• Louis Lehot | The Biggest Changes in IP in the Last 10 Years
    POSTED 8.25.20 M&A Masters Podcast

    As a veteran M&A lawyer in the Bay Area, Louis Lehot has advised many public and private companies, VCs, investors, and more on forming, financing, governing, and buying and selling companies.

    Formerly with DLA Piper, Louis founded his boutique law firm, L2 Counsel, to serve the unique needs of entrepreneurs and investors, specifically those young founders in the early startup phase.

    He talks about that work as well as the changing role of data, technology, and IP in deals.

    Tune in to discover…

    • How rep and warranty insurance has changed the game
    • Avoiding “extra” tax liabilities as a seller – and how counsel can help
    • The biggest mistakes companies and founders make with IP
    • What the future of M&A looks like in a post-pandemic world
    • 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 Louis Lehot, founder of L2 Counsel. L2 Counsel provides practical and commercial deal lawyers for founders and their investors. L2 is focused on legal strategies and solutions that make sense, which is really important when you’re getting into some complex deals.

    Lou is a veteran of m&a transactions representing the who’s who in Silicon Valley. Last month, I had the pleasure of joining Lou on a panel for structuring IP and technology acquisitions. So I asked Lou to join me today and share his perspective and predictions and I’m really excited to have him here. Lou, it’s a pleasure having you. Welcome aboard.

    Louis Lehot: Patrick, thank you so much for letting me join and speak to your audience. I’m a Silicon Valley lawyer. I’ve been practicing for 20 years. And I love to help founders, management teams and investors plan really smart exits, according to the theme of the situation. And I have so much fun in what I do. I have a great team of lawyers in my firm called L2 Counsel and an extended network of other lawyers that I bring in according to the circumstances.

    And it’s a pleasure to be with you. Like most of your listeners, I’ve been sheltering in place and working from home and trying to find ways to stay connected with people. And Patrick, I was so grateful that you joined me in my webinar a couple of weeks ago on how to structure IP and technology acquisitions. And I’m just thrilled to have the opportunity to speak to your audience about, you know, what I’ve learned along my journey and how I can help.

    Patrick: Yeah. And Lou, before we get into the IP issues, because this is not just limited technology companies, it’s essentially everybody now and we can get into that. But let’s back up before we get into L2 Counsel and M&A. Tell us about yourself real quick. What brought you to this point in your career?

    How Louis Got to This Point in His Career

    Louis: Oh, thank you, Patrick. I grew up in the San Francisco Bay Area, but in the East Bay in the hills above UC Berkeley. And I watched my father who is a PhD in computer science, go from entrepreneurial venture to venture and I caught the startup bug when I was at a very young age. I went off to college in law school on the east coast and found myself in Europe helping multinational corporations access the US capital markets. And after I met my French wife and had two kids, you know, she had the smart idea that we should move back to California.

    And we came back in 2005 and have been here ever since. Recently, I was running DLA Piper’s Northern California operations and their, co-leading their venture capital team. And I stepped away in October of last year and took some time off and came back to the market just as COVID was shutting us down with a new market offering to fill what I see is a gap in service where, you know, young founders, in the earlier stages of their startup, and when they go to exit have the most and the greatest need for legal services.

    And those are the times when they have the least amount of cash. And so calling up a lawyer who might have some giant hourly rate is a big impediment to, you know, forming that relationship and growing it. And so, in my new structure, I’m trying to find creative ways of making sure that I can build long-term relationships with founders and management teams and investors that are not based on the billable hour or with built-in disincentives for us to build our relationship.

    So that’s what we’re doing, Patrick, and we’re really having a great time. I think at the outset of COVID, we all tried to get the deals done that we had in process. And as of this recording July 10, you know, we’re starting to see brand new deals where, you know, buyers and sellers have not actually met each other and who have built enough of a relationship over Xoom and email and phone calls and video calls that they’re launching transactions to create inorganic growth and I’m really excited about that development and I think it bodes well for the rest of the year.

    Patrick: Well, I share your view and your optimism. I also have been noticing how necessity has become the mother of invention. And it was unthinkable of doing an M&A deal unless the parties were in a room physically together, to be able to look each other in the eye and see the whites of their eyes and, you know, get up all the body language and everything. Sometimes that’s just not possible. And I’ve seen, like you, not as many but a few of these things moving forward.

    First of all, let’s just talk about technology because, you know, technology 10 years ago was thought of as those are the Silicon Valley, those hardware, software companies, okay? Today, every company is a technology company, okay? Whether you are a manufacturer or restaurant chain, you’re deploying and utilizing some kind of intellectual property. Talk to us about that. I wonder what the perspective is on the challenges for these companies that may not think they’re IP intensive and how things have changed in the last 10 years.

    Every Company is a Technology Company

    Louis: That’s a great question. When I started out in Silicon Valley, I think there was an idea that really our companies were built on the back of two things. One was the idea and two were the people that knew how to implement the idea. So it’s technology and people. And the way we did transactions was really designed to grow the technology and bring along the people that were essential to the technology. And we viewed it as very much a wave of growth. It started here in Silicon Valley and would go eastward until it went abroad.

    And I guess the biggest development of the last 20 years, I would say, is that when I see it and meet a new company now, it’s just as likely that that company will achieve its first dollar of revenue outside the US as inside the US. It’s just as likely that its intellectual property will be developed in another part of the world as it will here. And I guess, I believe that the key to success for all of these businesses is that they plot a strategy for the development of their intellectual property from inception and that they identify what it is.

    And, Patrick, you know, I think the greatest development of the last year is the realization that the data that is created or harvested by the technology company is also part of that portfolio that needs to be addressed from inception. You know, how can you harvest the data? How can you create the data? How can you protect the data? How can you keep it private? How can you keep it secure? And so, when I work with early-stage founders, and especially when I help bring them to exit, really telling the story of what that is, is often the most compelling thing about the reason why a buyer wants to buy them.

    Well then as you move into the execution of the transaction, you’ve got to anticipate, you know, what a buyer is going to be looking at to determine that they’re getting the full value and that they’re mitigating any potential risks. So it used to be that buyers would, you know, focus on a freedom of operation analysis to make sure that there was a sufficiency of patents and that the patents didn’t infringe anybody else’s patents. And today, you know, many companies never get patents. Their business is really based on trade secrets.

    It’s based on computer code that they would never want to write a patent for just because of the time and expense and that it would render it public. And then, you know, they obviously have some of their greatest assets that they harvest from their trade secret software code is data. And so I don’t care whether you’re making masks or machines, you know, there’s data that’s flowing through your supply chain and your customer chain and the ecosystem that your product lives in. And, you know, harvesting that and monetizing it is the challenge of our time.

    Patrick: What’s, when you have a client there and they’re looking for an exit, okay? Let’s talk about the structures that. You know, very simply, what kind of structures are available out there for these companies?

    Structures for Exit Plans

    Louis: Great question. And, you know, when you’re looking to sell your business as a seller, you would like the buyer to take the entity so that you have no further ties or obligations. Those become the buyer’s ties and obligations. And so, you’re looking to either do your transaction through a merger, which is the easiest way to sell your company because it doesn’t require 100% of the shareholders to sell their, each and every one of their shares. Each of the state laws allows a merger as long as a majority of the outstanding shares of capital stock approve it.

    And some states have some additional requirements that, such as in California that each class of shares separately votes on that. But a merger, a share purchase is really in the best interests of the seller. It also guarantees the seller that they know what the tax treatment is going to be on the sale, which is simply going to be hopefully, a long term capital gain with the purchase price that they receive minus the price that they paid per share, which if you’re a founder, is hopefully a peppercorn and all of that as long term capital gains.

    Now, a buyer is going to look at several other ways to structure an acquisition. First, and this doesn’t always come to mind, but if you’re a buyer merely looking to get access to technology, a license is a really great way to go as it doesn’t give you the requirement to maintain the electoral property.

    It doesn’t make you a liable for any breaches of those patents by somebody else or breaches by those patents of somebody else’s patents. It doesn’t give you any of the historical liabilities for failure to pay payroll tax or any of that. So a license is really an easy way to go for a buyer. Now, they’re going to want exclusivity of the intellectual property. And so they’ll want the ability to develop it, grow it. And so acquiring the IP through an asset acquisition is often something that the buyer wants really just to control it better and to better monetize it. So an asset acquisition is another way that buyers look to do transactions for IP.

    Patrick: I just want to break in here real quick. In light of the economic climate out there where you’ve got a lot of companies that are struggling, do you sense that they’re going to be a lot more attention on opportunistic buyers to really push the asset acquisition as opposed to either allowing a merger if they can’t get a license?

    Louis: Absolutely. You know, I think that buyers are going to be looking to opportunistically supplement their own portfolio of products and an asset acquisition and then the recruitment of the people that know how to monetize the IP is often the most protective way for a buyer to acquire the business. It’s an asset acquisition, leave behind all the liabilities, leave behind the entity, leave behind the employees and whatever liabilities that may have occurred and then directly recruit the employees that they want cherry-picking them on a person by person basis.

    Patrick: Grabbing the talent. Yeah.

    Louis: And why that’s not the best thing for sellers is that typically, the company will have to pay tax on the difference between book value of the assets that were sold and the amount of proceeds that they receive. And then when they dividend out those proceeds to the shareholders, the shareholders then pay a second level of tax.

    So whereas in a merger, you could have, if you’re in the state of California 33% tax, if you’re selling your assets, you could pay a flat 20% corporate tax and then the individual of 35% in California 13% on top and suddenly, it’s over the vast majority of the transaction proceeds are going to Uncle Sam. And so not the best outcome for sellers. I would say the other risk for sellers and an asset acquisition is that the buyer has the right to, unless you contract around it, the buyer will get to attribute basis on an asset by asset basis.

