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  • Sean Alford | Clarifying Strategies and Processes During the Pandemic
    POSTED 12.29.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we’re joined by special guest, Sean Alford, Senior Vice President of Corporate Development at J2 Global, an internet information and services company that includes IGN, Mashable, Humble Bundle, and more across digital media and cloud services segments.

    Sean says, “It’s pretty systematized when you handle the volume of transactions that we handle, you figure out what works and what doesn’t work. And through the course of the 180 plus transactions that we’ve done, we’ve figured out the playbook that works. And there are different playbooks that work for different situations. We’ve got these different playbooks that we’re able to slot into different scenarios, and it helps to have had the reps and to have made mistakes and learn from them and improve the process as a result.”

    We chat about applying strategies to various transactions, as well as:

    • The ideal targets for the different J2 global segments
    • Pressing pause at the start of the pandemic to clarify processes
    • Warranty policies on transactions
    • Fourth quarter 2020 and first quarter 2021 expectations
    • And more…

    Listen now…

    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth, President of Rubicon M&A Insurance Services. 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 Sean Alford, Senior Vice President for J2 Global. J2 Global is a leading internet information and services company consisting of over 40 brands. Sean leads J2’s m&a program which seeks to acquire and support internet enabled companies in a variety of sectors, including media technology and services. Since 2000, J2 global has completed over 186 acquisitions. That’s a lot of deals. Sean, as the first strategic acquirer to join our podcast, welcome, and thanks for joining me today.

    Sean Alford: Yeah, thanks for having me.

    Patrick: Sean. Before we get into J2 Global, let’s set the table and tell us what led you to this point in your career?

    Sean: Yeah, sure. So I started my career as an attorney at a law firm in New York. I was with the Proskauer Rose firm in New York for a number of years. And I got to know the CEO of Ziff Davis at the time, Vivek Shah through some investing activity that I was doing outside of my legal practice. And through conversations with him over a number of years, I ended up joining him at Ziff Davis to run the m&a program. And you fast forward to now. I oversee m&a at J2 Global, which is the parent company to Ziff Davis, where I’ve been for I think it’s three years now it’s it’s three years would feel like dog years because we’ve done incredible amount, from an m&a standpoint deployed almost a billion dollars of capital, actually north of that in that time, and done about 35 deals in that time. So, so we’re having fun, and we’re doing a lot of deals.

    Patrick: Well let’s talk about J2 Global here and its commitment to the lower middle market, which I feel very strongly about. Talk about why the lower middle market, what the philosophy is, your your your theme in just how you did because one thing is really impressive is just the sustainability where you’re starting at the dot com era, for those in our audience thinking, remember that period, and you’ve been going for 20 years, which really says a lot to the sustainability and the success that you guys have, have had.

    Sean: Yeah, and that 20 year, history clearly predates me, but J2 has, has had a history of programmatic m&a, and it is focused on that lower middle market, which we think is generally underserved. And I think you can look at the way that it’s underserved from two angles, it’s underserved from the business and operations angle, where small to medium sized businesses aren’t always served the same way that large enterprises are when it comes to software tools and applications and services that they need to operate their businesses. But then I think the the market, the acquisition market, the m&a market, for lower middle market businesses, small to medium sized businesses is also underserved without the same amount of capital in the system.

    So we’ve actually benefited from both sides of that. On the one hand, we buy businesses that serve SMB customers. So you look at a lot of our software businesses, the market for them is small to medium sized businesses, we see that as a huge opportunity that’s going to continue to grow and where there’s going to continue to be attractive acquisition opportunities. And then on the other side of it, that is where we spend a lot of our time on the m&a front, we we don’t have to compete with a lot of the large institutional investors, the the blue chip can have 10s of billions of dollars, private equity fund types, the large, multibillion dollar strategics don’t always spend time in the lower middle market, because they’re not set up to spend time on their market. And we are so that’s, that’s been something that’s differentiated us on the m&a front.

    Patrick: Yeah, I feel the exact same way underserved is probably the best description, I would say for the lower lower middle market, which is a shame because I mean, it’s a great opportunity for us, but it is a vast array of opportunities that there are, you know, literally over a million companies in America that would fit that lower middle market definition. And the from the m&a perspective as we see it. They’re at risk of being overlooked, underserved and overcharged for services from institutions and so forth. And so it’s great when you either have a strategic plan J2 Global or boutique firms out there that really want to go and work with with those companies owners in the lower middle market as with other places, they’ve got a variety of places to look for an exit. Okay, why would they think to come to a strategic as opposed to other other maybe non institutional, but other family offices, private equity, other other outlets?

    Sean: Yeah, so there, there are a couple factors that distinguish us from from the competition, if you will, when it comes to m&a. Number one, you know, I think you could compare us to private equity in the sense that we do buy businesses and let them to continue to operate independently. And a lot of sellers like that. They like the independence and we’re set up in a way that allows a lot of the businesses that we acquire, to operate with independence. The difference between us and private equity is that we are permanent capital. So we buy to hold and sustain and grow over time, we’re not under pressure to flip a business or not under pressure to dramatically change your business immediately.

