Panel Discussion at The SPAC Conference 2024

Joseph Fede, Partner, Withum:

Okay, good afternoon, everyone. Joe Fede, I’m a partner at Withum. I appreciate you all hanging in there with us today instead of throwing an ax or doing whatever else. We have some topics here. We’re hoping to not be too repetitive. We know we’ve gone through a lot of different topics today and last night, but first, we have a great panel here. We’ll let them introduce themselves. Start with you, Jeff.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

Great, thanks a lot. Can everybody hear? I’m not sure.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

There we go. Okay. Yeah. Hopefully the axes are just being thrown that way and not over here. Jeff Selman, DLA Piper, where I chair the SPAC transactional practice.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Hi, everybody. Yelena Dunaevsky, I’m a senior vice president and partner at Woodruff Sawyer. We’re one of the largest independent insurance brokerage firms in the country. We specialize in D&O IPO placements, and I specialize in SPAC IPO D&O coverage.

Janet Levy, Partner, Marcum:

Good afternoon, everyone. Can they hear me? I’m Janet Levy. I’m an audit partner with Marcum LLP specializing with a Marcum SPAC practice.

Taylor Sherman, Director, CohnReznick:

And I’m Taylor Sherman with CohnReznick, we provide insurance, tax and advisory services for companies at various stages in the transaction or business lifecycle.

Joseph Fede, Partner, Withum:

So between last night, this morning, and this afternoon, we’ve heard a lot about the history, last few years, pain points, statistics. Now we’re going to get into a little bit of current market practice and where we see it moving the next couple of months, maybe the next year.

So Jeff, a lot of newly formed SPACs out there the last couple of weeks, couple months. What are you seeing as far as innovations to address what’s gone on in the past few years? Anything new that’s coming out? As detailed as you can possibly get, knowing some things could be confidential, obviously.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

Sure. Thank you. So I’ll start off a little with things that we’ve heard already last night and earlier today because, to get to this point in time in the conference, you’re not going to help but do that. But I’m going to do that purely as a setup for actually getting into more details. So as we heard earlier today, we are starting to see new issuances, at least one if not two I think IPOs have priced this week, that I’m aware of, maybe more. But as was discussed, we’ll talk a little bit about the structure on them. But if I step back and I look at the issues as these are being structured that they’re trying to address, let me hit upon those first. And again, some of these things we’ve talked about, but I just want to highlight them so that you really can appreciate the issues that we’re trying to come up with as we’re thinking through how to structure these as they move forward.

So a few different things that I’ll mention here. So one, the impact of the expenses that need to be covered in the DSPAC transaction, and those expenses are going to cover, among other things, deferred to underwriter commissions, the other transaction expenses, all of us service providers, the D&O insurance and the like. But at the end of the day, the IPO is just the kickoff. And what we’re really trying to do is that we all know is get to a de-SPAC transaction, and getting those de-SPAC transactions of the combined companies moving forward, have a built-in set of expenses that need to be addressed and so capital is needed for that.

You layer on top of that, the fact that there’s at least, and I think I heard the statistic this morning that the last year the redemption levels have been running at about 94%. I know somewhere in the 94% to 96% range I think is where they’ve been averaging. So that’s a lot of cash coming out of trust accounts, that’s going in on the IPOs, but they’re coming out. So if we’re going to continue to see that trend and you have a built-in set of expenses on the de-SPAC, again, you have to think through what is that going to mean from an economic perspective. Are there things that can be done right from the beginning at the time of the IPO to help try and address some of those issues?

And then fundamentally, if you have your eye on that, what is the combined company going to look like? And I think, Taylor, you may speak about some of this later, is what are you going to do to drive fundamental investors into the combined company? Because ultimately that’s what’s needed in order to have the combined company post-de-SPAC really be viable.

So again, what are the types of things that you can think about from a structuring standpoint to make this work? I’ll talk a little later on the de-SPAC side, more detail on one thing. But one thing I want to raise now is, as we know, because this is how we’ve been closing de-SPACs over the last several years, that the $10 price isn’t necessarily sacrosanct. We’re doing NRAs and pricing them at $4, $7, $2, whatever it is. So there’s different ways you can manage to try and look at things to make this work.