    And, you know, you as the seller could get hit with the wrong tax treatment on a specific asset. And so for example, you know, a big risk is if there’s a lot of basis that the buyer attaches to some sort of a non compete or intangible asset that you don’t have basis in. And suddenly, you as the seller paying all this extra tax on top of what I already described. So, if you are a seller doing an asset deal because you have no other way of doing it, you really need good counsel and really strong accounting to make sure that the deal is what you think it is and that you minimize the damage.

    Patrick: I would say that, you know, another way the seller can try to negotiate and engaging a solid return that’s done these deals before, is, you know, the number one reason why a buyer doesn’t want to buy the company and everything is because they don’t want to assume any, or pick up any of the liabilities there might be that they don’t know about, okay? Either IP, HR legal, things that the buyer didn’t know about and, you know, they perform due diligence. You know, they’re on the hook just as if that target company committed them post-close. And so there is a way to transfer that risk away from the buyer, and that’s with rep and warranty insurance.

    Louis: Yeah, you know, that’s a great point. Rep and warranty insurance has been really a revolution in how we do deals. And it’s, you know, I think it’s in the interest of buyers and sellers to externalize the risk of breaches of reps and warranties, with insurance. And it really takes the sting out of, and the friction out of an ongoing relationship between a buyer and buyers’ new employees who are helping the buyer monetize the IP and really going back to those employees and thanking them for, you know, indemnification claims is really the last thing you want to be doing.

    And the easiest way to de-incentivize them and demotivate them from doing what they need to do. But you know, Patrick, there’s something I wanted to tell you about representing startup companies and growth companies as they come to the market for sale. And that’s that they’re all so special.

    They all come with their own history and relationships and problems. And so what I do as counsel to two sellers, is I come to them, and I schedule a three-hour meeting and I go through my 20-page checklist that I’m constantly updating of every question that I can think of that will impact how to do the deal. And so I’ll give you an example. A lot of founders will have family members in the company.

    And if you don’t ask the question, you won’t find this out until the day after the closing when the founder calls you, you know, that his daughter’s crying that she lost her job. And so if you don’t, you know, anticipate those issues at the outset, you know, you can have a bad surprise. And another one I’ve seen multiple times is the founder of the business also owns the facility and has an arm’s length or some rental agreement between the company and her or his family trust that owns the property. And, you know, if you don’t anticipate that, you can have issues.

    Trusts and estates, when you’re really in the money on your business and you go to sell it and it’s your life’s biggest asset, you really want to be thoughtful as early as you can about taking advantage of trusts and estate and, you know, family planning vehicles, so that, you know, you can put the money in the places that will best benefit, you know, you and your stakeholders. And I can go on and on. But, you know, I’ve got this 20-page checklist, Patrick, that I really need to spend a lot of time with my clients on to understand what are the issues and how we can best structure deals.

    As we look forward to the rest of the year, Patrick, I am seeing a lot of early-stage companies running on fumes, running out of cash running out of runway and they’re going to be faced with a tough decision whether they empty more of their personal savings into the company or whether they bring it around for sale. And some of those companies will, you know, will fail and they’ll end up either in chapter seven or 11 bankruptcy proceeding if there’s sufficient business that it merits the expense of that process. Or, you know, I often find that the IP simply is assigned for the benefit of creditors.

    And you have specialist firms like Sherwood partners or Armanino, or one of others, many others that will go, you know, keep a database of assets that they hold on behalf of creditors that are for sale and buyers will be in touch with those brokers of insolvent assets to acquire pieces of intellectual property that they need. And so, you know, one example I’ll give you is, you know, I had a client who had a business idea that might have involved repurposing some product to help turn those into ventilators. And we discovered through the process of mapping out the technology roadmap that we needed some licenses.

    And so we went to business brokers and found who had what we needed and took out a license. We didn’t actually acquire the intellectual property, we just took a license to it. And that was one way that whoever had bailed out on their business was able to monetize it even after the business had failed. So I expect to see a lot of restructuring transactions, a lot of assignments for the benefit of creditors, and a lot of, you know, new and important ways for people to learn how to monetize intellectual property and structure technology acquisitions and sales.

    Patrick: I think that’s a great role that you provide there, Louis, you and your team, is that people may be thinking that okay, there’s only one way out and it’s not going to be a favorable one unless we go ahead liquidate our personal assets and I think they come to meet with you, all of a sudden, all these options open up that they never knew existed.

    And the larger firms don’t have the time to deal with those smaller things and probably don’t focus on those options. They’re too busy worrying about much larger needs of larger clients. I think you meet a great need there. The other thing is important is with that 20-page questionnaire, I mean, your objective when you’re representing sellers is what?

    No surprises when they’re negotiating with a buyer. You don’t want buyers coming in here all sudden asking the uncomfortable questions that turn up some real big problem that could derail the deal. From your experience just solely with regard to intellectual property, what are some red flag things out there that buyers, you know, buyers are gonna be asking you about that either your clients don’t think about or just aren’t as prepared as they should be?

    Intellectual Property Acquisition Red Flags

    Louis: That’s a great question, Patrick. And, you know, On my long list of questions that I go through with a seller that I’m working with the first time is how did the intellectual property first come into the company? And upon formation, did the founder assign her or his intellectual property to the company? I’m always shocked to find the number of defective assignments of IP at formation.

    And so that’s an easy fix as long as the founder that contributed that IP is still around. But if you have a co-founder that was really key to the development of the IP, that formation has departed and you have no leverage to get that person to sign in as assignment later on that can be sticky. Another red flag is prior employment of the founders. And so, you know, if the founder worked making bread at Acme CO and was responsible for the designing of the baguette and then suddenly starts a new company and guess what? Baking bread and the designs are the same.

    You know, that can be a big problem. So typically, technology companies and any company, when they hire an employee will ask them to sign all of their intellectual property to the company that is their employer that they create during their duties during their nine to five job and that relates to their job. And so I always want to know, from a founder,  what was their prior job, what were they doing and what paper did they sign.

    Another one is, you know, in the life of a startup, you know, it used to be that you could exit a company in three to four years and today, I think the average time to exit for a company is more like 10 years. And so, you know, there’s gonna be a lot of people coming and going during that 10 year period and you’ve got to make sure that every employee from day one has signed an assignment of invention agreement so that you can put hand on heart and tell the buyer that when they acquire the company that they’ve got all the IP without any claims from employees that the IP is in fact theirs.

    So the famous example was when Cruise, the automatic autonomous vehicle company, came out for sale to General Motors, there was a former co-founder that raised his or her hand and said, Hey, I’m actually co-founder and I actually, you know, owned X percent of the company and the idea was mine and there was no paper. And so I believe there was a settlement and I don’t know that the settlement was ever disclosed, but I’m sure that it was painful for the management team of Cruise that upon sale to pay that out.

    So that’s another red flag. You know, another one is that I find often are, especially here in the Silicon Valley, or, you know, we have a lot of professors from Stanford or Berkeley or one of the other great universities in a 50-mile radius of this technology hub that spins out of the university to create a company or even creates it in the lab. And you’ve really got to be careful at formation that the intellectual property that’s in the company actually belongs to the company and not the university. And oftentimes, you’ll see spectacular problems when universities have claims to the IP. I see that a lot in life science companies, especially.

    Consultants and contractors, just because you hired someone as a consultant doesn’t mean that they, you don’t have a similar risk of them claiming rights to ownership or intellectual property. Or worse yet, that they were misclassified as a consultant that they were, in fact, an employee. And so you want to make sure that your consultants and contractors are all papered. You know, all of this can be remediated, Patrick, for the most part, and fixed and cleaned up and oftentimes founders take shortcuts because they think can all be cleaned up later.

    And while that’s usually the case, sometimes the people that you need to clean it up are, you don’t have them at your disposal or they don’t want to agree to the cleanup and you end up having to pay them out. Finally, I guess another area of red flag is joint ownership. And so, you know, whether it’s founders that form an LLC where they put the technology and then the technology from the LLC gets licensed to the company or if it’s a, you’ve partnered with a large company, one of the big tech Silicon Valley players and you’ve jointly owned the property, how can you then sell it?

    So those are some of the big issues. I guess I’ll just finish by saying, you know, that in today’s day and age, we see just a ton of enterprise software companies coming to the market. And, you know, they’re essentially selling a platform of software that’s written on a code stack. And that code stack needs to be analyzed once a year for open source code. Open source code is code that’s already been developed. And the condition to using that open source is that if the, if your code contains the open-source code, then you then have automatically granted a license to everyone in the community.

    Patrick: I’ll echo the concern with a prior employer because I mean, that’s the running little joke around Silicon Valley is we’ve got, you know, we’re home to a number of very large search engines and social media platforms. And within those organizations are thousands and thousands of engineers working there that quietly have their own little pet project in their side drawer, just waiting for the day to go ahead and step on out and open up their own shop.

    Louis: Yeah, yeah. Well, I could go on and on with red flags, Patrick, but I hope that’s a good introduction for your audience. And I can to talk about specific problems and ways to solve them.

    Patrick: Well, they’re, I mean, with, as you said, all these organizations are unique. And so they all have their story to tell and they need someone like you that knows how to ask the right questions. Why don’t you give me a profile of your ideal client?

    Who is L2 Counsel’s Ideal Client?

    Louis: Oh, that’s a great question. And thank you. You know, I have set out to target four areas in the market where again, I think there’s a real disconnect. You know, the first is entrepreneurs, management teams and investors at formation and as they go through the life cycle. And so, you know, sometimes you meet the lawyer that’s right for you as you’re exiting your prior employment and you do it all right.

    And sometimes, you don’t meet the right person until you’ve just closed the Series B round and you just meet someone and you click. So for me, you know, the best introduction is that formation or as somebody coming to market with financing for their company. So that’s the first area. The second area is when that entrepreneur or business comes to the market for sales, the sell-side M&A.

    And oftentimes, I’ll get introduced by their banker, I’ll get introduced by one of their investors or board members or members of their executive team. And, you know, I really try and distinguish myself, you know, with a great network of relationships, you know, deep experience and, you know, a really personal approach that starts with that three-hour meeting going through the 20-page checklist to think of every possible issue that is leveraged for and against in a deal.

