• This Could Change Everything in M&A
    POSTED 1.21.20 M&A

    There is a potential game changer in the M&A world, especially for Strategic Acquirers, and Representations and Warranty (R&W) insurance is an integral part. And with this coverage available for transaction sizes of $20M (or even lower) the impact will be widespread.

    Tech powerhouse Atlassian, which offers software solutions for workplace collaboration, coding, and more, does a lot of acquisitions. It’s a multi-billion-dollar company, and it buys dozens of smaller companies to expand its services into new areas.

    So far, pretty standard.

    Most large companies use that leverage to “bully” the smaller business into accepting whatever terms of the deal they put on the table.

    But Atlassian has shaken things up… to put it mildly. 

    As Tom Kennedy, the company’s chief legal officer, and Chris Hecht, head of corporate development, put it in a statement announcing this bold move:

    “The M&A process is broken. It’s outdated, inefficient, and combative. Which is why we’re publishing the Atlassian Term Sheet to fix it.”

    Why the New Atlassian Term Sheet Is a Game-Changer

    The traditional way to go about M&A deals is to conduct negotiations in which one side wins and the other loses. The larger company will always win.

    Commandant #1 in the traditional M&A world is, “Those with leverage tend to use it.”


    You win the deal at the sake of losing trust from the those on the Seller’s side. It makes everybody uncomfortable. And it’s counterproductive.

    When bringing in a target company, you want them to be your next rock stars that will help you capitalize fully on your new investment. If you’ve beaten them into submission and they have to show up at the office on Monday, it can be quite difficult to really put your heart into your work.

    One of the biggest points of contention (and cause for resentment): Why is it standard to have escrows that are 20% to 30% of transaction value? Breaches are typically tiny. Big escrows are unnecessary. Atlassian is saying they will give their targets a choice: either provide a 5% escrow for 15 months or pay for a Buy-Side representations and warranties policy and provide a 1% escrow (this insurance would cover the other 4%). That represents a seismic shift from what well-leveraged Buyers usually do.

    After going through plenty of deals where that happened, Atlassian decided to make a radical change and be transparent during the whole M&A process, from the beginning.

    With the Atlassian Term Sheet, they’ve shown potential Sellers exactly where they stand on:

    • Closing Date
    • Due Diligence
    • Deal Documents
    • Holdback
    • Proposed Purchase Price
    • Outstanding Equity Awards and Other Equity Rights
    • Employment Offer Letters and Non-Competes
    • Employee Retention Pool
    • Indemnification
    • Escrow
    • Insurance
    • Transaction Expenses

    These terms are non-negotiable. A Seller can take it or leave it. And, in many cases, they should take it because if you read through the term sheet, you’ll see that Atlassian – the Buyer – actually assumes a lot more risk according to this term sheet than in a similar, standard M&A deal.

    This Seller-friendly stance horrifies M&A attorneys. But Atlassian is fine with it because they know there is not much risk in these deals. There are actually very few breaches in deals post-closing, especially with IP. And if there is a breach, it’s small in the vast majority of cases.

    Atlassian is not rolling over. Everything is still contingent on extensive, rigorous diligence.

    How R&W Coverage Fits In

    R&W Insurance is an instrumental part of this document. The glue that holds it together, in a way. And, the term sheet outlines that the Seller will pay for R&W insurance and D&O Tail insurance.

    For R&W coverage, the term sheet states that the Seller will pay for it, including any fees, premiums, taxes, or commissions, for a policy limit of 4% of the Purchase Price. It’s quite affordable, costing less than ½ of 1% of the transaction value.

    One of the reasons Atlassian can feel comfortable offering these terms is that if there is a breach, the R&W insurance kicks in. It transfers all the indemnity risk to the insurer. If there are any breaches post-closing, they file a claim and get damages – no need to go after the Seller.

    Ever since I first saw R&W insurance back in 2014, I’ve had the opinion that as M&A progresses, this specialized type of coverage will become as standard as title insurance for buying a home. Because of the speed and frequency of M&A deals – which is only increasing – things have to become standardized.