And it’s interesting, I worked with a serial SPAC sponsor that several years ago was trying to presage that idea and sit here and say, “Why are we so wedded to the $10 price that we’re looking at? Why don’t we try and do an IPO unit that has a security, that has a variable price?” And while that didn’t take off, they tried to get people behind it and they couldn’t do that, knowing that we don’t need to be there. We have these other structures that have now developed on the back end for doing that.

So if I take all of that and I now layer on top of this enough understanding amongst the investor community that this is what you can be doing. And as we heard, I think it was Mitch Nussbaum this morning talked about, maybe it was Doug Ellenoff, but one of them in the first presentations this morning talked about how we’re now seeing syndicated risk capital pools. They’re coming in. And they’re coming in knowing that they’re going to ask for allocation on the IPO, but they’re going to also partake in the risk capital, together with the sponsor, as a way of driving the price point down on the units that they’re buying. And they’re doing that with an eye fundamentally towards the idea that we could have any of those things that I just talked about. We don’t necessarily need to keep the $10 price at the end of the day, we’re going to have high redemption levels, and we need to be looking and thinking about what are we going to have in terms of transaction expenses.

So if you’re coming in and you’re driving your price point as an investor in well below the $10 price by participating in the syndication of the risk capital, you’re able to start attacking that. And so we’re seeing IPOs that are going out and doing exactly that, from a structuring standpoint. What we’re now also beginning to see, and I filed a deal on Friday, an IPO, where we did exactly this, and I’ve taken a few shots from this and hoping that to stay that direction, where we actually to again address some of these issues, not only said are we going to syndicate the risk capital, but if we’re syndicating the risk capital and we know where we are in terms of where the cash is coming in and the investment allocation for 90+ percent of the book is coming in, can we address some of the fee concerns from the transaction expenses on the back end that we’re seeing when we’re going to the de-SPAC by just addressing straight on the back end commissions that are being paid for the underwriters on the underwriting of this?

So the deal we filed on Friday, and it’s public, it had no back-end commission and a flat fee right up front for the underwriter, and we will see how that goes, but we’ve got a book and we’ll move forward with that. So these are the types of things that people are looking at and thinking about as they’re trying to address some of the things that we’ve seen over the last few years and those historical points that we’ve heard talked about since this time yesterday.

Taylor Sherman, Director, CohnReznick:

Well, those are some interesting points, Jeff. Is that creativity really encouraging to you in terms of the outlook for future market activity in the near term, do you think? Or how are you interpreting that? Because some interesting points that you raised I hadn’t thought about, but people do seem to be thinking through some of these issues to get deals done.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

Yeah, no, I think we’ll have to see how these go. Look, and again, I can identify concerns. I’ll throw one out right now. When you’re driving that price point down, what is that going to do in terms of when, again, you’re thinking about the de-SPAC, the quality of the deal that you’re going to get? Because if we’re disregarding that $10 price and we’re saying, “All right, we can price somewhere else there.” If there’s going to be cash being pulled out of the market on the back end, well, is it a $4 price? Is it a $2 price? Is it a $5 price? And if you’re in at sub-$2 on the capital that’s really coming in from the investors, at $2, they’re making money. At $4, they’re really making money. But then you have to think about what are the incentives there.

So yes, we’re addressing some issues. We may be creating new issues and I think that’s where we’re going to have to see where the market goes. And it may be when the capital is coming, when it’s cheaper to come in, could we end up with a flood of new SPACs coming in and oversaturate the market just like we did in 2021? Yeah, it’s possible. Again, we’re going to have to work through the mediums and find the happy medium on some of these things, but those are some of the things, at least there are people out there trying to come up and address some of these issues. And saying we’re not going to be wedded to the same old, same old because the same old, same old hasn’t necessarily worked.

Taylor Sherman, Director, CohnReznick:

Got it.

Joseph Fede, Partner, Withum:

Those are great points. So I think it’s safe to say that the SPAC market, as things change, they evolve, and they become more innovative. And some of the things that you might’ve seen before the SPAC boom, you might see after.

Yelena, some of the things that Jeff mentioned were around expenses, and obviously D&O insurance, that’s big on everyone’s mind in the SPAC world. What are some of the different litigation and enforcement risks you see in the market now that some SPACs are starting to pick back up again?