    You know, the other times, or ideal clients, for me are our larger technology businesses that are looking to create an acquisition machine. And so I help a number of larger tech companies design forms, design, you know, term sheets that are, you know, firm but fair and that are designed to help deals get done efficiently and mitigate risks. And so that’s a really fun part of my practice.

    And then the last part of my practice is I work with a lot of investors across the value chain from, you know, large growth equity investors like the SoftBank Vision Fund or Riverwood Capital or others to, you know, real early-stage investors, you know, that come in with a half-million-dollar check. And I help them design, you know, an instrument that best reflects their horizon for investment and harvesting and that gives them a set of rights that works for them. And so those are kind of the four areas that I’m targeting in my new firm, Patrick, and, you know, I welcome new conversations with folks in those areas.

    Patrick: And this is a regional where you’re doing as long as you stay in California?

    Louis: You know, my practice has always been what I call garage to global and, you know, I’ve lived in worked in Europe, all over the east and west coast and in Asia and so while, you know, most of my day to day company-side clients are here in the Bay Area. You know, I work with investors and acquirers all over the world.

    Patrick: You were good enough to publish an article in CEO Magazine recently where you were putting out your predictions for M&A during COVID. And we were hoping a month ago that we’d be in post-COVID right now, but we’re still kind of bumping along. Why don’t you share a couple of your predictions for M&A as you see from your perspective?

    Louis: Sure, sure. I think that there’s a window of opportunity right now as technology buyers and sellers have been kind of locked in place and sheltering at home. And really, I think there were a couple of months where not a lot of deals got done other than kind of finishing things that were in the pipeline. And even those deals that were in the pipeline, for the most part, got restructured with some sort of a 10 to 20 to 30% haircut on the pre-COVID valuation. I’m now seeing this window of opportunity blasting open as the economy reopens, has been reopening since I would say mid-May.

    And I’ve been seeing investors and buyers willing to look at new transactions, new investments, new acquisitions, on a remote work from home basis. You know, everybody’s still responsible to their stakeholders for delivering growth and, you know, COVID or no COVID, work from home or not, you know, if you want to, you know, capitalize on your opportunity, you’ve got to make the best of your circumstances. And so I’m now seeing, you know, a really strong uptick in M&A activity, both from strategic and financial buyers.

    I think that as valuations, especially in the lower middle market have fallen down by a good third, I’m seeing the private equity buyers are really finding their appetite to go and do deals, Patrick, because, you know, it’s been a tough five years for financial investors and strategic ones as well to justify paying the kinds of valuations that private companies were demanding in the market through the boom. And, you know, COVID is really an opportunity for, you know, value-based investors to get assets at a fair price, or at a price that they can justify to their limited partners.

    Patrick: Would you see maybe initially more M&A activity for add ons where, I’m looking at private equity specifically, where rather than take a big jump on a new platform is maybe you already know what you have and maybe making smaller investments on the add ons or go for the platform, because you’re gonna save a lot more money now on those larger deals that are going to be cut by 30% then on an add on. I mean, just out of curiosity.

    Louis: Yeah, that’s a great point. And I will tell you that I’ve seen both. And so I’m currently working on a new platform acquisition that will be the platform for a technology vertical for a private equity firm. And, you know, they’re very excited about it and excited about the valuation that they were able to obtain and really believe that, you know, this will allow them to further, you know, do those add ons that you’re talking about.

    And I’m working with another private equity firm on doing those little tuck-ins, revenue add ons really, or product add on features. And so I think both platform and add on deals, we should be able to see those happen now through the end of the year. I predict a really big fourth quarter. I think people were thinking big third quarter and maybe slower fourth quarter because of the election.

    But I think that, you know, the economy is going to slowly reopen and we’re going to play whack a mole with all of these COVID spikes, and it’s just going to build momentum. And I think that, you know, the fourth quarter, hopefully, it’ll be a little bit more under control and, you know, people will really want to get their deals done before there’s a change in administration, whether it’s, you know, whoever wins, there’ll be a change in administration and, you know, the associated risk of change of policies and change in market dynamics.

    And so I think the fourth quarter is going to be really big. And then finally, as we’ve alluded to before, I think there’s going to be a lot of technology businesses that just have to come to the market for sale because they have to. And then they’re going to be a bunch that would have been for sale in the first half were it not for the pandemic, but so there’s kind of the pent up supply that’s going to come into the market on the second half.

    And then I think 2021 is going to be a big year for private equity sales. I think there’s a big backlog and I think a lot of these technology companies have done really well through the pandemic, and they’re going to look to sell at bigger multiples and they’re going to be a lot who really struggle where people are going to give up. And bring those in and either restructure or bring them in at lower multiples.

    Finally, there’s one thing we haven’t talked about on this call, Patrick, which is the IPO market and that’s really been booming last month, totally unexpectedly. And I believe the second quarter of 2020 was the biggest quarter for issuances of equity in the history of the US capital markets. And I think that, you know, that really bodes well as capitals return to firms and they’re able to then, you know, deploy new capital or raise new funds. So the IPO market is a great bellwether for M&A as well.

    Patrick: Louis, how can our audience members reach you?

    Louis: You know, I have a website which is my name, and then my firm is And there are multiple ways of finding me on those websites. And Patrick, I’m really grateful for the opportunity to speak to your audience. And I shouldn’t close before I thank you for being so innovative and having brought rep and warranty insurance into the lower middle market as it’s really a product that before I met you was really reserved for sales of 100 million dollars or more.

    And the need for rep and warranty insurance at all levels of the value chain is critical and especially in the smaller middle market deals where It’s so price-sensitive and where an indemnification issue can be so dramatic. And so, you know, Patrick, I look forward to continuing to work with you as we navigate these choppy markets.

    Patrick: Yeah, I put together a list of the 10 reasons why I love insurance, why I love M&A. And I consider M&A events. The most exciting business event out there. It is where dreams come true, legacies get made, and it’s very exciting just being a small contributor but just being around it is really given me that surcharge set, you know, find my purpose and stuff.

    So, and it’s great because now we’re able to bring this service and this product down to the innovators and the creators where they took, there was nothing there and from nothing, they created tremendous value. And to help them and reward them is just the least I could do. And it’s working around people like you that, you know, like I said, you work with who’s who in Silicon Valley. So it’s been great. So Louis, thank you very much. And I look forward to talking to you again. Folks, look for him on LinkedIn. He’s got a ton of fabulous content.

    Louis: Thank you, Patrick. And have a great weekend.

    Patrick: You do the same.

  • AI and Machine Learning’s Impact on the M&A Process 
    POSTED 8.18.20 M&A

    Artificial intelligence and machine learning have radically changed the way business is done in countless industries. And the M&A world is no different.

    This cutting-edge technology has the potential to cut the average time to get an M&A deal done by 66% – if not more – within the next five years.

    It’s the biggest advancement going on right now in M&A, with the greatest impact felt in the due diligence process, which will be cut from three months to one month or less when AI and machine learning are used to review and analyze the data in virtual data rooms.

    In this report from Datasite (formerly Merrill Corp.), The New State of M&A 2020 – 2025, M&A practitioners from around the globe were surveyed on this issue.

    48% felt that due diligence could be enhanced by technology the most; so there is clear demand for its implementation.

    35% said that combining that technology with virtual data rooms would help accelerate due diligence the most.

    30% believed that AI and machine learning will have the most transformational impact on M&A in the next five years.

    Faster due diligence means more deals getting done because this element is the most important success factor in M&A and also the most time consuming – the Datasite report notes that 66% of those surveyed felt due diligence was the most time-intensive part of an M&A deal.

    AI and machine learning will make due diligence more secure, more complete, faster, and more cost-effective.

    And contrary to popular belief, technology will enhance the process, not replace the people.

    Software can’t replace deal-makers or those guiding investment and acquisition strategy. We will always need people to negotiate prices and terms, and we will always rely on experience and expertise. And, not even due diligence can be automated completely.

    How It Works

    During the typical due diligence process, there are hundreds and thousands of pages of disclosures, financial statements, contracts, and other data about the target company. It’s all electronic these days, placed in various “folders.”

    It’s organized. But trying to locate a specific piece of information among all those documents is very difficult and time consuming, requiring Buyers to read through pages and pages to get the data they need. Hence the usual delays to the process.

    When you upload the documents to a virtual data room and have AI and machine learning software scan all of them, you now have a very effective search tool to help you pinpoint, accurately and quickly, the specific document you need to get the answers you’re looking for.

    Importantly, machine learning and AI can also search documents, identifying important sections and highlighting potential risks based on parameters set by the person conducting the diligence, helping them better assess the opportunity.

    It’s an appealing picture. And it must be why 65% of those surveyed by Datasite said that “new technologies should enable greater analytical capability in the due diligence process.”

    Barriers to Adoption

    As with any change in the way things are done, you might expect some resistance to the widespread adoption of using AI and machine learning to essentially create a searchable virtual data room. In fact, only 26% of M&A practitioners surveyed for the Datasite report believe this technology will help accelerate due diligence.

    Some of their concerns? The financial constraints and data security and privacy issues.

    But, I think that the benefits sell themselves, and more people will come around as the technology progresses and costs come down. Savvy Buyers and Sellers know that the quicker the due diligence process is over… the quicker the deal gets done.

    According to the Datasite report, 56% of those in M&A believe due diligence time will be cut to a month or less in five years’ time – so there is clearly confidence this technology will progress to where it needs to be for widespread adoption by then.

    And besides, with the pandemic, everybody has become more comfortable with technology like Zoom… and that will translate to being more open to tech like AI and machine learning.

    It’s like when years ago, the idea of the paperless office started floating around. It was slow going at first. But once there were effective digital scanning and storage solutions, like cloud storage, and the costs came down, the paperless office became a reality.

    Or, think about virtual data rooms themselves. Twenty years ago they didn’t exist. Today, you can’t do a deal without one.

    Another example: Representations and Warranty (R&W) insurance.