    And we’re patient. So, you know, along with along with that comes our capital structure, private equity puts debt on to the companies that it acquires all of our debt is held upstairs at the parent level. And as a result, the businesses that we own and operate don’t necessarily feel the pressure of interest, service and payments. So that’s, that’s one distinguishing characteristic. A lot of founders like that model, where they can sell into someone and they aren’t banking on an exit five to seven years from now, they get true liquidity at the time of closed now, there may be some structure in our deals where there’s an urn out and certain performance metrics have to be hit. But it’s very different from a private equity model, where oftentimes founders are rolling more than 50% of their net worth into the next deal, and they don’t get the full liquidity at closed.

    The other thing that distinguishes us from a lot of folks is the domain expertise that we have in house. So in the verticals in which we invest, we have sector experts and domain experts who in some cases have been in the space, they were operating for 20 plus years, we have experts in cybersecurity. For our cybersecurity portfolio, we have experts in consumer privacy, for our consumer privacy businesses, when it comes to secure file transfer eFax, and healthcare communications case, again, sector expert piece, same thing goes for health and gaming and broadband. And all of our categories were set up in a unique way where we don’t necessarily have to outsource the diligence, and outsource the planning, and synergizing if you will have the opportunity that a lot of financial buyers have to because we’ve got the in house expertise.

    And I think, particularly when you’re talking about founders, it’s easier for them to have a conversation with someone who’s been speaking the same language for 20 years, but knows the same players who understand the industry dynamics, and doesn’t look at a raw p&l only focused on revenue and EBITDA and free cash flow. While that’s important to us, we’ve got a bench of professionals with deep relationships and sector expertise that then makes for an easier transaction.

    Patrick: I think also, because you’ve done again, 186 acquisitions, you’ve got a whole game plan or a process set up. So I think if if a owner or founder, they don’t do m&a deals every day. So I have a feeling that you’re used to having novices that you’re dealing with. And so your onboarding is probably I would think, as painless as possible. And that must be a great, great advantage as well.

    Sean: Was pretty systematized. I think you’re right. I mean, when you when you handle the volume of transactions that we handle, you figure out what works and what doesn’t work. And through the course of the 180 plus transactions that we’ve done, we’ve figured out the playbook that works. And there are different playbooks that work for different situations. So we know how to work with the bootstrapped founder who’s ready to sell, we know how to work with the private equity fund, who is just looking to exit from investment they’ve been in now for five plus years. We know how to work with the corporate who is trying to carve out a business that’s non core. We know how to work with the venture capital fund. We thought something was going to be a rocket ship and maybe maybe it is or it was but if for whatever reason they’re ready tax. We’ve got these different playbooks that we’re able to fly into different scenarios, and it helps to have had the reps in to have made mistakes and learn from them to improve the process as a result.

    Patrick: I can imagine with strategic acquires versus private equity, financial buyers, if you’re in management, the tradition is that well, if your private equity or financial buyers, they look to retain management, whereas strategics don’t necessarily they’re gonna, they’re gonna put their own management in j two is completely different. You are almost like private equity in that, that you’re going to go ahead and maintain management, I think that just helps them cross that chasm to get to the next level.

    Sean: That’s right, that’s right, we we’ve put a tremendous amount of value on the people, they’re going to join our ecosystem. And that is a critical part of our diligence. And our underwriting is understanding the people who are running the business and understanding the value that they can add to that business under our ownership. So it is important to us.

    Patrick: I was going to ask you originally about give us some examples of the value you’ve created for some of your acquisitions. But I got a pivot from that and ask you what’s different in doing deals. Now post pandemic, you’ve been able to continue doing deals, even though the pandemic, there have been changes. Let’s talk about that real quick. And then we’ll get into the success you’ve had. But what’s changed and what, what happened with you guys with COVID?

    Sean: Yeah, so at the beginning of the year, we were off to our normal pace. And pretty fast clip, we came off of 2019, where we closed 12 transactions came into 2020, with a very healthy balance sheet, ready to keep up that level of activity if not increase it. And then March happened, and the global pandemic happened. And we very intentionally and deliberately paused our m&a program. We believe in predictable businesses, we invest with very high confidence. And we just found ourselves in a position where we weren’t able to do that. We weren’t able to predict other businesses, let alone our own. We weren’t able to underwrite with high confidence. So we pulled back and the good news for us is we don’t have to deploy capital.

    We don’t we don’t have to invest. It’s not the private equity model where we have to put the cash to work we like to, but we don’t put cash to work for the sake of putting cash to work we we underwrite for a high confidence return. And in the second quarter, we couldn’t meet with people in person, we couldn’t conduct our typical diligence. And we had a hard time getting a clear line of sight to the performance and forecasting of any business that we looked at. So we pulled back, we shifted our focus internally, we went through a lot of exploration of our own portfolio and evaluation of our own cost structure and tried to refine where we could optimize internally. We got to the end of the second quarter. And we recognize that we may be in a new paradigm where you have to adjust the way that you evaluate businesses, the way that you do diligence, the way that you meet with companies. And we discovered a lot of the technology that’s in place today, has actually allowed us to do this for years.