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

So the expenses of the D&O insurance are obviously driven by the litigation environment and the enforcement environment. And I think it’s instructive to take a look at the wider market first of where the litigation sits in the general public company market, and then the subset that the SPAC represents as a litigation market, and then of course the enforcement.

So starting with the larger litigation, the public company litigation market, what we’ve seen, and there’s actually a recent study from Indigo insurance carrier that did a survey of defense counsel as to, what does the litigation market look like right now? And the survey yielded, and our data from Woodruff Sawyer supports this, is that in the last year or so there’s been very, very large settlements, securities class action settlements, in the market, and everyone’s outlook on the defense counsel side is that that environment is only going to get worse down the road. So defense settlement amounts are going to increase.

At Woodruff Sawyer, we keep all of this data on settlements. We’ve been going back to the 1980s and our data tells us that last year, 2023, the total amount of settlement on securities class actions was $4.4 billion, which is the largest number in the last 10 years. So that’s a significant number. This is the wider public company space. Now, SPACs are a subset of that, and it’s interesting to see that even though the IPO numbers have gone down, the uptick in settlement amount is something that we’ve seen for the first time in the last three years. So that’s something to watch.

On the SPAC side, some more data here I have for you. So 27 securities class actions in 2023 versus 24 in 2022, so that’s somewhat holding steady and not horrendous. The interesting outtake from that for me was that only 21% of those securities class actions in 2023 are actually relating to the de-SPAC. Most of them relate to whatever the operations of the company were post-de-SPAC several years out. So they’re not really touching on issues that the de-SPAC generated, they’re really touching on the operations of the company way out from the de-SPAC. The 21%, contrasting that with, say, 80% or 90% in previous years. So as the wave of 2021 SPACs matures, we’re seeing litigation that really doesn’t relate as much to the actual de-SPAC, it’s more focused on the operations of the company, which is not surprising.

This question comes up a lot. So most of my clients ask me, “Okay, why should I get D&O insurance coverage? What is the likelihood of me getting hit with the securities class action?” So, again, looking at the larger market, for mature public companies, our data tells us that it’s somewhere between 3% and 4% that you’re likely to experience a securities class action. For traditional IPOs, within the first three years, 13% will be hit with the securities class actions. SPACs, de-SPACs specifically, 19%. So when I hear things like, “There’s no risk, where’s the risk? Why am I paying this much for D&O coverage?” It’s a business decision, of course, but you need to really think about, is that 19% chance of you getting hit with a securities class action, which generates millions and millions of dollars of attorney fees, I love all my lawyers, but attorney fees, and other expenses, to just have that lawsuit go away, even if it’s frivolous, is that something that you want to be covering out of pocket or is that something that you want to be mitigating through your insurance coverage?

Now, the other elements and trends that I’m seeing is that outside of the securities class actions, which are a big-ticket item because it’s just so expensive to fight against that, what we’ve seen recently is a shift or a move into fiduciary duty lawsuits in Delaware. And those are expensive. And those, again, need to be defended, they need to be litigated. And again, that’s a lot of funds that are coming out of the SPAC, or de-SPAC, and if you don’t have coverage, you need to start thinking about how are you going to approach that?

There’s a recent case, and Doug alluded to it, that just came out of Delaware, and I know Jeff knows all about it, the Canoo Hennessy decision, which actually has been a very positive development for cases coming out of Delaware that’s SPAC positive. But up until recently, the multi-plan cases and the cases that followed multi-plan were, we could see that Delaware was definitely a very negative environment for SPACs, where a lot of cases were filed on the heels of those several multi-plan and progeny cases. And so what does that do? That means that the underwriters, the insurance underwriters, are looking at all of this litigation and they’re thinking to themselves, “Okay, this is going to be expensive. Securities class actions here, fiduciary duty cases in Delaware.” It’s problematic, it’s problematic.

Another thing I’ll mention is, and I think this was also something that was mentioned previously, but I want to put a final point on it, that the cases that are trying to pierce the sanctity of the trust. So far they have not succeeded. Doug talked about it earlier today. So far they have not succeeded, but that is also something that we’re seeing as a development in the new types of cases.