    And things are heading that way. PE firms and VCs, as well as Strategic Buyers, are being drawn to this insurance more than ever. There are about 20 insurers offering this coverage today, up significantly from a handful just a few years ago. And there are policies even available for deals under $20M, which is a development in just the last year or so.

    There is no good reason not to get this coverage, in most cases.

    How Will This Term Sheet Impact M&A in 2020 and Beyond?

    I think this is going to soon expand beyond Atlassian.

    This could be a potential signal for other Strategic Buyers out there. They know they had better streamline the process. Why are they reinventing the wheel for every deal and grinding the Seller into submission? That attitude is as productive as old school football coaches who wouldn’t let you drink water to toughen you up.

    Think of it this way. Forty-niners coach Bill Walsh established a policy of no-contact practice mid-season on. There wasn’t any need. And unlike other teams, his players weren’t beat up for pivotal games late in the year.

    The NFL is a copycat league, and other teams soon followed Walsh’s tactic. Corporate America is full of copycats, too. So I think you’ll see them follow suit when they see that the term sheet has made Atlassian very attractive in potential Sellers’ eyes.

    With everything, there is a hard way… and a smart way. The Atlassian Term Sheet is the smart way. This is a more efficient and cheaper way to get deals done.

    They have an eye on the end result: integrating the acquired company. This company wants peace, love, and happiness in their M&A deals going forward, and they’re not having to take on very much risk to get it.

    Be sure to check out the Atlassian Term Sheet in-depth. Then I’d invite you to speak with me, Patrick Stroth, about how Representations and Warranty insurance is a key part of this new way of thinking… and how it can protect you in your next deal. You can reach me at or (415) 806-2356.

  • Pejman Makhfi | Easier Acquisitions for Mid-Market Companies
    POSTED 1.14.20 M&A Masters Podcast

    There comes a stage in every company’s life where organic growth is no longer enough. A strategic acquisition is the only way forward.  

    But for middle-market companies, this is a tricky proposition. The management team is running the business… they don’t have time to research potential targets, negotiate price and terms, and all the rest that goes with an M&A deal.

    Pejman Makhfi, the founder of Silicon Valley-based Synrgix, which provides a process management system to support growth through acquisition for middle-market companies, has a solution. And it’s vital that it’s implemented now because data shows that mid-market companies that aren’t acquisitive are likely to fail.

    Tune in to find out…

    • One thing any CEO or CFO must know to manage M&A deals
    • How to manage ongoing M&A activity with minimum impact on resources
    • A strategy to balance organic growth and growth through acquisition
    • Why lack of resources doesn’t have to mean stalled growth
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth.

    Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here. That’s a clean exit for owners, founders, and their investors. Today I’m joined by PJ Makhfi. PJ is the founder of Synrgix, a Silicon Valley-based startup company with tools and services to support the execution of the processes in the mergers and acquisitions domain.

    Middle market companies hit a stage in their journey where they face pressure to sustain growth, pressure from the board and shareholders in one direction, and market agility and competition out there from the other direction. Both of these make ma critical to a strategy for middle-market companies if they want to grow. I noticed the immense importance of this effort based on recent discussions I’ve had with PJ and his team, which is why I asked him to join us to talk about synergetics and how they can solve the problems for the middle market.

    PJ. Thanks for joining us today. Welcome to the podcast.

    PJ Makhfi: Thank you, Patrick. Pleasure to be here and thanks for the opportunity.

    Patrick: Tell us before we get Synrgix to tell us what brought you to this point in your career.

    PJ: As you may know, my background is in software with many years of experience in BPM. For those not familiar with BPM, it is business process management. BPM help optimizes and automate business processes, and let you put tools in place for continuous improvement. In the past, I’ve been a part of several acquisitions both on the buy and the sell-side of the deal. What I noticed was that while the deal rationales made sense, and clear synergies, where there, acquisitions didn’t fully deliver on the promises, so I decided to take on the challenge, dig deeper and see if I can make the M&A process more controllable and rewarding. I talked with many executives and practitioners and studied past successful and failed acquisitions. These gave me the insight and a chance to solve the problems that directly impact M&A success rate, lined up a strong team of like-minded members and advisors, and built a solution to help our executives take up M&A without hesitation.

