How Underwriters Evaluate Risk for SPAC and de-SPAC Coverage
In this episode of The SPAC Podcast, Machua “Motsch” Millett of Lockton Companies explains how underwriters assess risk when pricing D&O insurance policies for SPACs and their de-SPAC targets. The evaluation process is vastly different depending on where the SPAC is in its lifecycle and Machua walks through both sides of that underwriting equation.
For SPACs, there’s limited data, so the focus is on the sponsor team’s track record, industry focus, and prior deal outcomes. Underwriters also consider how speculative or volatile the target sectors may be (e.g., crypto vs. manufacturing). Once the SPAC announces a merger and transitions into the de-SPAC stage, underwriters can evaluate more traditional risk factors, including industry exposure, financials, and performance projections though Machua notes that recent SEC scrutiny has curbed overly optimistic forecasts.
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Machua Millett – Chief Innovation Officer, Lockton Companies
LinkedIn: https://www.linkedin.com/in/machuamillett/
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https://www.thespacpodcast.com/guests/machua-millett/
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Michael Blankenship LinkedIn:
https://www.linkedin.com/in/mikeblankenship/
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https://www.linkedin.com/in/joshuabrucewilson/
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Disclaimers:
The views, opinions, and statements expressed by the guest are solely their own and do not necessarily reflect the views of The SPAC Podcast, its hosts, or affiliated organizations. This content is for informational purposes only and should not be construed as investment, legal, tax, or accounting advice.
Michael J. Blankenship is a licensed attorney and is a partner at Winston & Strawn LLP. Joshua Wilson is a licensed Florida real estate broker and holds FINRA Series 79 and Series 63 licensure. The content of this podcast is intended for informational and educational purposes only and should not be interpreted as legal, financial, or compliance advice. The views and opinions expressed by the hosts and guests are their own and do not necessarily reflect the official policies or positions of any regulatory agency, law firm, employer, or organization.
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Michael Blankenship:
So how do underwriters assess risk when pricing policies for SPACs and de-SPAC targets?
Machua Millett:
For SPACs, there’s not much operational data so underwriters primarily look at:
- The S-1 filing
- The stated deal thesis
- And most importantly: the SPAC team
They assess how many SPACs the team has done, their past performance, and how credible they are in executing successful de-SPACs. Underwriters may also consider industry focus whether the SPAC is targeting crypto, EVs, manufacturing, etc. but that’s secondary since SPACs can pivot sectors. For example, a luxury goods-focused SPAC might end up buying a used car platform.
On the de-SPAC side, you have a lot more data to work with. You can analyze the operating company’s:
- Industry risk
- Financials
- And formerly, forward-looking projections though those have been reined in by recent SEC oversight to avoid overly optimistic forecasts.
That’s helped normalize underwriting expectations in the de-SPAC phase and improve pricing and risk transparency.
Machua Millett
CINO and Alternative Investment Practice Leader
Mach specializes in policy drafting, program placement and claims advocacy regarding management and professional liability insurance issues for private equity, venture capital, and hedge funds and private and public companies. He is responsible for overseeing technical insurance policy drafting for our General Partner Liability and portfolio company D&O books, as well as guiding private companies through the insurance aspects of the traditional Initial Public Offering (IPO), SPAC IPO, and de-SPAC processes. He is also a senior claims and coverage resource for our alternative investment fund and private and public company clients when they have a claims dispute.
Mach’s background is as a general commercial litigator, securities class action defense attorney and insurance coverage lawyer. Before becoming an insurance broker, he spent ten years defending alternative investment firms and private and public companies against regulatory investigations, derivative and class action securities suits, general commercial lawsuits and insurance coverage actions at Bingham McCutchen, Skadden Arps and Edwards Wildman.
Mach was born in Nicaragua, and grew up in Nicaragua and Costa Rica before coming to the United States. He graduated from New Lebanon Junior/Senior High School as a National Merit Scholar, summa cum laude from Tufts University, and Harvard Law School. He lives outside of Boston, MA with his wife and two boys.