And then the last piece, and then I’ll turn to enforcement, which is the third element, the last piece is the types of cases that we’re seeing. And so over the last year, we’ve seen a lot more cases filed against, not just the SPACs and the SPAC teams and the sponsors, but also the advisors. So attorneys, auditors, bankers, and that’s a new trend that we’re watching, and again, something that everyone needs to keep an eye on as far as litigation is concerned.

Interestingly enough, there were also some enforcement actions against advisors, but generally speaking, if you look at the general enforcement market, I guess if you want to say it that way, of SPACs, we hadn’t seen a huge increase in enforcement. So that’s a positive, more against advisors, but overall not a great risk compared to previous years. And I think that’s where we are generally in what the general litigation and enforcement market looks like for SPACs. But the outlook from insurance carriers is that while it is not as toxic as it used to be in ’20 and ’21 and ’22, there’s still some of these cases that are working their way through the system because it takes a long time for a case to work through the system. So right now we’re seeing some of the settlements in ’24 from de-SPACs that happened in ’21, so it’ll take about three years for these cases to work their way through the system and for the insurance underwriters to have a better sense of where they stand in terms of risk.

Joseph Fede, Partner, Withum:

It’s interesting, obviously D&O insurance is very important and your team will walk anybody through, not to scare people off, but how does the insurance market react to all this risk that’s out there? What are you doing now?

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

So I’m glad you’re asking that question because, yeah, so as we’ve seen some innovation in the legal way of doing these deals, Tina talked earlier about what they’re doing at Jefferies, potentially some new structures and other things are happening to fine-tune the SPAC product. The insurance carriers recently have been more open to a more flexible way of looking at the risk, and that’s driven by, again, the larger IPO market, which has been essentially dead over the last year and a half. And so you have a lot of competition with insurance carriers who are trying to get premium dollars and they’re not able to because there are really not that many deals happening either on the SPAC side or traditional IPO. And so what they’ve been doing to help with that is a lot of them have been open to this newish combination structure where they’re able to have the coverage for all of these entities that are involved in the SPAC process under one umbrella versus splitting it up between a SPAC and a de-SPAC separately.

That helps a lot because it potentially eliminates the need for tail coverage and that saves on somewhere between a million and 3 million in costs, and we’ve done that with several of our clients and have been successful and able to negotiate the language there, or the policy language, which is not easy because it’s a convoluted product. So that’s one element, more carriers are open to doing something like that.

The other thing I would say is that they actually have been stepping up and paying the claims. So some examples from ’23 is $19.5 million D&O covered out of $22 million in the Clover Health litigation, $4 million out of the $8 million in the Mementos litigation. So that’s fees that have been covered, costs that have been covered out of the D&O policies. So they are stepping up and paying.

And aside from the combination, which is a policy, which is a new way of the D&O coverage to be structured, generally speaking, the IPO and the SPAC market has been softer with fewer deals.

And so contrasting with what we saw in ’21, which was an incredibly hard D&O market where it was impossible to negotiate with carriers, is a lot easier now. Not only are the terms better, the pricing has come down considerably. So it’s a much easier conversation right now that I’m having with my clients where they ask me, how much is this going to cost? Whereas before it was just huge sticker shock. Right now everyone seems to think that the rates have come down to a reasonable level, which is great.

And one last thing I’ll say, and then I’ll turn back over to you, is that extensions are something that we’ve seen as difficult, a lot of the companies are still hobbling along trying to announce or de-SPAC, and the extensions from the insurance side have not been easy to obtain. Carriers are open to extending, but there are some limitations around that and their patience is running low on that.

Taylor Sherman, Director, CohnReznick:

I’m just curious, what are those limitations on the extending?

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Well, so for example, I get asked all the time, “Can you do a month-to-month extension?” And the carrier response is, “Are you crazy?” And I need to soften that and explain to our clients why a month-to-month does not work from a carrier side. On the carrier side, they’re used to one-year policy. So for them to go from a one-year policy, which is basically mandated as a requirement by the reinsurers who are actually putting up the cash, to a one month-to-month extension, is incredibly difficult. And so on their back end, they’re just not really able to do that, and there’s a little bit of a disconnect from this team side, the SPAC team side, which I understand is running out of cash and doesn’t really have enough funds to cover, but the month-to-month extensions have been hard. And I think there was a question on the previous panel, how long would you want to have an extension for? I would match the D&O cover extension to whatever you’re getting on your actual SPAC extension, whatever, it’s three, six or plus months.