    Data rooms are all virtual zooms are commonplace. And they were they were commonplace before, I think we didn’t realize that all of us had cameras in our offices before. And with a global organization like Jay to, I think 80% of the people that I work with are in different locations. So we discovered after some reflection that we are set up to be able to transact in a virtual environment. And we are capable of transacting in a virtual environment, particularly in categories that we know really well, where there are businesses that we’ve known for a number of years, sometimes decades. So we got comfortable with that. And we also realize that, hey, maybe maybe the disruption that we’re seeing is going to be more V shaped than L shaped or U shaped and as we looked at our own businesses, we saw some of the rebound quickly and got comfortable, again, investing in sectors that we know really well and that we can have confidence in from a forecasting perspective.

    So you get to the third quarter, and we turn the machine back on. We have closed now. I believe it’s five or six transactions. Since the start of the third quarter, including one of the largest transactions that we’ve done in Jay to the acquisition of retail me not, which is in a space that we know extraordinarily well, a business, we’ve been around for a very long time. And we’ve we’ve even as a part of the reflection in the second quarter where I said, we shifted our focus internally, we decided to sell a business. We looked at a business, our ANZ, Australia, New Zealand voice business, and there was an interested party, who was able to put a competitive and compelling value in that business. And we decided, you know, what, we’re in the business of unlocking value. And if someone else can value this more than we can value it, then they should be entitled to a transaction.

    Patrick: Well, now you’ve come to this for the people that are listening, why don’t you describe exactly what your ideal target is.

    Sean: Oh, Patrick, that’s a hard question. You know, I think the the ideal target varies by sector. So we have we have operators in all of our different businesses who each have their own m&a problem. And they would each answer that question very differently. And and they really are the folks who answer that question, what makes the most sense within the sector that they operate. Now there are there are also parent level deals. So at the J2 parents, there is another m&a program, which is typically looking at larger deals, they would stand on their own, where there would be an entirely new operating team, those of us deals, we’re really talking north of $500 million of enterprise value.

    So it’s really the once once every few years type of deal, not the bread and butter m&a. But, you know, I think that the question is really more appropriate for our operating executives. You know, I can tell you on the health side, Dan Stone, who’s the president of everyday health is really focused on how to transition into a provider services model where he is acquiring tools and services that help serve the healthcare provider market, digitally enabled internet enabled tools and services, but, but that’s an area of focus for him.

    The answer is going to be very different for Steve Horowitz, who is the president Ziff Davis, is increasingly spending time around game publishing, we have this great business Humble Bundle, which is a distribution channel for PC games. And we’ve found some success in vertically integrating in that world and publishing games that we then distribute. So one of Steve’s focus along with Alan Patmore, who runs Humble Bundle is figuring out what game publishers we can acquire. And what game publishers what indie PC game publishers fit well within the Humble Bundle world. Now flip to the other side, J2 cloud services, the software side of J2, which is run by Nate Simmons. He’s the division president there. He comes from a cybersecurity background. So he is looking to build out the full suite of cybersecurity solutions that can serve the SMB market, which is we talked about at the top of the call is really important to us. Fanatically institutionally, it follows our playbook. That’s the market that we want to serve. So that was a long winded way of saying that they’re much smarter folks than me who can answer that question better than I can answer. Well, you’re spreading

    Patrick: Well you’re spreading over 40 brands already and all these different sectors. You did a great summary there. So that this has been the first time you’ve been asked that question. So well done. With the experience that you and J2 Global have had leading and all of these acquisitions, there are tools and processes and things in the business world that have either come to help or accelerate or enhance the whole m&a process. And one of those being the evolution of rep and warranty insurance where it was once a cumbersome tool for your $500 million deals to where it is now a real slick, efficient product that helps enhance closing. Now lower middle market deals that a year ago wouldn’t have been eligible, but they are now eligible in deals sizes of $15 million. You know, down at that level. Good, bad or indifferent. Share with me the experience that you and j two global have had with rebel warranty on your deals.

    Sean: Yeah, it’s really becoming very common. And we’re seeing an increasing willingness of sellers to pay for these policies, which was historically the realm for us. Why would we add expense to a deal for a policy, we’re finding more and more sellers, particularly financial sellers, private equity sellers, are willing to pay for the cost of the policy for the cleanliness of the deal. And we’ve found that through several reps have this now we’ve done this several times over the last 12 months. It can be pretty, pretty formulaic, and pretty easy, particularly with the underwriters, who we’ve now dealt with on a repeat basis.

    They understand our program, they understand the way that we do diligence, they’re comfortable with our process, which makes these due diligence calls and their own diligence that much easier. And I think it helps also that there’s a very competitive market out there of underwriters who are willing to lean into deals and to, to do, as you said, smaller deals that maybe they wouldn’t have done 18 months ago. So we have, we have found the product to be helpful. You know, I guess we haven’t done enough of these to really get through the full full window, the full back into it. So I think the next call of 24 months, will really tell whether we’re more or less comfortable with this versus a more traditional escrow. But indications so far are that this could become just part and parcel of every deal the same way that escrows were 10 years ago, you just have an escrow, you have a rep and warranty policy, the way deals are done.

