The SPAC Market Reset: Why the Next Wave May Be Stronger

Josh Wilson: Hey, good day everybody. Welcome to the D spac podcast. I'm the producer of the show and I get the opportunity to talk with Chaz, one of my good friends and mentors who introduced me to the world of capital markets with him and his group. Chaz, welcome to your show. 

Chaz Churchwell: What's going on, brother? You doing well, Josh?

Josh Wilson: Yeah, buddy. I've been cranking since about four in the morning. The drill of the world of capital markets. So we've got some cool updates and I wanna tee it up. This is gonna be a quick episode for people listening in, but let's dive into it. You ready, Chaz? 

Chaz Churchwell: Absolutely. 

Josh Wilson: Cool.

Why don't you give us an overview of what's been going on when it comes to, the federal Securities class action filings. 

Chaz Churchwell: So federal security class action filings. So that's that's not just regular securities litigation. It's not derivative. This is specifically your federal class action filings.

But it's a good baseline and barometer for where things are and the securities litigation ecosystem. Nera put out their 2025 report just recently, and so you'll find back in 2021, there was this crescendo that we hit. For class action securities litigation, and there were 36 of them against SPACs.

So in 2024 we saw that number. Go down to nine, and then we saw that drop down again in 2025 to just five of them. Now you want to realize that's pretty much indicative of. Where things have fallen from where the SPAC bubble was back in 2021. There was a lot of bad deals that were happening companies that had no business going public, still getting capital and getting out the door.

And so what you'll find is that. There, the securities litigation being lower now, we believe really is gonna be the culmination of two things. Number one we know that it'll clip back up as more deals are getting done here over the next couple of years, but my expectation is that it's gonna be fewer than it was.

If you were to make all things equal on the number of deals, I think that we will see fewer securities class action litigations. In fact you'll find one of the numbers that was very interesting about. Securities litigation just holistically against SPACs over the course of the past year is that I think it was about 26% of those they ended up going ahead and withdrawing their lawsuit before the case even got dismissed because it was a situation to where you've got these ambulance chaser securities attorneys that are just throwing crap against the wall trying to see what they can make stick, and whenever they realize that they're not gonna be able to clear a dismissal.

They know they're not gonna get their payday. They go ahead and withdraw and just move on down the line. Yeah, that's where that is. 

Josh Wilson: All right. Looking through some of the notes, some of the things that, we want to talk with, and this might just be, you've got so many good updates, but I gotta understand like, when it comes to that kind of approach where people are just throwing at, these class actions are being tossed against these SPACs and the sponsors and these groups.

Is there a way for these groups to protect themselves against frivolous lawsuits, like with DNO insurance or some type of,

Chaz Churchwell: yeah, so I, I'll tell you that it always starts with just being proactive and having good hygiene. You're gonna find it, it comes down to having good governance, making sure that the go forward company is legit public ready.

SPAC teams have a responsibility that some of them, they're negligent on and they have a responsibility to help that private company. Go public with excellence. It's really part of their value proposition. So if you can help get your company public ready, that is gonna be stepping into your vehicle.

It's significant. And then when you've done the good governance. Good diligence do pardon me, you've done good due diligence. You've got a proper valuation. Companies need to make sure that they're not trying to overhype and overvalue themselves because the market will correct you. They will not lie to you.

If you're overvalued the SPAC will probably give you what you want from a valuation standpoint, but as soon as the deal is done and you're live and you're trading. The market's gonna correct if they didn't do it. And then your feelings are hurt and you're freaking out. Anxiety is setting in. You're not sleeping at night.

Why? Because you were overvalued from the get go. So get your valuation right, because when you don't, then also, it's another reason that securities litigation ensues public readiness and overvaluation or undervaluation is the number one and number two reason why securities litigation is gonna happen.

But when. All of that doesn't still cover it. That's where your d and o insurance program comes into play. There's two things that are really significant there. One is that a lot of SPAC teams are actually underinsured right now. A lot of them only have $5 million of side A coverage, which in most cases is going to be inadequate.

Side A is a pretty common. Piece of the puzzle to only get side A, only not to protect and indemnify the corporation's balance sheet, but only focusing on the directors and officers. For SPAC teams, pretty common. The part that's not common is the five, or the part that's not right, I should say, is the 5 million.

It does not take much to burn through $5 million in securities litigation these days. In fact, last year when I was at the SPAC conference, I was listening to some securities litigation attorneys on stage talking, and they're like, yeah, if you've got $150 million spac as an example, you need at least 10 million on your d and o program.

So when we're seeing that a lot of these guys are still just picking up 5 million and running with it. They're underinsured bottom line. So make sure that you've got proper coverage for your d and o program. If you are the SPAC team, make sure that if you're a target, looking to do a deal with the SPAC that they've got, coverage that's in place. And then also one thing that we know is a pretty common variable. If you are a. If you're a SPAC target, there are a lot of situations to where it makes sense for the SPAC to instead of them getting what's called a tail policy that runs for six years that your, as the target typically going to be covering the cost of their tail policy.

Instead of doing that, you can actually. Go ahead and just have them jump on as an additional insured on your Go Forward program. And then just select a higher limit than you would've had originally. By doing that, there are a number of valuable components that are there. I'm happy to have myself or somebody on my team talk to anyone about that about why it makes sense.

Reach out to a Churchwell insurance agency, we'd be thrilled to. But yeah, that's really it. 

Josh Wilson: Yeah. Super cool. For all the, all of the companies exploring SPACs, whether they're a, looking to start up a spac or maybe they formed a SPAC and they're looking for targets, or maybe you're a potential target out there.

I think it's a really wise, idea to have conversations with people like Chaz, advisors like Chad, and that's why we create these media programs to get the conversation going and they're, we only work with groups that are willing to serve. Not only the people who have served, which is the mission to that, that Chaz is very passionate about, but serve the ecosystem that we thrive in.

So let's close out today real quick. If you haven't subscribed to the D SPAC podcast, do so all of the links will be in the show notes below. Reach out to Chaz and his team if you wanna cont continue those conversations. So then we'll talk to you all on the next episode. Cheers guys.