Taylor Sherman, Director, CohnReznick:

Got it.

Janet Levy, Partner, Marcum:

And have management teams been amenable to those type of terms?

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

It depends on the team.

Janet Levy, Partner, Marcum:

What’s the alternative? Because they have to have it.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Yeah, ultimately they have to agree to it. There’s been some ways around some of the fund limitations by having third-party providers step in and do some premium financing, and so that’s been a way to go around it. But it’s always a difficult question.

Janet Levy, Partner, Marcum:

That’s interesting.

Joseph Fede, Partner, Withum:

Great points there, I think we’ll switch gears a little bit.

We’ve touched on some new SPAC offerings. We still have some SPACs out there from the ‘21-‘22 timeframe. So Jeff, two parts really to this question. What are some target considerations they should take into consideration obviously for a deal with a ‘21-‘22 SPAC, or potentially some newer SPACs? And then on top of it, how are you seeing these transactions lately, the different structures, different financing, what are you seeing in the marketplace?

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

Sure. So the first part of that question is one that I’d say over the last two to maybe three months, with target clients of ours, we’re actually beginning to address. One, as we talked about, we’re starting to see new issuances come into the market. And then if we look at the Q4 ‘21 into Q1 ‘22 cohort, of which I think I heard there’s still roughly about a hundred of those out there looking for targets. The other thing we heard mentioned this morning was the fact that, well, if you’re NASDAQ listed, you might be able to get to three and a half years. If you’re NYSE listed, while the NYSE has an application in the SEC at the moment, you’re getting to three years.

Well, if you’re Q4 2021 and you’re looking for a target, three years is in less than three and a half months from now, so you don’t have a lot of time before you’re hitting that three years if you’re an NYSE listed SPAC. And even if you are, let’s call it a ‘Q1 2022 and you’re on the NASDAQ and you get to three and a half years, you’ve got 12 months from today to get a deal closed before the clock runs out and still remain on the exchange.

So for those 100 companies that are out there looking for something, that’s a significant issue. If you’re a target and you’re sitting here thinking, “Am I going to combine with a company that is really, really running against a clock versus maybe going out with a new issuance that’s going to have 21, 24 months, because that’s what the cycle is looking like?” That’s something that maybe three months ago, definitely six months ago, I wouldn’t necessarily be counseling them to be thinking about, but today I’m absolutely going to raise as a significant consideration.

A few other things, while we’ve talked about 94%, 95%, 96% redemption levels, at the same time, if you’re a new SPAC and you’re sitting here with a full trust, versus a lot of these SPACs that have gotten to the point where they’re two and a half years old, they’ve done some extensions, they’ve whittled their trust account down to probably $20 million-ish if they’re a NASDAQ, $40 million-ish if they’re NYSE, because they don’t want to be paying an extension fee on shares that are just going to walk out the door anyway.

And then you also have to think about where are you going to be on those deferred underwriting commissions? Well, yes, we’ve seen a fair number of deals on some of those 2021 vintage SPACs that have closed, have been able to negotiate something with respect to the back-end commission. You’re not necessarily going to get there. So on the flip side, you’ve got to think about, well, on the new issuances, maybe the warrant coverage is going to be higher and not what you’re looking for, or some of the other types of things that we talked about earlier on these new issuances that you’re going to have to face. So there’s not necessarily a right answer, but these are the types of things that we’re seeing. I’m at least now seeing in counseling target clients of ours, on thinking about when they’re thinking about if we’re going to go off and do a de-SPAC, who do we want to talk to? What are the types of things we want to think about?

On the second thing, in terms of trying to get deals done, in light of some of these issues that we’ve already talked about with the high redemption levels, the fact that we’re seeing post-combination pricing trading at $4 or under, and we have to think through, do we have a minimum cash condition and is it going to be satisfied and the like? What we’ve seen, I’ve probably worked on for investor clients, as well as with both target and SPAC clients, probably about 30 transactions that have closed in the last 12 months since the last conference, which have used a variety of different types of financing tools, whether they’re non-redemption agreements, forward purchase arrangements, combinations of all of the above, to try and bring in cash, and to do it at reset pricing. And as I said earlier, the $10 price, that’s a thing of the past, we’re getting deals closed at significantly lower prices in terms of how to do it.