    For years, many felt it was only for big deals or too cost prohibitive. But as more insurers have started offering this product and more Buyers and Sellers are insisting on this coverage, the price has come down. Plus, deal sizes of under $20 million are now routinely accepted.

    Implementing AI and machine learning into the due diligence process for your next deal may not be feasible yet. But you can still enjoy the protection of R&W insurance coverage.

    As a broker with years of hands-on experience with this unique product, I’m standing by to answer your questions. You can contact me, Patrick Stroth, at

  • Laura Simms | What To Expect In M&A Post-Pandemic
    POSTED 8.11.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with special guest, Laura Simms. Laura handles Business Development at Strait Capital, a fund solutions provider offering a full range of financial solutions to hedge funds, private equity, family offices, and alternative asset managers. From their Dallas headquarters, Strait delivers fund administration, middle office operations, CFO suite services, and regulatory compliance services just to name a few.

    “We really view ourselves as a partner to our clients,” says Laura. “We want to feel like an extension of their team. You know that we’re just a couple offices down, so we’ve really earned the reputation for being the trusted partner of choice for private investment advisors and managers who are seeking that quality, personalized service provided by a team of experienced professionals. Our mission has always been to protect investors and reduce risk in the global financial system.”

    We chat more about Strait Capital, as well as:

    • The importance of partnership
    • Common challenges for clients in the middle market
    • What type of clients Strait seeks and why
    • M&A trends in light of COVID-19
    • 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 Laura Simms, who handles business development at Strait. Strait is a fund solutions provider offering a full range of financial solutions to hedge funds, private equity, family offices and alternative asset managers.

    From their Dallas headquarters, Strait delivers fund administration, middle office operations, CFO suite services and regulatory compliance services just to name a few. And in this era where more private equity and other organizations are looking to add to outsourcing, Strait comes at a time that’s no better than right no. So I’m very happy to have Laura join me here. Laura, welcome to the podcast. Thank you for joining me.

    Laura Simms: Patrick, thanks for the opportunity.

    Patrick: So before we get into Strait, let’s set the table. Tell us about yourself personally. How did you get to this point in your career?

    How Laura Got to This Point in Her Career

    Laura: Sure, absolutely. Well, born and raised first-generation Texan, although my family’s roots are from Hawaii, and both the west and east coast. And it was a privilege of mine to complete my undergraduate degree from the University of Texas in Austin. So after that time during the Great Recession, I moved to the Midwest to pursue some nonprofit work. Next, I spent a handful of years as an operator of a small business. I then transitioned my career into the investment management space and ran investor relations for a private multifamily office.

    When my husband was deployed to the Middle East with the Army National Guard, we then made the decision to return to Texas. And that time around 2017, I joined Strait and was really attracted by their entrepreneurial culture, their audacious growth goals and just the ability to use my operational and client experience to advise prospective clients there. So when I joined, we were about 26 professionals and now we are a team of around 60.

    So I’ve enjoyed my time there, the opportunity to run business development efforts. And what I really value is our partnership approach. So, that we provide for our clients and have found such great satisfaction in working in the middle market space with fund managers, advising them and really helping them through that fun launch process as well as working with established managers and helping them convert to our offering, which is extremely high quality and high touch.

    When I’m not working, I pursue interests in health, wellness and fitness, as well as really enjoy volunteering in my community, which I now do through the junior league in the Dallas Museum of Art. And in the future, my husband and I plan to start a foundation to address areas of mental health, caring for veterans and assisting those who are in need.

    Patrick: When you originally joined Strait, you said you went from 26 to 60. How long has that period been? How long have you been with Strait?

    Laura: So I joined the firm in 2017. So about two and a half years.

    Patrick: That’s a lot of growth.

    Laura: That is. Absolutely. It’s been great to be a part of for sure.

    Patrick: That’s impressive. Well, let’s talk about Strait. And, you could tell a lot about a company and their core and their founder’s vision. A lot of times it’s something as simple as the name. How, you know, tell us about Strait. What it is that they’re doing with the middle market, but start with the name and paint a picture for us.

    All About Strait Capital

    Laura: Yeah, absolutely. So Strait, so the definition of Strait is a narrow passage of water which connects to larger bodies of water. So Strait was founded to be just that. We are that passage that connects an industry-leading team of experts with our clients in order to provide best in class services.

    So for us, it was imperative to establish this culture of true partnership that’s grounded in ethical business practices, which really starts with our team and then extends to our clients. So our goal, we like to say, is to be the one service provider that’s on the asset side of our clients’ balance sheets. And so we do this by investing in the best technology, hiring exceptional talent and anticipating our clients’ needs and building those trusted relationships.

    Patrick: Now, one thing about investing in technology and, we’re seeing that in spades right now, is, as companies have had to adjust to work remotely, if you’ve got weaknesses, either, you know, just simple connectivity or other issues like that, then you can’t hide from those. You could push those under the rug for a while when everybody’s all in a team in house, but once you diversify out, that gets real tough. Now, in addition to, you know, that technological advantage, okay, what else does Strait bring to the table?

    Laura: Yeah, absolutely. So, you know, what you’re probably gonna hear me say a lot during our conversation is partner. So we really view ourselves as a partner to our clients. We want to feel like an extension of their team. You know that we’re just a couple offices down, or, you know, a few floors down. So we’ve really earned the reputation for being the trusted partner of choice for private investment advisors and managers who are seeking that quality personalized service provided by just a team of really experienced professionals.

    So, Strait, we provide integrated middle and back-office platforms, which for our clients translates into reduced costs and really a flawless efficiency of deliverables that their investors can trust. So, Strait, we’re rooted in our values and we’re a partner for our clients, really our team and extending out to the community. So our mission has always been to protect investors and reduce risk in the global financial system.

    So for us, accuracy is king and we’re so proud to say that we have not had a restatement in our firm’s 14 and a half year history. We also provide an exceptional user experience through our process-driven partnership approach, as we talked about before, advanced technology and really our team of industry experts. We hire people that are extremely driven, have that achiever mentality.

    Our team of professionals is comprised of CPAs or those pursuing their CPAs. At the staff level, all of our folks either have their accounting degree or their finance degree and at the leadership, we bring in folks with, you know, extensive experience in the fund administration field or who’ve worked internally at a private equity or hedge fund before. You know, our manager Stacey Relton has really done a phenomenal job at creating this type of culture at our firm.

    Hiring the right people is so important for straight that no one person comes into the firm without being interviewed by Stacey. So what she looks for are these intangibles, ensuring that their values align with ours, which are ethics above all else, owning the business, pursuing mastery, relationships matter and giving back. So, you know, we feel like if we hire the right people, give them a great work-life balance, our people are going to take care of our clients.

    So additionally, our institutional platform FIS Investran is the gold standard and private equity accounting and investor reporting. So we offer this technology, our boutique level of service, white-glove approach to all of our clients, from the emerging manager to the established global investment firm. So no matter your size, we’re going to take care of you. We’re going to give you all the bells and whistles of the big shop but with that really boutique service.

    Patrick: I think, I’m not as familiar with this just in the logistics of this. The smaller private equity firms, are, if they don’t have in-house accounting, they’re going out to a CPA firm that, you know, obviously, the bigger firms are going to cost a lot more. They run the risk of going to a regional or local CPA firm that may not have all the capabilities and all the knowledge, right?

    Laura: Yeah, that’s absolutely right. You know, you may have a team of bookkeepers, obviously not at the CPA firms. But with us, you get that fund expertise because fund accounting is very niche. And so our team does it every day, right? So we’re experienced with the fund accounting, with the investor reporting.

    And because we’ve made the steep investments in this, you know, gold standard in technology, it just helps out our clients because we can slice and dice and provide reporting customized to how they want. And then their investors, especially on the institutional side, are very familiar with Investran ready. So they’re comfortable with the platform. They’re comfortable with investor portal. And we’re passing this technology to every one of our clients, no matter your size.

    Patrick: Something that you’ve said multiple times, now I want to underline this because this is not a small deal. This is a big deal. You talk about the importance of partnership. And there’s a real strong sense with this. And it’s something that I think a lot of us, we’re all service providers in this world right now in one capacity or another. But what separates a, you know, a service provider from what we want to be as a partner, is where you look to your clients and say, Hey, you know, you’re not just a source of revenue for us. We are partners together. We have our interests don’t just overlap, they’re integral.

    And we have every interest in you reaching your goals and succeeding. And if we are, you know, tied in directly with your success and we’re joined at the hip, that’s a deep, deep commitment. Let’s go a step further on this. And I’m not certain, but I would think that because of what you’re doing, you’re almost in a fiduciary capacity, where, you know, you are, you owe a duty of care to your clients. And so I think where, you know, it’s the ethics that you underline and it’s not enough just to go ahead and have a good committed version of that and be, have a desire. You have to execute.

    And so what you’re doing is you’re setting this up so you can execute with technology and not have, you know, the bugs are other systems that are problematic, and that you can move forward with them. It also sounds to me like you’re also set where you will help firms that, you know, need to outsource because they just don’t have the capacity, they don’t have the talent,t they don’t have that. But as they start growing, well, you can scale with them. Why bring those services in-house if they’re working beautifully, seamlessly? And then, because you can grow with them, that’s the case?

    Laura: Absolutely.

    Patrick: Okay. The other thing that I noticed is going to be an issue coming up is going to be talent, and how, you know, if you’re trying to set up and have the internal accounting systems, the internal compliance controls and so forth. Where are you going to find those people and how are you going to vet them? And how do you know that they are going to be, you know, as committed and able to execute? They don’t have to do that. They just go right to you.

    Laura: That’s absolutely correct.

    Patrick: So although I’m sorry, I hope I didn’t rain on your parade and steal all your thunder but why don’t you give me some examples of, you know, where you’ve delivered, you know, for your clients. Give us a case or two of, you know, what you do?