    Patrick: Yeah, that’s what we were striving for, we were hoping with the sustainability of rep and warranty is that it’s just check the box on the list of items that need to be done for closing. And I would argue that probably the debate has been settled whether or not to use rep and warranty, it’s now recognized as a must have, unless there’s some element of the deal that’s so problematic, it would be eligible for insurance, but we’re very, very happy with it. Also, just because, in my opinion, m&a is the most exciting business event out there. And to the extent that we can contribute to the success of that life changing event for a lot of people, I mean, who wouldn’t want to do that. So we’re very excited about it.

    We like the competition, because that does two things, as you know, with competition, it improves products or services, and it lowers costs, win win win for everybody. So the next thing is, now as we’re recording this, it won’t be there too later. But we’re at the eve of the election, we’re going through another spike in karate, Coronavirus, tests, and so forth and diagnoses. You’ve been emerging from a quiet period in your m&a and now you’re getting back up to speed, you’re probably at full speed. Look through your window. What kind of trends do you see either an m&a in general, or J2 Global for 2021?

    Sean: I think it’s going to be a very busy year for us. And I think we’re going to see certainly in the fourth quarter, which will probably bleed into the first first quarter, some volatility in the public markets. But that’s not where we spend most of our time on the m&a front in the private markets. I do believe there will be a bit of a pullback in terms of valuation. I think we’re still riding on a high, you know, in part because of what the federal government has done appropriately in propping up the market. So I think we will, we’ll probably see some correction in the private markets that may not make their way into the public markets, which is interesting. I mean, there in my view there is there’s a disconnect between public markets and private markets right now where the same math doesn’t apply from one to the other.

    So I expect we will be very busy, we’re in some categories that are white hot, we are in cybersecurity, which is I think, going to continue to be a very attractive investment category. Now my my hope is that the big players won’t creep down into the lower middle market and create more competition for us but they might on the gaming front again a white hot market where we spend a lot of time with IGN and humble bundle, I think will continue to be busy there I think that sellers will take advantage of the market. And the same thing goes for health. The hcit market is is another really hot market where a lot of companies will will be looking for an exit and be looking for liquidity.

    I expect that to continue into 2021 we are oftentimes opportunistic buyers, and I believe that there will be many others opportunities for us to buy car companies at great prices. In 2021, I think that the wave of available capital is still going to be there. But I do think that companies could run into some challenges if this second wave persists and turns into a third wave. But I do think overall, the disruption that we’re seeing in this pandemic is going to be short term. And by short term, I mean, a couple of years. And we are long term investors, at J2. So we take a much longer outlook on the durability of a business and the sustainability of investments.

    Patrick: Do you see a lot more distressed, m&a acquisitions, or as the pendulum’s swinging back in favor of the buyers then?

    Sean: Not yet, not yet. I have been really blown away at some of the valuations that that we’ve seen since February, in the face of a global pandemic, and unemployment numbers that we’re seeing. The valuations that are sustaining are really remarkable. So we have not seen it swing back yet. And we’re not, you know, we’re not really itching to see the economy crumble, nobody wants that. But I think we are patiently waiting for a buyer friendly market to come back, which I believe that it will, in 2021.

    Patrick: Would there be just a lot more earnouts and provisions like that. So you can kind of as a buyer, in in light of these, you know, frothy valuations maybe go to the target and say, well, we we understand the one Why don’t we see how we get forward once you put your money where your mouth is, and and agree to some some more milestone agreements. Do you see that trend happening more?

    Sean: Absolutely, absolutely. And that’s the way that we’ve been able to bridge the gap in a lot of situations. There There are, we are oftentimes the preferred buyer. So again, through this network of executives, we have in relationships that we have, a lot of times sellers want to sell to us, they really want to sell to us, but they have someone else whispering in their ear about a higher price. They don’t necessarily agree with the plan of that other buyer or trust the other buyer, or whatever the case may be, they really want to sell to us. And the way we’ve been able to bridge and say, Look, we can we can get close to this, this frothy number that someone else is whispering to you about. But as you said, Patrick, you got to put your money where your mouth is, if you’re going to execute on this plan, and you’re going to make this business worth what you’re saying it’s worth, we’ve got to we’ve got to prove it. And where the relationship is strong and where there’s a good level of trust, we’re able to do that. And we’ve got a good track record of paying or else because we set them at levels that we expect will achieve.

    Patrick: Well clearly you’ve got offers that are compelling enough for people to say yes, with 186 acquisitions in 20 years, like I said, it’s still really, really impressive. Tell our audience how they can find you and J2.

    Sean: Yeah, sure, I would encourage you to check out our website, www.j2global.com. And there is an m&a section of that website and a link that you can click on to get in touch with our m&a team. And we’re always open to conversations with companies in the lower middle market. Happy to to have conversations with founders and sellers and others who you may be interfacing with.

    Patrick: Well Sean Alford thank you very much. Very great story about you and J2. Congratulations for all the success and here’s to you and hopefully you can help keep propping up the economy with these lower middle market companies. So thank you again.