Just to give an example, you have a non-redemption agreement. So somebody is agreeing not to redeem, but you price it at $3, and the trust is sitting at this point with interest accrued at $11.5. So $8.5 may flow out, but the de-SPAC back company’s keeping $3. And you have fully registered shares, and so you’re not having to worry about a pipe at $3 and then get a resale registration statement.

What you do have to worry about and think about as a consideration though, among other things, are making sure that you’re still going to have where you’re going to be from an exchange listing. Not on the SPAC, but on the de-SPAC company. I’ve had, and I know I’ve seen people from the exchanges here, but I’ve had plenty of conversations with the regulatory side of the exchanges where they want to make sure that, if we’re doing an NRA and we’re trying to say those shares are going to count as part of the flow, that the pricing on that NRA is sufficiently high, that there’s still a significant amount of capital at risk from those shares, and it’s not dropping below what they want to see as their floor stock price.

And so those are the types of things that we need to be thinking about, that we’re thinking about in terms of trying to get closings done and getting cash in, to at least cover the transaction expenses that need to be covered, put a little capital on the table, if there’s a minimum cash condition, satisfy that, and try and address the fact that you may have a $20 million trust that’s sitting there due to extensions, and therefore you’re not going to see a large amount of cash coming in from the trust, but there’s still other avenues for getting the cash there.

Joseph Fede, Partner, Withum:

De-SPAC transaction, definitely nothing simple about that.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

Nothing simple.

Joseph Fede, Partner, Withum:

Taylor, hearing this, and you’re dealing with a target company, what are some of the challenges you’re seeing them face? What are your suggestions? What are you advising them to do?

Taylor Sherman, Director, CohnReznick:

Yeah, no, it’s been interesting to see the cycle now going from a billion to bankruptcy with some companies that did at de-SPAC and they’ve got a real business, not just pre-revenue. And it’s kind of like, what happened here? How did this go sideways? And a lot of times it simply comes back to the public cut being readiness and the office of the CFO function and a supportable defensible forecast that they were going to achieve. And a lot of times folks were chasing valuations and getting away from that discipline and I think every single one of those situations we’ve come into, we’ve seen that be a key issue there. And so then it becomes about, how do you put forth a new business plan and rebuild that credibility, or what are you going to do with the company at this point? But using those insights from what maybe didn’t go well, provide a lot of help if you’re considering a transaction now to get in front of those issues, specifically.

Joseph Fede, Partner, Withum:

Janet, hearing that, post de-SPAC, what are some challenges you’re seeing? After you’ve actually made it across the finish line, you’ve done whatever you have to do, you got there and now you’re a public company, now you have requirements from the accounting side?

Janet Levy, Partner, Marcum:

Correct. From the accounting standpoint, some of the challenges that we are seeing are around processes and technology not being able to keep up with new requirements. So although internal controls can impact any company, newly formed, publicly-traded companies are more susceptible to internal control issues and weaknesses. A lot of times with these companies, it’s still a work in progress with them because they’re still refining their existing controls or putting new controls in place, establishing policies, they’re assembling their teams. And because they’re still in this work in progress, that can cause or create additional control deficiencies, which may lead to potential restatements and a need for related remediation.

It’s very important for companies to keep and make sure that their control environment is sufficient because any shift in technology, any change in regulation or business environment in general, can lead to new risk assessment that the company needs to address. And that risk assessment may potentially lead to new controls that need to be put in place. And we are seeing that a lot of times these newly publicly-traded companies are not ready and do not have a robust control system in place. And that’s where we’re seeing a number of material weaknesses identified and then the companies are forced to take remediation steps.

Another accounting challenge we see is the existing finance teams or accounting teams not having the appropriate skillset for being a public company. And it’s not unusual, because they’re not used to the requirements and the rigorousness of the SEC regulations and GAAP financial reporting and timely filings with the exchange. Because of the scarcity in the finance departments, companies are not readily available or don’t have the resources to prepare the right accounting memorandums and analysis. They’re not always compliant with timing and financial statement preparation requirements. So I always recommend to make sure that the companies get ahead of the curveball and make sure they hire the right legal advisors, the right financial advisors, invest into the proper infrastructure as far as compliance is concerned to ensure that they get ahead of the game and their internal control, that they have a robust internal control systems to address any upcoming issues as a newly publicly traded company.