    How Strait Helps Their Clients

    Laura: Sure. Well, and Patrick, you kind of even touched on that. So, you know, we have a lot of success stories within our firm and among our clients. And one I’ll highlight is a client that launched their fund in 2013 from the DFW Metroplex and when they decided to outsource, Strait was their fund admin, and that was back in 2015. So when we onboard them, we created an institutional platform from day one, allowing them to really focus on growing their assets, building their track record.

    And now, this firm has made over 100 transactions, manage is over 3.7 billion in committed capital. This client is very well known in the industry. Not only do they provide Strait as a referral, you know, to their peers launching a new fund looking for a service provider because they’re so satisfied that the work that we’ve done for them, but when I’m out in the market, you know, talking to prospective clients, part of our process is providing references, client references.

    Whenever I mentioned this client, that’s always, you know, super positive remarks on behalf of this prospective client and really just increases our level of expertise in their eyes because of, you know, the success with this client. So that’s one. And then, you know, that was a new kind of fund launch that we worked with.

    We also work with a lot of conversions. You know, someone who they’ve been in business for a while or they are unhappy with their level of service. You know, we talked about the middle market. Patrick, you and I have talked about it before how it’s just a market that is overlooked and often in our space, they’re paying really high fees but not giving the service that they need and desire. So we’ll see a lot of those folks come over to Strait. And we’ve, you know, from large clients to small clients, we have the ability to process large amounts of data and kind of do that operational cleanup, you know, in the middle market. I personally love working with these folks.

    There’s that entrepreneurial spirit. People are rolling up their sleeves and just going after it. Maybe they’re a deal guy, maybe they’re, you know, entrepreneur doing private equity firm independent sponsorship, but they haven’t really been focused on the accounting, the operation side when we could come in, do the operational cleanup, reduce those pain points that they are experiencing, bringing them up to speed on industry standards, which then elevates their investor experience and really sets them up for, you know, future growth. \

    We’ll take time to help them understand the accounting side, help them understand the operational requirements and compliance requirements as a fund. So that’s kind of part of that, you know, partnership approach where we really go above and beyond. If someone has a question, we have the relationship where, you know, they just call someone on our team and they can ask the question. We’ll consult, we’ll advise and help them through, you know, issues that they’re experiencing.

    Patrick: What’s the biggest, and this is completely unscripted or anything, but what’s the biggest problem that your clients have? Is it going to be on the accounting side, a compliance issue, tax? Is there anything that really grabs it? I can imagine personally, I can’t stand accounting, okay? I respect it. I know it’s necessary. You know, and I rightly have that outsourced. But I can imagine if there’s any discomfort for entrepreneurs.

    Laura: Right. You know, I mean, I would say because we service so many different types of funds, we’re agnostic to size and strategy. The problems and the challenges can be different for each. You know, we can speak to the regulatory issues. If you are a registered fund, you have to abide by, you know, everything the SEC puts out. And that gives a lot of, you know, executives, heartburn, right? Am I doing everything right?

    Am I following the law to a tee? So what our team has done is we have a compliance division. Our head of compliance, we relocated him from Bloomberg, he was a compliance officer there, and he built out our full compliance program. So those regulatory challenges that people face, especially as, you know, regulations change and update such as this year, we saw a lot of changes regarding Cayman, privacy law, their AML regulations, Sema.

    And our team did a lot of diligence getting our clients up to speed to that and aligning them where they needed to. So, you know, there’s definitely those pain points in the compliance area. You mentioned the accounting. You know, maybe we’re nerds and we enjoy the accounting, but we definitely take that, you know, off of the plate for our clients. But really pain points can come on the compliance side making sure that you are doing, you know, everything right and correct.

    Patrick: As a matter of fact, just Bloomberg issued a report where it’s concerned with mergers and acquisitions for companies that have either been getting the PPP loan for paycheck protection, or the employee retention tax credit. And if we’ve got companies on, you know, doing one or the other when they combine, then what happens? And even the government doesn’t know yet because they’re still waiting for guidance. And so, you’ve got this thing that’s constantly moving and you’ve got to keep your fingers on the pulse.

    Laura: That’s right. And even if a client isn’t engaged with Strait for compliance, they have access to all of our experts. So we’re keeping our clients up to speed on all of these new regulations issues coming out, like you mentioned, regard to PPE. And so our team is keeping everyone abreast of what’s going on and making sure that, you know, people are in line with what’s coming out.

    Patrick: We’ve got a lot of listeners, both on the entrepreneurial side and in the private equity space and so forth. Define first, give me a description of your ideal client. Who can Strait best serve?

    The Ideal Client for Strait

    Laura: Right. So what’s great about Strait is, you know, for us the accounting is the accounting, so that allows us to be agnostic to size and strategy. And because we’ve invested in the top shelf technology, our systems have the ability to process, you know, most every asset class out there. However, in terms of AUM, our ideal would probably be funds with committed capital of 100 million up to multi-billion.

    However, we do work with smaller funds such as VC, which typically launches maybe around 50 million. Some examples of strategies we service on the private equity side are buyout, mezzanine, growth capital, distressed, oil and gas, minerals, real estate venture, hybrid kind of funds. So we really do most everything. You know, this isn’t an exhaustive list. As you shared at the beginning, we also service hedge funds, family offices. We work with independent sponsors.

    Patrick: Gotcha. Within, in terms of geography, regional, nationwide, what’s your reach?

    Laura: Great question. So, you know, we are headquartered here in Dallas and have a fair amount of clients in Texas, however, our client reaches nationwide. So we have a fair share of AUA assets under administration in the northeast and really sprinkled throughout the US.

    Patrick: I focus on the rocky mountain area and in the Midwest. There just seems to be a lot of flight of capital and organizations and just talent getting away from the higher tax states into those quality of life sections of the country.

    Laura: Right. Patrick, what’s really interesting is just this week, I talked to maybe three prospects out of Colorado. I don’t know if it was a coincidence, but yeah, new launches in Colorado. I guess one of them is vacationing there but

    Patrick: Well yeah, that’s where, that made Montana they’ll go look at those places over there. So we will see. But it’s an issue being based in Silicon Valley how much talent and abilities we’re, you know, going down south into southern California and now they’re actually moving east into eastern Nevada and then into Utah and Colorado. So we could see quite a bit more out of there. And that’s going to be, I think that’s just because thanks to technology and a lot of other things that facilitates it.

    Laura: That’s right.

    Patrick: Yeah. The, as an issue and I look at this just being an insurance guy, okay? Does the subject of insurance as part of the overall with compliance or whatever, is it played at Strait or what do you observe on that, if anything?

    Laura: Sure, yeah. Well, to be honest, we don’t deal much with compliance, excuse me, insurance issues on behalf of our clients. What we do see at our level is, DNO and ENO. We’ll process insurance payments on behalf of our clients because we should serve as the treasury function, but we’re not necessarily involved in insurance-related challenges our clients may face.

    I will say though, during the pandemic, we’ve had a lot of look back to policies to see how COVID type events are covered. How our, you know, our space is so niching, I would love to hear your thoughts on how you think insurance and different related matters could benefit our clients.

    Patrick: Yeah, I think that the area particularly with private equity being at, the sole function of private equity, or the big function is to you know, acquire companies add value to them and then secure an exit at a point well north of where they started from. And so mergers and acquisitions, those transactions have been insured traditionally, in the last several years by a product called rep and warranty insurance.

    The biggest development in why we’re were reaching out, as Strait does to the middle market and the lower middle market, is that the threshold for eligibility for rep warranty insurance, which really accelerates the process of closing successfully and eliminates all or virtually eliminates the need for escrows. There’s no fear of clawback of proceeds post-closing, if there’s a breach. Just a backstop for both sellers and buyers. It’s an ideal tool that private equity has embraced.

    Only though at the hundred million dollar transaction threshold and up. In the last 18 months, though, because of competition, because among insurance companies with the success of the product in terms of claims, there are a lot fewer claims made. not because they’re excluded, but just a lot fewer claims that are happening because the diligence is so good that, you know, is a very successful product financially.

    And so the pricing and the costs have fallen along with the thresholds, now we’re able to see transactions that are 15 million to 30 million. I mean, these are, you know, add ons that can now be insured. Where, with an add on, perhaps it didn’t make sense to spend three, $400,000 in cost per rep warranty policy.

    But if it’s under $200,000, all of a sudden that’s check the box. Particularly with buyers and sellers, a lot of times they negotiate and they share the cost of it anyway. So it’s a win-win. The more information we get out about that, we’re trying to do that largely because lower middle market, middle-market companies are getting overlooked. And if they default and go to the brand large institutional firms, who are great, we need somebody to ensure Disneyland, we need somebody to handle, you know, the billion-dollar Walmart acquisitions. You know, to them as an add on.

    But for the smaller companies, they don’t get serviced well and they get overcharged with fees. Because the premiums are so low, the commission’s are equally low. So the large institutional insurance firms have to charge fees in addition. That’s a cost add you don’t need, particularly for the lower middle market. And, you know, it’s better to come in at that level. The other comment I’m going to do on my soapbox, particularly with directors and officers liability, is, and it’s something that you should look at, is with mergers and acquisitions, the target company has to purchase a DNO tail.

    They have a policy that will last for three to 16 years after closing of the transaction just in case any wrongful acts pre-closing get brought in litigation against the former board. There are a lot of D&O policies on real Mainstreet standard carriers that are out there that will only give you a one year tail, maybe a two. That’s not gonna help if you need six. And so you need products or somebody that has the capability there. And that’s with, you know, that’s a very common thing.

    A lot of times we find that you got sole owners of industrial companies never needed D&O policy because they were the only shareholder or they and their spouse for the shareholders. They didn’t need D&O. Now all of a sudden they come up to sell their company and they need it. So those are the types of things we really relish getting in because we want to be, as with you, the entrepreneurs, the folks that really created something out of nothing to have something so they can get a clean exit. And so that’s the area that we get in with the insurance. And it’s been just a great ride in the sector.