    Sean: I appreciate it. Thanks Patrick

  • Suzanne Yoon | Using Technology to Compound the Effects of Good Capital and Great Operations
    POSTED 12.15.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with Suzanne Yoon, Founder and Managing Partner of Kinzie Capital Partners, a private equity firm based in Chicago. Mergers and Acquisitions Magazine named Suzanne 2020’s most influential woman in mid-market M&A, and she’s also been recognized by The Wall Street Journal as a top female dealmaker, shaping private equities both present and future. Just recently, Kinzie Capital Partners was honored by the Private Equity Women Investor Network (PEWIN) as the North American female-founded firm of the year for 2020.

    “Really the start of Kinzie was based on an investment thesis around taking companies that were necessary for the economy, were going through some type of transition, and maybe had some age on them with regards to operations and technology, and being able to handhold, and through governance and technology initiatives, create more efficiencies, and also make sure that the infrastructure is in place to really take a company to the next step and think about growing. That was really our thesis,” says Suzanne.

    We chat about Suzanne’s journey in the financial sector, as well as:

    • Kinzie’s commitment to the lower-middle market
    • The Kinzie Formula: av=f(K+O)T© — wherein accelerated value creation (av) is a function (f) of capital and operational improvement (K+O), compounded by technology (T)
    • Her experience with rep and warranty insurance
    • Her perspective on the future for women in finance
    • And more

    Listen now…

    Mentioned in this episode:

     

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth, President of Rubicon M&A Insurance Services. 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 Suzanne Yoon, Founder and Managing Partner of Kinzie Capital Partners, a private equity firm based in Chicago.

    Mergers and Acquisitions magazine named Suzanne to the 2020 most influential women in mid-market M&A. She’s been recognized by the Wall Street Journal as a top female dealmaker shaping private equities present and future. And just last week, Suzanne’s firm, Kinzie Capital Partners, was honored by Private Equity Women’s Investor Network, PEWIN, as the North American female-founded firm of the Year for 2020. Suzanne, welcome to the show.

    Suzanne Yoon: Well, thank you very much, Patrick, for having me today. It’s always really fun to be able to tell our story.

    Patrick: I gotta say you’re probably going to be the only guest, and this is a rarity, but probably the only guest that doesn’t want 2020 to end. Congratulations on all the accolades. I think that’s a … all the great work.

    Suzanne: I do want the Coronavirus to end. I will say that. I think it has obviously been a very challenging year for anyone who’s been in investment business, particularly if we have ownership and fiduciary responsibilities to not only our investors but the companies and our employees and their safety. I’m not confident that will all happen in 2020. So in a lot of ways, I am kind of looking forward to 2020 being over so that we can move on.

    Patrick: Suzanne, before we get into Kinzie Capital Partners, let’s set the table. And why don’t you tell us about yourself and how you got to this point in your career?

    Suzanne: So I am the daughter of Korean immigrants, and they really came here with nothing. I was very fortunate to have parents who both loved what they did and were very entrepreneurial. And were extremely focused on our education. And I was reminded every day that we had to work really hard. When I was coming out of school, I really was interested in the financial sector. And probably initially because I had been surrounded by my family, my parents were both in the medical field, but I had a lot of friends whose parents were in business, investment banking, CEOs of companies, and I was really interested in what they did. So I graduated from school and I went to go, I went to work for a large bank, ABN AMRO and then La Salle Bank, which is headquartered here in Chicago, and with a big global presence, went through their analyst training program. Worked on senior and debt financings for middle market companies initially, and then large global companies as well.

    Ended up in a group called Special Assets through my rotational program at the bank. Special Assets at the time was also a place where they, when banks were able to do this in the mid-90s, where they held off-balance sheet private equity positions, so debt that had been converted to equity. And now the bank was managing that. So that was my first taste of, really, what it meant to be the fiduciary responsibility, of being an owner of a security or an equity security.

    And so from there, I worked on a lot of different types of companies, very large restructurings and in bankruptcies, and really what we saw there was what happens when things go wrong. And it was a great, great learning experience for me, particularly as I was very young and had an opportunity to work directly with senior credit officers of the bank at the time. Having long term capital and having control over where your capital is coming from and not relying on the public markets was really important to me.

    And so that was my entree into private equity, where we had more long term commitments from our investors. And we can have the time and the flexibility needed to work our way through issues if we ever came to them. So, that’s really what started my private equity, my pure focus, on private equity. And then from there, I was with an East Coast-based private equity firm. I worked with incredibly talented and smart people. My former colleagues and partners, I have the utmost respect for them. But I am from Chicago.

    And during my time at the firm, I moved back to Chicago as the only managing director outside of the East Coast. And I was traveling quite a bit. And so that was a factor for me, really thinking about where I wanted my roots to be. And being a mother, I’m also a mother of three boys, I felt that I had one foot in Chicago, one foot in the East Coast, and I couldn’t really be in both places at once all the time. So that was a factor in terms of thinking about where I wanted to be. So I knew I wanted to be back in Chicago eventually, and with a team in Chicago.

    This is where you make your own luck in some ways. On the investment side, I was seeing a lot of opportunities in the lower middle market. So some 50 million of EBITDA out of Chicago and the Midwest and really throughout the country that were really interesting opportunities but required a lot of operational improvements or help, because they were either going through some type of generational change or transition, and frankly, they were just too small for my previous organization.