Joseph Fede, Partner, Withum:

Right. Two follow up questions to that because we have some time for any questions from the audience.

Taylor, keys to success, from where you sit, from all the de-SPACs you’ve worked with?

Taylor Sherman, Director, CohnReznick:

Credibility, and delivering on that. I think a lot of folks look at the finish line as closing the merger, but really that’s just one key milestone and then executing out of the gate very, very well to drive shareholder value. And I think if there’s any hesitancy there or you need to get in front of that before becoming a public company, because after the fact, you’ll just get punished. All right. Yeah.

Joseph Fede, Partner, Withum:

Stay organized, stay on top of it.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

I have a question for Taylor. On the bankruptcy side, we run into some SPACs that ended up in bankruptcies unfortunately, and that’s difficult for everybody, obviously. What kind of risks are you seeing that are affecting directors and officers in that situation? Because I’ve seen some issues that I can talk to as well, but I’d love to get your thoughts.

Taylor Sherman, Director, CohnReznick:

Yeah, so a lot of times going through a bankruptcy process is helpful to reorganize a company because there is a lot of litigation that has come up, and so you can leave those liabilities behind. And that’s why we end up recommending that process to a lot of companies that get the trade way down, there’s maybe even an SEC investigation, but undoubtedly every single one has had litigation involved, or lowering litigation. And so you think about these liabilities or contingent liabilities, and if you’ve got a fundamental good business, then that’s one way to address those issues, but every single one of those has litigation.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Yeah. So what I’ve been seeing is that, and there’s even that study that I mentioned before, we’re talking about that 58% of the defense counsel saw that in the SPAC bankruptcy scenario, the directors and officers, there was no indemnity flowing out of the company. And so they were essentially, if they didn’t have side-A coverage, they were basically left to their own devices in terms of covering those costs, which…

Taylor Sherman, Director, CohnReznick:

Oh, wow.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

… could be seriously problematic.

Taylor Sherman, Director, CohnReznick:

That’s a great point.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Yeah. So it’s sad. Sorry. Go ahead. Thank you.

Joseph Fede, Partner, Withum:

We’ve left a few minutes open for questions. Anybody have any questions for the panelists? Okay.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

I have a question for Jeff.

Joseph Fede, Partner, Withum:

All right. Sure, sure.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

So I’m hearing some talk about some tweaks to the structure and questions potentially around extending the search period from two years to three years. Is that something that you think is going to really take?

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

In terms, so on the IPO’s setting three years right off the bat?

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Yeah.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

I haven’t seen that yet. Most of the deals that I’ve seen recently go out have been at 24 months, a few at 21 months. And essentially, if I went back to three years ago from now, we were looking at 12 to 15 months and you were at maybe a baked in extra three months or six-month extension already for the dime for three months, but that was in a 0% rate environment. So now that we’re at higher rates and a lot of cash looking to come back in, we’re seeing back up to the 24 months.

I’d be hard-pressed to imagine investors wanting to go beyond that at this point in time, without some significant yield return as a result, because that’s a long enough horizon, even if you factor in interest rates and uncertainty, not seeing where that’s necessarily going to go. But I’d be curious to see if that does start happening. But as I said, the deals at least that I’ve looked at that have recently filed or gone out have mostly been 24 months, or maybe 21 months, but sitting right in that sweet spot.

Yelena Dunaevsky, SVP & Partner, Woodruff Sawyer:

Yeah, I’d be curious to see how that works out as well because I did an informal market check on the insurance side of whether or not the D&O carriers would be even open to having a three-year policy versus a two-year policy, and as it stands right now, the reinsurers are not really open to something like that so that’s going to be a very, very uphill battle for us, if that’s going to happen.

Joseph Fede, Partner, Withum:

Okay. If there’s nothing else, no questions, then who am I to stop you from throwing an ax and having a beer? Thank you all.

Jeffrey Selman, Chair SPAC Transactions, DLA Piper:

Great. Thank you.