    I focused in this sector starting in 2015 and it’s been an absolute joy. You know, I always ask about what you see for trends and so forth in and around private equity or M&A. As we record this, we’re at the I would call it the end of the beginning of COVID-19. We’re steadily reopening and there’s fits and starts no matter where you are. You’re in Texas so I know that maybe not everybody’s back at the office yet, even though you’re leaps and bounds ahead of California. But, you know, what do you see trend-wise either in light of COVID, not in light of COVID, but what do you see, you know, out there that you can share?

    M&A Trends Amidst COVID-19

    Laura: Sure, yeah, that’s a great question. I can certainly share what we see among our client base as well as, you know, what I’m just hearing in the market. So for one, force measure clauses and their effectiveness have been a big topic. Also valuation in terms of downside and illiquids, like oil and gas interests. Among our private equity clients, valuations, not surprising, have been hurt during the pandemic.

    But as you know, for us at the fund level, you know, it’s a long-term investment and thankfully, everyone has been able to weather the storm. So we didn’t see much M&A activity happening. We did see activity though. We saw deals get done both on the acquisition and exit. However, these were deals that were already in motion pre-COVID. I was recently talking with one of our clients and he focuses, his firm focuses on the lower middle market in Texas and surrounding areas. And for them, deal flow, he said, has been surprisingly steady. Things did slow in March in April, but everything still remains on track for the year.

    So they invest in a niche manufacturing healthcare services and business and industrial services. Key trends that we kind of see in the market, we touched on this at the beginning, and obviously, it’s what we do, but the demand for outsourcing and all, and additionally acceleration in adopting technology and then just an even greater focus on cybersecurity. So, demand for outsourcing has been on the rise in recent years. However, the move to remote working and the fallout from the pandemic has only accelerated this trend, right? So this surge in demand is not only expected in the fund admin space, but also areas such as HR and IT.

    So why is this important to M&A? Well, outsourcing enables sponsors to focus on fundraising and supporting their portfolio companies, which is essentially, which excuse me, which is especially important for smaller firms with limited in-house resources. So investors more and more are desiring to partner with GPs that are able to focus mostly all of their time on investment decisions and leave the back-office operations to a team of experts like Strait. Digital collaboration, as most everyone has experienced during the pandemic, and as you and I are doing now, communication and document sharing tools are vital and extremely helpful.

    This is especially true for GPs, LPs and other service providers during this time of quarantine. You know, GPS have been hosting investor presentations via video and have that critical need to sign things digitally. So these changes were already happening slowly in our industry, but because of the pandemic, we’ve been forced to move forward in this area. And I was reading a survey that private equity international put out and they said 50% of GPs intend to hold more online LP meetings once quote normal business life returns.

    And then lastly, just with technology and cybersecurity. So, with these digital collaboration functions and a greater demand for data among LPs and GPs. This brings a greater need for focus on cybersecurity and data protection. If firms fail to manage their cybersecurity risks, they could face regulatory sanctions, reputational damage or liabilities to third parties which could really impact the value of an investment. And we all know cybersecurity has been a hot topic and it’s very much so a hot topic for investors and often asked in the DBQ ODD process. We field a lot of those questions when we’re on calls with prospective investors for our clients.

    Patrick: I’m gonna put a shameless plug in for you. I’m sorry, I do apologize. But, you know, with cybersecurity, we’re noticing just the amount of capital being raised by firms in cybersecurity space, the number of acquisitions by strategics and private equity to bring in a cybersecurity company or cybersecurity talent to then augment the cybersecurity of a portfolio, okay? There’s another hedge to all of that.

    And there’s an insurance policy called cyber liability that pays not only for the damages arising from a breach, and that’s just loss of confidential information getting out, but it’s going to pay the compliance fines and penalties that will follow a breach. It also has business interruption which is free from the COVID business interruption and a lot of other, you know, crime coverage from hacking, ransomware, that kind of stuff. It’s a great underlying product and the beautiful thing about it, it’s not expensive. And, you know, so as we see that important going, you got it really invest on that cyber infrastructure.

    But this is the back, you know, just the hedge on that. I think, I completely agree because that’s, a number the acquisitions we’ve been seeing are tech companies specializing in cybersecurity. And, Laura, with all this going on, which is all fabulous, you know, so we’re turning lemons into lemonade here with what’s going on. How can our audience reach you to learn more about you and Strait and have a quick go for a conversation?

    Laura: Yeah, absolutely. I would love to chat with anyone interested in Strait, our services. They could visit our website, That’s And I’d be happy to take their email at

    Patrick: Two M’s for Simms, just so you know.

    Laura: Yes, that’s right.

    Patrick: Well, Laura, thank you very much. It was an absolute pleasure speaking with you. I hope you had as much fun as I did today. And I really encourage you to check out more at Strait Capital.

    Laura: Thanks, Patrick.


  • Jo Bennett-Coles | The Biggest Myths About Credit Insurance
    POSTED 8.4.20 M&A Masters Podcast

    Asset-based lending is one of the best ways for mid-sized companies to get to the next level.

    And the role of credit insurance, which has vastly improved since the days of the Great Recession, is often overlooked… yet will be vital to recovery after countries – and the companies in them – exit lockdown.

    Jo Bennett-Coles, managing director of FGI Finance, a global leader in domestic and international finance for mid-sized companies, gives us the lowdown on credit insurance, including when you need it, how it works, and the many varieties of coverage available.

    This type of coverage gets a bad rap in some circles. Jo dispels the myths and offers some best practices.

    Tune in to find out…

    • Why credit insurance is a powerful tool for private equity
    • Services credit insurers provide that will surprise you
    • How credit insurance fits in with M&A
    • The biggest mistake companies make with credit insurance
    • 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 Jo Bennett-Coles, Managing Director of the global finance leader FGI. FGI’s slogan, no deal is too complex and no market is out of reach. Jo brings a wealth of experience in a specific field of finance that will play a significant role as companies look to recover from COVID-19.

    Not long ago, 208 out of 260 companies surveyed expect to be back at full speed in six months after opening. Now they’ll be challenged to find new ways to get there. One of those tools is credit insurance. Private insurance is not what you might have thought before. That’s why I’m very excited to have Jo join me today and explain these new opportunities for companies. Jo, welcome to the program. Thanks for joining me.

    Jo Bennett-Coles: Thank you, Patrick.

    Patrick: Now, before we get into the credit insurance and these new tools and the new application of them, let’s set the table for our audience. Give us a quick background on how you got to this point in your career.

    How Jo Got to This Point in Her Career

    Jo: Gosh, it’s a long time ago, Patrick, that’s for sure. But let me start from the very beginning and overview. Well, I’m an attorney by profession. So before everyone’s switches off, I haven’t practiced in law now for probably over about 30 years, so you’re quite safe out there. I went from practicing law into the world of commerce very, very early on in my career because I wanted to be close to the action.

    So I joined a mid-market logistics company in the UK which had about 300 employees and seven divisions. And I worked my way from the shop floor, literally. Starting in the credit control department because, you know, cash is king all the way up to the board. And I did that for 12 years. So I cut my teeth on a tough rough business where we did everything from restructuring to buying stuff, having the good days, definitely having some bad ones too.

    And then from there, I found my feet in the world of asset-based lending. I was lucky enough to join an advisory group, where I again started on the bottom working with asset-based lenders and helping them to work out, fix problem situations. So I saw a lot of challenge loans and a lot of deals that needed to be refinanced. And I did that for 12 more years. And along the way, I met up with the great team at FGI, and they became personal friends. And about five and a half years ago, they said, Hey, come and join us.

    Come and see what it’s like to actually put together deals where you put the money out and finance. And that’s what I did and that’s how I ended up at FGI in 2015. And what I do essentially today from the UK and Europe is work with our, work with advisors, work with other asset-based lenders to provide asset-based loans, which is what, is one of the main areas of FGI. And obviously, as part of that structure, when FGI puts together a lone, we use credit insurance because we’re working with transactions that are multi-jurisdictional cross border. We have credit exposures in just over 60 countries.

    And in order to do that, in order to lend in more places, to lend more efficiently and more comfortably, we’ve always relied on credit insurance in FGI. And FGI, just to give you a little flavor, if that’s okay, Patrick, is a business that’s been going now for over 20 years. We are a global leader in domestic and international finance and we provide asset-based loans and loans against accounts receivable and there’s, that’s aimed particularly to mid-size companies. Companies in a variety of different industry sectors from manufacturing to service providers.

    But the other side of FGI, and this is why we use credit insurance so much, is we’re actually a broker of credit insurance. And we also have technology. We have unique technology, which is our own. And that brings out the best in credit insurance. And it’s been making us a great study across this particular time because, you know, it’s, we now have three words we use, finance, protect, collect. These are the three areas which we think are very strong in the current climate. So it’s a collaborative effort between all these elements to give us the comfort we need when we’re lending. Hope that’s helpful, Patrick,

    Patrick: Very helpful. And I’ll tell you, the issue today is that when times are good, issues about credit and financing aren’t that important or they’re less emphasized because everybody can get credit and everybody can get capital very easily. It’s when times are bad that suddenly, the attention gets directed to Okay, what are some of our options? What are alternatives out there?

    And how can we go ahead and get from point A to point B in this new environment? And the other emphasis out there, need for capital, is that if we look back, as many people have at the last recession, where we had a big shock to the system, there were a lot of opportunities in the wake of the recession that a lot of players didn’t take advantage of just because there was so much fear.

    Those same investors this year are now going to look and capitalize on these opportunities that they missed last time. And so you’re already seeing pieces being moved on the board to get companies in position to do that. And so tools like this that they may have overlooked, are why we need to go and bring the emphasis back. Yeah, what are you seeing, just either economy or the business as we’re pulling out of COVID-19 and beginning to move forward?

    Why it’s Going to be Different This Time

    Jo: Yeah, I mean, it’s a great one. And it’s fantastic to draw the analogy back to the great recession of 2008-2010. And you made a great, you know, very accurate statement, but there’s been analysis done on this. Obviously, the fear factor has been that there’s going to be a lot of bankruptcies. I think we all accept that that’s going to happen.