    And so I had an opportunity to partner with my current partner today who is the founder and owner of a 150-person-plus technology and management consulting firm and really leverage them. It’s called Clarity Partners, but leverage Clarity Partners and their resources to be able to provide operational expertise to these lower middle market companies that were going through transition. So that was really the start of Kinzie.

    It was based on an investment thesis around taking companies that were necessary for the economy, maybe had some aging on them with regards to operations and technology, and going through some type of transition. Usually, we are the first-time institutional investor into a company, and through governance and technology initiatives, create more efficiencies, and then also make sure that the infrastructure is in place to really take the company to the next step and think about growing, right? Like, really growing.

    And so that was really our thesis. And that’s how Kinzie was started. My goals of being in Chicago, being part of the community where my family is, and then also establishing a firm that was thinking about the future, right? And how to actually maximize and accelerate value through operational improvements, specifically around technology and being able to bring technological expertise that would normally be reserved for much larger companies to lower middle market companies is very important to me. So that was how Kinzie got started. And I think we’ve been really focused on that since we started.

    Patrick: Well, what’s really striking about your past, and what led you to here, is that you came from a culture of coming into troubled circumstances and you avoided human nature, probably because you were coming in from the outside, but you’re coming in where there are problems. And instead of pointing fingers and bemoaning what led you to the problems, you’re coming and saying, “Right, okay, how are we going to get out of this? What steps are we going to take to do to fix it?”

    And that is consistent throughout your entire career. So I could see that, where maybe you don’t have problems, you’re just not at that next level. And so that’s what you come in with. Kinzie Capital Partners. Now, as we think about it, the one thing that is different between private equity and law firms and insurance firms out there is, they’re boring because they pretty much just name their firms after themselves, okay?

    They don’t even think about it. And you can always get a little insight into a firm if you found out how they come up with the name. So tell me about the origin in the name and then tell me about your commitment to the lower middle market you just mentioned because I think that’s a really underserved, vast opportunity out there.

    Kinzie Capital Partners’ Background

    Suzanne: So speaking of naming the company, I thought Yoon Capital Partners would just not resonate well with, frankly, a market that is dominated by white men. And even the CEOs, the sellers, everyone. I’m teasing about that. But … people ask me that all the time.

    Like, Oh, you didn’t name it after yourselves. And we joke that, my partner, we’re both immigrant kids and we get teased a lot about our last names, right? Even growing up. So why would we name our firm? We don’t want people to tease us, because we were always a little bit on the outside. And so with that said, what I really wanted was to build a firm, and I still want this, that is going to outlast me. And so I never thought naming a firm after me because then it’s all about me, right?

    Or our names were not the right thing, particularly because private equity is really a team effort. And I use a lot of sports analogies. So even within the team, I’m the coach. I think about myself as more of the coach and the strategist. But everyone has a really important role, down to our assistants, and I mean, everybody here. Because we have to manage people.

    And so Kinzie is a street in Chicago, and the street was named after, I’m sorry, it’s actually a bridge in Chicago. And it’s one of the most famous bridges in Chicago.

    So it was the first bridge that was ever built over the Chicago River, which is a really a main thoroughfare in Chicago. And it’s an iconic view, it’s one of my favorite views of the city. But if you stand on the Kinzie bridge, the original bridge was never torn down because it’s now considered historic. So you see the original bridge that was built and this ever-changing landscape of buildings.

    And it’s even very different. The view from the bridge today, looking into downtown Chicago, is completely different than it was three years ago. And so to me, that was very representative. And even 10 years ago, 15 years ago, is just very different if you saw the evolution of what the skyline looks like from the bridge. And to me, that was just the evolution of also thinking about keeping in mind the old and preserving and respecting, right?

    I think that is what is beautiful about tradition, keeping in mind that we are living in an evolving world. And having to keep that in mind. So it’s very personal to me. It’s Chicago, right? Everybody in Chicago knows, they always ask like, Oh, are you on Kinzie street? I’m like, actually, I think I was when I first started thinking about this name. But everyone outside of Chicago is like, what is Kinzie? Is it a person’s name? It’s a bridge. So that’s the story. It’s a bridge in Chicago.

    Patrick: So this is a homage to your Chicago roots?

    Suzanne: It is, It is an homage to it.

    Patrick: While still looking forward. So you’re not stuck in the past. You’re looking forward for the evolution. That’s very, very clever. Well done. With the lower middle market, and you’ve mentioned this earlier, you like to roll up your sleeves and get your hands on that. Tell me a little bit about that, where you see your role with the lower middle market. Because, as I mentioned before, I think this is a huge underserved market and is ideal because, unfortunately, a lot of these organizations, they don’t know where to turn for help.

    And if they go to the big institutions, they’re going to get underserved and they’re going to get overcharged and they’re going to get overlooked. And here you guys are, firms like yours that are at the ready with all the resources of the larger firms, scaled-down, that can deliver these great solutions. So tell me why you picked that as opposed to larger opportunities.