    Patrick: I didn’t know that happen. That’s fascinating. What markets when we talk about middle-market now, what markets are you targeting? And specifically, what are the challenges that they’re facing? How do they know, not succeed in these M&A deals?

    Middle-Market Challenges

    PJ: We’re focused on helping mid-market companies. I would say our sweet spot is from 50 million to 500 million revenue. Our typical clients are companies that strive for rapid growth but have reached a stage where organic means are no longer sufficient. They would like to reignite and accelerate their growth. Just think about what it takes to take a new product from conception to market and scale or taking your existing product to different markets, domain expertise, engineering, marketing, sales, partnership, etc. The organic means are often too slow and uncertain in an age where disruptions are happening every day and everywhere.

    Patrick: I didn’t think about that. Well, when you consider you’ve got a choice for growth is either you get Do It Yourself organically or you grow through acquisition. There are merits to both sides of the equation. And I would just think, anecdotally about Coke and Pepsi where it’s cheaper and faster for them to acquire another flavor than to develop their own sports drink. I think it’s easier for them to just go buy Gatorade, but there’s still that tug between organic and an M&A. Why do you think M&A is the solution over organic for growth?

    PJ: There are some numbers that can share with you, Patrick that support this. Over the past decade, 73% of mid-market companies have disappeared. Of those who survived 70% were acquisitive. historical data shows that M&A helps companies grow three times faster and give a 75% higher chance of success, even an economic downturn. Surveys also show that 60% of mid-market companies considered M&A, but only 22% building into their strategy is M&A gets quick access to revenue and reduces costs. You would ask why don’t all adopt this?

    Patrick: Well, those numbers are compelling. Why is that? Why are more companies not going for acquisitions if it’s such a no-brainer?

    PJ: Good question, this goes back to lack of experience and resources in a very complex and delicate process. On average, our CEOs have point nine acquisitions in their lifetime. There is uncertainty, complexity, risks and high expected costs. Plus there is still the existing business that they need to run, leaving them with little time and resources to commit to the m&a initiative. There are also concerns about using third parties. Today, the M&A ecosystem is suffering from misaligned incentives for service providers. And the corporation’s several players in the M&A process work in silos and are compensated regardless of their returns.

    Patrick: Yeah, that would pretty much make me pause. I always look at this as if you’re running a medical corporation and you want to acquire another medical corporation. You’ve got to go out and almost get finance and a law degree. Just understand what’s happening, and fortunately can’t do all that at one time when you’re running a company. So what does Synrgix do to offer these companies so that they’re stepping out into the unknown, and they can do so confidently?

    PJ: So we started exactly what the mission to address the challenges that I just talked about. We created a software platform to guide the execution of the M&A process. The platform allows CEOs and CFOs to track and manage the entire M&A process successfully. From strategy planning all the way through integration, and synergy realization, we offer on-demand services to augment the in house team, our need basis. And we aligned our compensation with our client’s success metrics to create a truly trusted relationship.

    Patrick: So you can make the process as simple or as hard as it needs to be. The client has full control There is less of a chance of a conflict of interest because of compensation structures different. That’s fantastic. I’m sure there’s a lot more in it when people dig deeper with the platform and so forth, you can’t be the only one out there. So with other players out there that are providing services to M&A parties, how does Synrgix differentiate itself in the space?

    Why Synrgix is Different

    PJ: The first and foremost difference is that Synrgix uses a process-based approach with end to end transparency. In other words, it gets rid of silos, there is so much at stake in a transaction our CEOs and CFOs want visibility throughout the entire process. Second, objectivity, experience, and control are in the fabric of our solution. We target its identification, due diligence, valuation or integration. We provide visibility and decision support to execute a successful deal. And finally, the curated on-demand services give our clients and the extended deal team they can tap into when needed. That allows them to manage m&a initiatives with minimum resource impact and risk to their in house projects and day to day business. So you’re providing transparency, objectivity, and the ability to pick and choose the services as you need is need fit so that you’re controlling costs. I think that’s fantastic with everything you’re offering there. Is there anything else you’d like to share with the listeners when it comes to this platform? Yes, I like to encourage our CEOs and CFOs to think more about how long and what it takes to prepare for M&A.