    And it could be very ugly. No one knows the numbers. But there is an upside and the upside is there’s going to be this bounce and everyone needs to be ready for it. And, you know, getting that, getting businesses geared up, getting them ready to go and getting not only the businesses ready to go, but getting their lenders comfortable with lending as well is very important.

    And I think when we reflect back to the great recession that people miss a challenge when you talk about credit insurance because people say oh yeah, I remember credit insurance in the great recession. It didn’t work. Didn’t work. Well, the world’s moved on a long way since then. And I think one of the big areas, of course, is great technology, better information sharing. And those are things that are going to make it very different this time. It’s far more joined up than it was before. So I think as far as businesses getting back on their feet, there are a number of tools.

    There’s obviously a lot of businesses are talking very much with their lenders right now and getting them organized. There’s a lot of support coming to businesses, both from governments around the world. And I talk globally because I’m a global lender. I think businesses are refocusing themselves. There’s a lot of businesses that are changing, tweaking the way they operate. And that’s a big thing. They’ve got to get comfortable themselves. They’ve got to get their customers and their supply base comfortable with that. And in order to do that, you’ve got to have some good tools to move quickly.

    So credit insurance is a great fix. Businesses are having to work differently now. They’re having to work remotely, they’re having to work with better technology, they’re having to do things separate from each other. So you need greater levels of transparency and speed of information to make all those things happen in a joined up way. And that’s not going to change anytime soon. We’re in a whole new world now. I think we all accept that. And that means what we do now is going to carry on for a very long time. It’s going to be the sort of the game-changer for the future.

    And I think there is a, generally, what I see out there in the market is businesses are sharing far more between themselves amongst lending communities as well, how they’re fixing problems, how they’re coming up with solutions. It’s very open. Everyone is trying to help each other. There is a mentality to share risk now far more than there ever was before. And you’re seeing that from governments all the way down. Right now, I mean, for example, today in the UK, there’s been an announcement that we’re going to have a big government’s pull program around the credit insurance world that’s going on across a number of European countries as well.

    And it will become a global thing, of course, everyone will be doing it. So that’s happening top-down, and that’s going to flow all the way through. So that will stimulate a lot of trade, a lot of activities. So these are all the things that we’re starting to see. Look, it’s a long way to go, Patrick. We’ve got, we’re only in the early stages of coming out of this lockdown process and different countries are at different parts of their release.

    You know, for example, in the US, you’re probably a little bit further behind some of the European countries now. We’re seeing, for example, in mainland Europe, the car plants are opening up again. They have far more freedom in terms of their hospitality sector is getting moving. Asia is further ahead than all of us just because they finished their lockdown earlier. But, you know, we’re all fearful along the way of making sure that we put in place good measures that can cope with any potential second surge that may come from COVID. So this is a sustainable release from this lockdown period.

    Patrick: Let’s get into credit insurance specifically because, you know, for those that our audience just was basically, what is it, who it’s for and how? And this is the real big thing is it’s not just for your traditional manufacturers that are at foreign supply chains. This is now being used and it’s embraced and it is ideal for the technology industry. So give us the one on one on that.

    The Lowdown On Credit Insurance

    Jo: The lowdown. Yeah, and, you know, before I do that, I’d say the first thing I get is particularly when I’m talking in the US market, you kind of get this eye-rolling. Oh, credit insurance. And it always makes me laugh because historically, when you’re talking particularly into the US market, it’s always been it doesn’t work. Why doesn’t it work? Well, you know, I bought it and I stuck it in the drawer. And yeah, well, credit insurance is a living breathing thing. You don’t just, it’s not a buy it and forget it and stick it in the drawer. You’ve got to love it, nurture it, otherwise it doesn’t work properly.

    So very simply what it is, there are a number of big carriers out there. There are some specialized ones too. But they’re probably about, you know, 8 to 10 really big names who are global and they will offer different lines of coverage, which give you the protection if your account debtor fails to pay or goes bust. So really what you’re doing here is you’re buying something that shares the risk. You’re going to get paid out, you’re going to get paid out something if your account debtor fails to pay you. That’s very simply what credit insurance is doing.

    And there’s all sorts of different types of policy. What I would say that you need when you’re buying credit insurance, particularly if you’re buying a biggish policy is probably needs some expert help. That’s the first thing. It’s a little bit like when you buy motor insurance or household insurance, you probably going to speak to someone who will explain the nuts and bolts of how it’s gonna work. And you need that, particularly because there are a number of different kind of levers you can use with credit insurance to make it efficient for you.

    The other thing I would say with credit insurance not just for you, as the business person, you as the technology company, having it is very powerful as a tool for your lender because if you’ve got it for yourself, it gives you protection. It gives you that comfort of thinking, well, if I don’t get paid, I’m gonna get the money back from the credit insurer so my cash flow’s protected, that’s great. But if you have a lender and you say, by the way, I’ve taken the step, the lenders gonna feel a lot better about you. You can use that to leverage or a loan facility. So it has more power than just your own cash flow. It shares the outside world.

    Patrick: In other words…

    Jo: Exactly right. You can use it to go around the market and potentially get a better loan, better availability, particularly obviously, if you’re with, you know, an invoice financer or asset-based lender, it’s a very powerful tool. So if you take control by having your own policy, it says an awful lot to the outside world. So very simply, you are getting something that protects your cash flow, gives you the comfort.

    You can sleep nights, that’s what it’s about. But you’ve got to love it and nurture it. You can’t just buy it, stick it in the drawer and then when you feel you need to make a claim go, I’m going to make a claim, because likelihood is you haven’t complied with the policy and you’re going to get the insurer come back to you and say, I’m not paying. And that’s one of the other big problems that I used to come up against when talking to certain markets. Well, credit insurance, you never get paid. Like Yeah, well, if you follow the rules, you’ll get paid. Same with like having house insurance or car insurance, follow the rules, you get paid. Same thing.

    So now having more technology, having more clever ways that make it easy in terms of managing a policy are the way forward to ensure you stay in compliance all the time without having to work super hard to do that. So that’s really the kind of nuts and bolts of credit insurance, but I would always recommend to anybody who’s looking at it that they get some help with putting the right policies together that’s suitable for them, suitable for their business and also it’s going to make them attractive for a lender potentially. So you can hit a number of boxes there.

    Patrick: And it enables you, as a business, to grow more because they can extend more credit and more payment terms to their customers. So customers are only allowed to buy $5 million in a quarter. Well, if you have insurance, you can sell them $10 million worth of your product because you have the insurance to back you up. So now all of a sudden you can increase sales and have no risk.

    Jo: Absolutely. That’s a great point, Patrick. And you can do that not only domestically but also internationally. Traditionally, credit insurance was always seen as the international tool. But nowadays, it’s everywhere. It’s global. It’s as much domestic as it is international. And I think what we’re learning as we come out of COVID is that the traditional markets that maybe your business was facing into, are going to be different. So you’re going to have to have that flexibility to be able to move quickly with new customers in different jurisdictions, different scales, different levels of concentration that you had before COVID.

    It’s going to look new now, new and fresh. So yes, you’re absolutely right. The other thing you may find as well, certain lenders may only have certain levels of limit on different customers. You may be able to get more somewhere else. That’s an important point too. So it’s really, really essential that you explore these options yourself and get very comfortable with the process that you understand. All the mechanics of how credit insurance can really bring you value and I think we’ll talk a little bit about more of that, as we go through this conversation.

    Patrick: Well, with what we’re seeing out here now, I could just see this as an extra tool for private equity, or some of these emerging companies that as they’re growing quickly, they don’t necessarily know what other expertise they need to have in house. And one thing was credit insurance, I think there’s a nice value add is where you can leverage the database of the insurance company to go ahead and do background checks and credit checks on prospective customers. And that I can imagine saves a ton of time. Could you explain that for us?

    Jo: Yeah, absolutely. I mean, that’s one of the great things. And people often say to me, Well, you know, I’m paying this premium, what do I get for it? Well, you’re getting the power of this global credit insurer behind you and it’s not just you’re getting the insurance coverage, you’re getting the power that they have from financial information, real-time.

    They get stuff, and I’ll give you an example. We were, I was working on a deal recently where the financial information I was provided on a major account debtor to my client was about six, nine months old. And it wasn’t pretty. It wasn’t pretty. And we were like, Whoa, we don’t like the look of this. But I spoke to one of our credit insurers and they had data that was only three months old. They’re like, how do you do this? And this is because they have an enormous network.

    They have huge power. They have the ability to research financial credit reports and what this is doing for you, as the policyholder is saving you huge amounts of time and money and effort in doing all this stuff because you are effectively using their underwriting skills. That’s becoming your credit department. And you should use that. That’s so powerful because they have all that data at the touch of a button. And that’s important to remember. And I will say this every time, they are sharing the risk with you.

    So, you know, you must use them as the partner and get maximum value out of all the facilities they have. And not only remember, not only are they got all this information, but they often have collections teams as well in different countries. So if you’re stuck with trying to, you know, recover some money in a territory you’re not familiar with, they can help you with that too because they have this massive global network. So there are a lot of benefits here that come with credit insurance programs that save you a bunch of time and money and resources.

    Patrick: While we’re all about M&A here Rubicon. So let’s talk about credit insurance in the context of a mergers and acquisitions transaction. How does that play a role from your experience?

    Credit Insurance and M&A

    Jo: Yeah, I mean, it’s in my experience when we see it within the M&A world, obviously, typically, we’re looking at providing some kind of EBL facility as part of the deal. And what always has been looked for is maximum availability. Maximum availability in a facility. You want to squeeze out every penny of availability to assist with the program of the M&A. And in order to do that, having an efficient credit insurance program that can give you that availability over all your account debtors, in whatever jurisdiction they’re in, whether it’s domestic or international, is absolutely critical.

    But also it gives comfort to the private equity groups. And often, you know, we’re dealing lower down in the chain of command here but if you can prove and show that you have structured this thoroughly and every area has been thought about, you’ve managed all the risk. That is a very big kind of comfort point for everybody in the process. And at the end of it what you show is an availability or borrowing base and this is me talking as the lender here where we’ve been able to give as much coverage as possible to the account debtors because we’re using credit insurance that’s working efficiently.