    Suzanne: Patrick, I mean, do I have to repeat what you just said? Because that’s exactly why I wanted to and why I like the lower middle market. I think there’s just a lot of opportunity to take all of the skills that I’ve learned over my 20-plus years of investing and working with different types of companies, much larger companies and the ones that we’re investing in, and then also having the resources to be able to bring to those companies and make very significant moves that these companies would historically not have been able to make because they don’t know how to get to the resources that they need.

    And so, I would say that’s probably the biggest factor for me is it’s very gratifying to work with a management team, or a prior seller, right, that is partnered with us and bring our expertise to the table and really partner with them to think about the future and execute on a vision, a joint vision.

    And a lot of times, the people that we’re talking to or that we’re meeting within the companies that we get excited about, there is a vision already in place, they just don’t know how to execute it. So the idea is there. And so that’s really how I see our job, to make sure that, if we have a collective vision, that we make sure that we execute on that vision.

    Patrick: Let’s get into what’s really unique about you and Kinzie, and that’s the Kinzie Formula. And I’m going to give my observation on this, and I’m not saying this to flatter you or anything, it’s just what struck me about it is the term is a formula, okay? A lot of organizations, they’ll have a process or they’ll have a system or a model and those may or may not work. I love the subconscious feel of a formula.

    A formula is literal, it’s reliable, it’s repeatable. And it’s just a great sense of comfort that you’re coming in with a formula. And we’ll have it in our show notes and it’s on your website, but explain the formula and how it works, where you guys came up with it and how that’s pretty much your core right now.

    The Kinzie Formula

    Suzanne: Thank you. We take a lot of pride in the formula because we spent time really thinking about how we could articulate best, in a formula, what our investment philosophy is and why we think that we are going to be the best fit for the companies that we choose, right? And vice versa. And we really thought hard. And our formula is just this, for the listeners out there who don’t know our formula, it’s accelerated value equals a function, or is a function of, capital plus operations, compounded by technology.

    So what does that mean, right? It just means our goal as investors is outsize returns, alpha, and how you get to outsize returns in alpha is we have to accelerate the valuation of that company. And the way to do it is to make sure you have the right capital structure in place. And add in operational excellence. And we think of the compounding that you have with those two things in place, and you add technology to compound the effects of good capital and great operations. And that’s it.

    Patrick: Yeah, very contrary to the cynical view of private equity, which then I have a formula, it’s just minus, okay? We’re gonna cut, cut, cut, cut, cut until we’re adding value by cutting.

    Suzanne: You know, sometimes that is part of the operational excellence portion, right? Is that you do have to upgrade talent. Sometimes you have to, and especially in long-time family-owned companies, there could be, you know, dead weight, and it’s not good for the culture. It’s not good for a culture to have people who are underperforming and everyone knows that they’re underperforming. So I agree that private equity has this reputation for cutting but I think a lot of times there’s a good reason why that cutting is happening. It’s not just because of costs, it’s because there’s fat.

    And you need to replace certain areas with other people. And every company is as good as their people. So it’s unfortunate that private equity has that reputation because we do it a lot. And I say we because I include myself. We certainly have done that in acquisitions, but we also add people. If you want to grow, you also have to have the right people and sometimes a lot more people. So I think if you look at private equity as a whole, the net add of jobs is probably much higher than the cutting that we all hear about.

    Patrick: Well you actually save companies, because if they don’t change, and if they don’t adapt, their lifetime is finite, and they could be gone, and then everybody’s gone.

    Suzanne: Exactly.

    Patrick: And then as you talk with, in the Midwest and where you’re probably investing, these are companies that could be the lifeline for the community. And so if the company goes, community goes with it. So I mean, there are some very, very important roles there. Suzanne, give us a quick case study, give me an example of where you come in on opportunity and just where the formula came in and magic happened.

    Suzanne: Oh, I actually have one more recently. So, we have a portfolio company called Colony Display. 37-year old-company, the two sellers were actually the founders. One of the founder’s sons had taken over as, essentially the chief operating officer, and then the CEO and he grew up in the business.

    The business had been run a certain way, the knowledge is incredible. And this was a company where the customers loved them because they are so service-oriented. So when we look at a company, their product was excellent and had a lot of customer concentration. But there were no strong financial controls at the company. So we had to make some changes within the financial team and improve financial controls.

    Again, family – it was started 37 years ago, so the infrastructure wasn’t at the point, and I would say, management and executive infrastructure wasn’t at the place that it needed to be in order for the company to continue to grow. So we added. We hired a new CFO, new controller, a head of HR, which never existed at the company prior, despite the fact that they employ anywhere between 250 to 1000 people a year across three different manufacturing plants, manufacturing and assembly plants.

    We made some pretty significant investments into the systems. Communications, new website. Partly through increased sales, the production has improved significantly through some operational improvements we’ve done. But also with the new people hiring, there was also another head of engineering that we brought in.

    And the company will double its EBITDA in a very short period of time through pricing, discipline, and production discipline. And now, I feel the company’s in really good shape to continue to grow on the top line and they could support that with the right infrastructure, right? And human capital and an actual infrastructure. So a lot of work within the first six months and continues to be a lot of work. We haven’t quite owned it for a year yet and we’re north of double EBITDA already. And so that’s great. It’s really fun when all the work you do actually shows up on the bottom line.