    We have learned that M&A transactions take a lot of upfront work before you have a solid plan and a green pilot pipeline of targets. My advice to you or executives is to be proactive in order to stay on top of your game. And ahead of the competition. You can start big or small, build a strong strategy, and in house capabilities and have the processes and tools in place ahead of the time. Be the one-off acquisition or scaling through several acquisitions, make sure you have a repeatable process that builds on top of and learns from the past deals.

    Patrick: I think was really important to keep in mind just something that we forget from time to time is there’s always the focus on a potential target company, thinking that they’ve got a plan ahead and get organized and think about all the things they have to do to get organized to be acquired. And we don’t really think about the other side of the equation we’re all the pre-work has to be done. Done. If you’re thinking about an acquisition, and you shouldn’t wait until you have a clear target in mind, you’ve got to start doing a lot of this pre-work ahead of time and kind of get yourself staged up for that. And it’s helpful to have someone out there that can guide you and do that pre-work without this big, long, cumbersome commitment. Why don’t you run us through a scenario on how you work with a client? Let’s say you’ve got a company that has a concept they do want to grow, and they want to get started, but they don’t know exactly where they’re going. What would it look like for them if they commenced engagement with you?

    PJ: It’s very simple. Patrick. On sign up. What we do is we work with our clients to understand their situation and needs. Our success manager helps them capture their acquisition and growth strategies, selection criteria, and process templates to follow best practice execution. Clients can kick the tires and go at that point, they can use our sourcing services to get a pipeline of pre-scored targets, or do their own target sourcing. It’s as easy as that.

    Patrick: So they can sit down with you get some guidance on a profile and not only get their processes for acquisition and bringing somebody on board, but they can also talk to you and get guidance on where they could find targets with your sourcing services. So that really is a big value add out there. Tell us about the pricing for this out. How is it based?

    PJ: Our pricing is very competitive. It’s a very reasonable monthly subscription fee with no upfront cost or yearly commitment. Our clients get a success manager to help them onboard and run a smooth process. On top of that are on-demand sourcing and other supporting services are there for those clients who like to tap into with a pay as you go, payment model?

    Patrick: Well, I think one of the things we can overlook on this is what you’re doing if you’re an acquirer, what’s the difference between an acquirer and a serial acquirer? A serial acquirer has done more than one acquisition. And I imagine with Synrgix if you can get the templates set up for processes here, and you may come up with more than one target, but you may go for one target at a time. I think it was great as this sets up an individual platform for each and every company. So you’re not only equipped and ready to go ahead and process assessable transition and acquisition for one target. But you can set the template for this being used again and again and again. And I think that’s very valuable that this is not just a one-off tool. This is something that can be deployed and after successful deployment, it can be used as an Again and again and again. And so I think that leads to more acquisitions, which we’re happy about because the smoother acquisitions become, the more there will be and we love more, not fewer acquisitions.

    PJ how can our clients reach you?

    PJ: Your audience, you can reach us by visiting our website or email us at We can offer a free readiness assessment or a demo as our client requests.

    Patrick: Well, that’s outstanding and to our listeners out there, I would strongly encourage you, you have absolutely nothing to lose in these processes to learn something that is a potential tool that can be an absolute game-changer for you, if not for making something easier, at least giving you peace of mind to know that There’s something out there that you can use as a reference point. PJ, thank you for joining us and we look forward to talking to you again!

    PJ: Thank you for the opportunity and I look forward to working with you.


  • The Lowdown on “Naked Tail” D&O Insurance
    POSTED 1.7.20 Insurance

    In insurance parlance, if you insure a particular exposure, you’re covered. If not, you’re bare. If you’re looking for a policy that covers something that’s never been covered before, you’re… naked.

    That’s the situation many privately held, small and middle market companies find themselves in when they seek to sell their business.

    The Buyer asks them to secure Directors and Officers Liability insurance (D&O), specifically a “tail” policy to make sure there’s a source of insurance coverage in case the Seller is held liable for any wrongful acts against an employee or others – things like human resources issues or fraud – committed before the closing date.