    Patrick: Yeah. And again, that could be a situation where post-closing you have some outstanding amount due from a customer, the customer doesn’t pay or can’t pay. And all of a sudden that could result in a breach on the reps and warranties and trigger all kinds of other bad financial outcomes, but by having that risk mitigated and transferred out, no worries.

    Jo: Absolutely, because, you know, we’ve seen with other deals that we’ve worked on historically, where potentially there might be an issue regarding a customer where there’s concentration. So if you can’t, if we couldn’t get comfortable through credit insurance, then what we would probably have ended up doing would be going back to the private equity group and saying, you know what, we can’t finance this account debtor.

    So either you’re going to provide some kind of security or some kind of guarantee or it’s out of the game. So actually going and then take a chunk of money away. So you don’t want to be in that position. So having the credit insurance is a big win for them because it takes away that headache. So one less thing to think about.

    Patrick: Perfect. How is COVID-19 and this whole pandemic, you can contrast it with the experience you had after the 2008-2010 recession, but how has COVID impacted credit insurance today?

    Jo:  Yeah, it’s a great point. Yeah. I mean, obviously, it has, yeah. I’m the first one to say credit insurance is great, but it isn’t a silver bullet for absolutely everything. Clearly, there are areas now where credit insurers are taking a tougher line. The first thing I would say is, you can’t, there is credit assurance out there to be found. You can find the coverage. It’s what level of coverage you’re going to get right now. And it’s changing all the time. With, if you’d asked me two or three weeks ago, I’d have said certain sectors are very difficult right now. But it’s really moving very fast.

    And keeping on top of that managing and monitoring that information is a day to day job right now. You can’t do that manually. That’s the first thing I would say. Certainly going to have an impact on price. But really pricing when you consider it as a percentage of premium, the premium effectively, this percentage of your revenue is still very low. I mean, it’s less than 1% of your sales figure.

    So when you look at it like that, it’s minute. But yeah, we are seeing increases for sure. Those that will go up, they’ll go down, there’ll be movement all over the place. I think all the credit insurance of expecting to get a higher round of claims, there are going to be more claims. It’s like a tsunami. They know it’s coming. It’s not arrived yet, but it’s coming. And what I would say with regard to that is, you know, if you follow the rules, if you have your policy properly managed and monitored, you’ll get paid.

    But if you don’t, there’s no doubt in my mind, insurers are going to take a much tougher line before they’ll pay out because why would they not? They’ve got to be sensible here. So I think, you know, what I would say in the marketplace right now is any coverage is worth having. It’s all about risk-sharing. You won’t get everything but you’ll get something and that’s got to be a good thing to have right now. Work with your credit insurer through a good broker or work directly if you’re with a smaller group. But they are creative thinkers.

    They’re working very hard. There’s a huge amount of support going into the credit insurance industry globally right now from governments as well because it’s seen as such a key tool for domestic and international trade. And therefore, that’s why there’s so much support going on now. So yeah, price increases, a narrowing of appetite, sure, get your claims filed, you know, carefully, but you’ll get paid. These are the kind of key things we’re seeing at the moment.

    And, you know, the big players are the ones who obviously have the strengths. Some of the small what I call niche credit insurers, they may be more challenged. Perhaps if you’ve worked with, you know, traditionally with one big credit insurer, try another one for a change and see how they can beat it. So don’t be frightened of doing that right now. You know, don’t fall into that route of saying, Oh, well, they’ve always looked up to me so I’ll stick with them. Don’t be frightened about doing that right now.

    Patrick: That’s the role you can provide at FGI is that, you know, business owners, the CFO, they don’t have to do this themselves. They come to you, you’ve got the relationships with multiple facilities, and there may be a niche little boutique facility that can fit a boutique client in that space and be ideally suited. You can do all of that. They don’t have to kind of, you know, do it yourself, figure all that out. So that’s a great benefit.

    Jo: Yeah. Absolutely right. And thank you, Patrick. Yes, I mean, we can do the whole thing. So we can, you know, we can help broker a policy for them. We can help the technology to manage the policy and also if they need finance, we can help with that too. We can do all three things. You know, there are other brokers out there, I wouldn’t say I’m the only one in the world, of course not. But we’re in a very unique space at FGI, where we have these three great strengths and they all dovetail together very neatly to provide, you know, a business, a technology, business service business, business, that’s, you know, going through an M&A process.

    The private equity teams with a whole bunch solutions that fix the problem in the current climate, which is getting the deal done, getting the finance in place and ensuring you can sleep nights because you’re going to get paid and there’s not going to be a big hole in the cash flow three months down the line.

    Patrick: Yeah. And the objective for a lot of the people in our audience with private equity and investment bankers, is we’re taking these owner-founder companies, and you’re looking to scale them and grow them quickly, steadily. However, you’re not going to be perpetually in one state. You’re going to be growing and there’s going to be a need for scale, a need to adapt to complexity as needs change and so forth.

    It’s nice getting in on an entry-level, okay, when the needs are simple, but then have this enhanced tool that can be used in a variety of different ways. I think the combination of the fact that you’ve got, you’re transferring risk as you’re getting some risk out, you have the leverage of improved rates from lenders, because you’ll save money right there because lenders will give you more favorable terms if you have this insurance, which is a benefit anyway. And then on top of that, you can use the resources for doing background checks on, you know, on potential customers.

    So all those items offset this minimal cost and at the same time, if something really bad happens, we’ve all now just gone through this so we can see that something bad can come from out of nowhere. It’s there for you. It’s an absolute no brainer, particularly as is flexible. I mean, lenders are more flexible. There are facilities out there that are more flexible. Because of technology we have to be flexible. And having a tool like this that will work with a client is really, really reassuring. Jo, what are the basic entry-level information that a prospective client would need to give you? What are you looking for just baseline to get an engagement started?

    FGI’s Niche

    Jo: Yeah, so very simply, we would have a chat with them first about what it is they need. We have a very simple discovery document usually about one page or so. We have a whole team in the US. Our headquarters are in New York. We have offices in Chicago and in Florida and in California as well. So we can speak to the client, find out what they need and do some discovery work and then build. If they’re looking for brokerage help with a policy, that’s how we’ll start to build a policy for them.

    If there’s something specific they need, if they’ve got a lender in play, if this is part of a, you know, an M&A program, we can look at all these elements. We’re very much a bespoke team. So we don’t have a one size fits all at all. And we’ll look at what’s needed to help the client achieve their goals. So the most important thing is have a chat with us and we’ll take it from there and build something that’s unique for them.

    Patrick: That’s ideal. And you can go ahead and get that processed, onboarding processed fairly quickly. You’ve done this so many times. And really figure out what they need, and then you cut out the superfluous stuff, right?

    Jo: Absolutely. Yeah. We’re all about getting things done quickly. We work, FTO, works in a world where we have to respond very fast as a boutique commercial finance business. That’s our niche. We don’t have a complex structure. And, you know, funny enough, I was on a call earlier today to do with credit insurance. And somebody said, how quickly can we get them a proposal? And I said, Will you give me some information? And literally inside of 24 hours, that’s how fast. So, yeah, yeah. So we speedy, we’re speedy, and that’s the key. And right now, you have to be quick. You have to be quick because tomorrow could look really different to today.

    Patrick: Yeah. And if you get a proposal, jump on it now because unlike other things, firms can change very, very quickly.

    Jo: Yeah. And that’s a really great point, Patrick. You know, things are moving very quickly. They’re moving fast in the world of credit insurance. They’re moving fast in the world of finance, too. And, you know, particularly in the M&A space. And deals have to be done quickly. Money’s moving fast and appetites are changing now more quickly. We’ve been used to 5, 6, 7 years of benign conditions where everything was the same day in day out, and now it’s a very different road. And it’s going to be like that for a while, for a very long while I fear so.

    Patrick: Yeah. The conversations I’ve had with a few PE firms where we’ve been talking about their inability to get out and travel and get very active on their acquisition activity, many of them have turned to focus their efforts on maintenance and taking care of their portfolio companies and just making sure that there’s management and cleanup and ironing out any wrinkles and so forth. That’s going to continue. We should see a flurry of activity and everybody galavanting out there to go meet others in the coming months.

    But while they have this time, I would strongly recommend having them reach out to you because, have a conversation. You may not know or realize that you need the types of tools and facilities that Jo can offer. And so I would definitely advise anybody, just as a preliminary diligence for assisting your portfolio companies and protecting your investor’s interests. You really owe it to yourself and your investors to go ahead and reach out to Jo. Jo, how can our listeners find you?

    Jo: Yeah, thanks, Patrick. That’s a great one. Well, we have a great website which is Not only do we put all our details of where you can reach us on there, but there are some fantastic case studies, both on our credit insurance side, but also on our finance side. We publish details of companies we work with and testimonials so you can get a real sense of the story that drove what we were doing and the outcome that we were able to achieve in those cases.

    We have teams, obviously, you know, we’re headquartered in the US, New York, Florida, and California, as well as Chicago. I have, we’ve got email addresses that we can share for all the different teams. I’m based in the UK. So if you’re, you know, thinking about to deal in the UK and Europe, then probably I’m a good person to talk to.

    But clearly, if you’re in California, you’re going to want to speak to our excellent colleagues in our San Francisco office and La Office as well. So, yeah, so we’re easy to reach and we’ll be delighted to hear from you, all of us. And obviously, waiting to see if we can help fix some problems or come up with some solutions and ideas that meet your requirements.

    Patrick: And in the unlikely event that you can’t find FGI and get to Jo, please reach out to me We’ll also have the show notes here, and you can get to their website but they are uber responsive. I would definitely say that about them. Jo, thanks very much for joining us and we’re going to talk again,

    Jo: Patrick, thank you. I really enjoyed our chat. Stay safe. Stay well, Bye, guys.