today’s SPAC market is more disciplined than prior vintages, companies that go public through a DeSPAC continue to face meaningful securities and fiduciary duty litigation risk, often years after the business combination has closed. Companies that engage in the D&O process early are generally better positioned to evaluate limits, negotiate broader coverage terms, address run-off and tail insurance considerations, and ensure a comprehensive public-company-ready program is in place before the first day of trading. In a DeSPAC transaction, D&O insurance is not a closing checklist item—it is a core transaction workstream that should begin well before the deal reaches the finish line.
By: Yelena Dunaevsky
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