    Essentially, the Buyer doesn’t want to find out six months after the closing date that there is some sexual harassment lawsuit or anti-trust complaint against the former owners.

    As the new owner, the Buyer doesn’t want to be on the hook for incidents that happened before they purchased the target, so they require Tail coverage that extends the target’s D&O Liability, Employment Practices Liability, and Fiduciary Liability coverage for up to six years from closing.

    Tail policies provide virtually the same protection as a traditional D&O policy that has a Tail Endorsement. On the acquisition date, the Tail kicks in and covers lawsuits brought against the directors and officers of the target company. This covers any allegations that they committed a wrongful act prior to the acquisition, all the way back to the incorporation date.

    This sort of coverage is standard in the M&A world. I’ve been working in this space for years. As I mentioned in a previous article, when Representations and Warranty insurance is not a fit for a deal, Naked Tail coverage is one of three alternatives.

    (To put it in to perspective, the cost of D&O Tail coverage is about $20K to $50K. That’s a fraction of the cost of a R&W policy. And the deductible on a Tail policy is $25K to $50K, which is also a fraction of what it is for R&W.)

    There are literally thousands of privately held companies in the $30M to $50M range that have never held D&O insurance and now need it to satisfy the terms of their acquisition. Today, this can be done quickly, easily, and broadly.

    For example, a small business, run by husband and wife for 20 years. They never felt the need for D&O coverage and had gone the whole 20 years without any sort of legal claim against them. But, when they were ready to sell and enjoy a well-deserved retirement, they were forced to scramble and find coverage because the Buyer required a D&O Tail. Since the couple had never carried D&O previously, their options for finding suitable coverage were limited. That is until now.

    Insurance companies didn’t look at these Naked Tails favorably in the past. Generally, they wanted to see three to four years of successful coverage under a regular D&O policy (and wanted three to four years of premiums).

    What happened to people who didn’t previously have a policy and are about to sell or merge? The insurers would provide scaled down policies with multiple exclusions at rates that were substantially surcharged.

    Things have changed. Now, insurers understand that the risk of anything that the Seller didn’t know about blowing up post-closing is very small. And they are willing to offer these Naked Tail policies for even small transaction size deals.

    Today, Underwriters need only a statement from the Seller warranting that, as of the closing date, they know of no fact, event or circumstance that would give rise to a claim. Such warrants are hardly problematic because the Seller is already making these warrants to the Buyer on a much broader scale.  Therefore, the Naked Tail is a relatively low risk for Underwriters.

    Three Reasons You Need a Naked Tail Policy

    There are a couple of reasons you need a D&O Tail policy when you’re going through any M&A deal, besides the fact that it is contractually required. (For those who’ve never had D&O insurance and don’t see why you need it now, pay close attention.)

    1. If you are getting purchased, this is major liquidity event. You become a deep-pocketed individual overnight. There’s nothing like some press release touting the $20M sale of your company to bring people out of the woodwork who are motivated to take some legal action. Could be past competitors (like a company hoping to be purchased but you were selected instead). Also, former employees who quit before the transaction happened and who now feel they want part of the payday. You need to be protected against such situations.
    2. D&O insurance will cover your costs. The cost of litigation is only going in one direction as time passes – up, especially as states, California foremost among them, pass court costs on to litigants. You’ll also have to pay defense costs and settlement costs. If you have a Tail policy, the insurer covers those costs. The more limits, the more protection, the more dry powder you have. You want to preserve your nest egg.
    3. If you don’t have R&W coverage, you have no protection from Buyers alleging you committed fraud or misrepresentation when you affirmed you knew of no potential breaches of the Reps in the Purchase and Sale Agreement. In these cases, they usually want to keep your escrow, and even clawback more funds to pay for the financial damages – up to 100% of the purchase price. That’s not good.

    D&O Tail coverage doesn’t cover fraudulent behavior, but it will give you money to defend yourself against allegations of fraud. An allegation is not proof. But if you want to keep your escrow, you must defend yourself in court, no matter how frivolous the claims. Without D&O coverage, you’ll pay your own legal costs.

    D&O Tail coverage doesn’t cover fraudulent behavior, but it will give you money to defend yourself against allegations of fraud. An allegation is not proof. But if you want to keep your escrow, you must defend yourself in court, no matter how frivolous the claims. Without D&O coverage, you’ll pay your own legal costs.

    How to Get Your D&O Tail Policy

    As I mentioned, if you’re looking to sell your business, you’ll most likely be contractually obligated to take out a D&O Tail policy. There’s no getting out of it, so to speak. And with the legal and financial protection it offers, why wouldn’t you want a policy anyway.

    I would recommend not going to your regular commercial insurance broker, even one with experience in standard D&O insurance. A Naked Tail policy is a whole other animal.

    You need a broker experienced in insuring M&A transactions and Naked Tails in particular. It’s a slightly different skillset. And because this issue usually comes up close to closing, you want a pro who can get the paperwork processed in a day or two.

    I’ve worked in this world for years and would love to answer any of your questions about setting up a D&O Tail policy to your deal. It’s low cost and easy to do. 

    You can contact me, Patrick Stroth, at

  • Middle Market Privately Held Firms Fearful of M&A
    POSTED 1.1.20 M&A

    Every business must have some plan for growth. That’s obvious. But how they achieve that growth is another story.

    There are basically two methods:

    1. Organic growth
    2. A merger or acquisition

    Companies usually use a blend of both. But those that try to rely solely on organic growth, which takes a significant amount of time, even with the best businesses, will be left behind in the marketplace.

    M&A is a much more effective choice to add to their product offering, boost their capabilities, reach new groups of consumers, or expand their geographic presence.

    But there is an issue, at least among middle market, privately held firms. They might understand that organic growth is too time-consuming, yet they won’t move forward with promising M&A deals that seem like a good fit.

    In fact, a study from Synrgix, a business application development and consulting company, found that one out of 5 of the 25,000 middle market companies surveyed that are looking to execute an acquisition, actually do so.

    Why is this the case?

    There are several factors at play.

    Mainly it’s fear, due to lack of expertise… lack of time… lack of resources.

    These are relatively small, privately held companies. They don’t have an internal corporate development department. Besides, they don’t have the experience or knowledge base in how to conduct M&A deals, so they decide not to do it.

    It takes time to search for targets – and it always helps if you know what makes for a good acquisition. It’s usually a CEO or CFO that is placed in charge of an acquisition, but they have a full-time job already and often don’t even know where to begin. So, deals fall by the wayside… and growth stalls.

    The Consequences of Delaying an Acquisition

    Only when pushed to the brink in desperation do these middle market companies go through the whole acquisition process – or at least attempt to. They might eye a potential target only to find out a competitor grabbed them first, while they struggled to get their ducks in a row.

    If that potential target had a capability they were looking to add, it gets even worse. They might lose the target and lose an existing client that expected the company to serve them with that capability.

    Another consequence: the company was contemplating entering a new market and a competitor makes the acquisition and enters that market instead. Bad for business.

    There is a solution. Synrgix offers a software platform that streamlines acquisitions by helping organize the process and schedule milestone events until the deal is done.

    With a platform like this, companies eager to engage in M&A don’t have to hire an outside corporate development firm. They can do the work internally and spur deals that will allow them to add new capabilities, clients, geographic market, and more – all elements critical to growth. You can see the Synrgix platform yourself at:

    Another element that can help spur successful acquisitions is Representations and Warranty (R&W) insurance. With this coverage:

    • Negotiations are generally much quicker and less contentious.
    • Any risk from breaches of reps in the Purchase and Sale Agreement are transferred to a third party (the insurer).
    • Insurance companies do pay claims.
    • Less money is held in escrow and there is no chance of clawback.
    • Both Buyer and Seller feel peace of mind as a result.

    There is potential risk in every deal, but R&W insurance mitigates it. And in the last couple of years, costs for this coverage have been coming down because more insurers are getting into the game.

    Not to mention, deal sizes as low as $15 million are being covered by multiple insurers – that’s perfect for middle market companies looking to grow through M&A.

    If you have a middle market company but haven’t been able to pull the trigger on a much-needed acquisition, I’d be happy to speak with you further about how you can avoid obstacles that are in your way.

    You can contact me, Patrick Stroth, at