    Patrick: So for anybody that’s considering a transition, they really need to talk to you. I know you’re not going to guarantee to double EBITDA in six months, but that is very, very impressive. Well, well, done.

    Suzanne: Thank you.

    Patrick: So, tell me again, one of the elements that’s in mergers and acquisitions that’s come along and is now available for the lower middle market companies is rep and warranty insurance. Used to be a product available for $100-million-plus transactions, it now can come all the way down in terms of lower pricing and simpler underwriting and eligibility rules to where a 10 or $15 million add on can be insured with rep or warranty. I’m just curious, good, bad or indifferent, tell me about your experience with rep and warranty on any of your deals.

    Suzanne’s Experience with Rep and Warranty Insurance

    Suzanne: Well, it certainly cuts down on the time that we are negotiating, right? Reps and warranties and indemnifications and other. And I would say the likelihood of a deal blowing up over those issues is pretty high, generally. And if you spent six months to a year working on a transaction and it comes down to reps and warranty, I think the beauty of reps and warranty insurance is that it puts, in some ways, it’s not that there’s less diligence done around those issues or there’s less concern, right?

    The concern is always there. What it does do is it puts in some time, in a way, a middleman in between you, us as the buyer, and the sellers so that everyone doesn’t feel like, both parties don’t feel like they’re trying to screw each other. Because there’s a high degree of skepticism on both sides around those negotiations.

    Patrick: Yeah, that’s natural, particularly because the timing. The sellers, they’re never prepared for this but they’ve just gone through at best an “intrusive” due diligence process that nobody’s ever prepared for. And then they thought through that, they said, “Well, we’ve told you everything.”

    Suzanne: And then imagine that it’s exponentially worse for a first-time seller. When you say they’re not prepared, that is really an investment banker’s job, in my view, with a first-time seller is to make sure they’re prepared as possible for the incredibly intrusive due diligence process that is going to happen and continue to happen. Even with that, they’re never prepared. Especially with a first-time seller. And so, imagine getting to the reps and warranty insurance, or reps and warranties, not the insurance, but even before the insurance, the negotiations around indemnities and reps of warranty.

    The beauty of that, having reps and warranty insurance, one, I think makes people less skeptical of each other. Do you have a third party really taking a, that has seen everything and really has to underwrite everything? The second is it certainly gives everybody more comfort that if anything goes wrong, we have this, the insurance in place. But I also think the reps and warranty insurance is generally a good process for private equity firms because it does require a lot of third party due diligence, additional third-party due diligence, which we probably should be doing anyway.

    Patrick: Suzanne, tell me, what’s the profile of your ideal target now? What are you looking for?

    Kinzie Capital Partners’ Ideal Target

    Suzanne: So, our profile is 5 to 15 million of EBITDA in the consumer manufacturing or business services spaces. We have a lot of focus on manufactured products. So we do consumer, but not branded consumer. Really, it’s more consumer B2B products. And we like companies that are going through some type of, I think we’re the best fit for companies that are going through some type of transition.

    So either a generational shift, or, where a company’s stifled to grow and they have objectives to grow, but really don’t know how to do it. And then some of the tenants that we really look for are a strong management team or leader within the management team that we can partner with. And really I would say, and we do our due diligence with culture quite a bit, so that they’re the right cultural fit with our team.

    Patrick: Based on your recent successes this year, with the recognition of PEWIN and your status as one of the top women in private equity for the middle market. I did have one other question for you, as a father of two young teenage daughters, I am now more and more aware of opportunities for women in and around not just private equity, but mergers and acquisitions in general.

    And I assess now, again, as a father of two daughters, women are seriously underrepresented in M&A. And there are leaders like you that are coming through that are, I wouldn’t say paving the way, but you’re just showing excellence in this area. And I think nothing is more appealing than excellence and something that people can appreciate. And so, I’d like to get your perspective of the trends that you see for the future for women in, either in finance in general or M&A or private equity in particular.

    Suzanne: So I’m very bullish about women and more women having more leadership roles because I think part of what we really need to do is make sure that women and people of color are represented in leadership roles so that the next generation see that and know that it’s possible for them. And that we talk about it, because there are differences, right? I mean, I’m a mother of three and that has challenges too, being a mother of three. And just like it is to be a father of three. And I know you have daughters, I have sons, so I’m learning a lot about them.

    I’ve learned a lot about men through having three boys. And I appreciate that very much. And so I’m really bullish. I think girls today are more confident. They know they have a voice and a lot of it has to do with their fathers and men who make sure that they know that, right? That they want to be more independent. And I’m very fortunate. I had a dad who never made me feel like I couldn’t do anything that boys could do. And so it’s important not just for women to support each other, but men to support women. And I certainly will say, my whole career, as you mentioned, there were not very many women.

    I did not have a lot of good experiences with other women cause I didn’t have them. They were mostly with men. And I’m really fortunate that I had mentors, advisors, bosses, both men and women who were incredible champions for me. And so I think we have to continue to do that, right? For underrepresented people in general, but especially in industries where it’s very clear they’re underrepresented.

    Patrick: Well, I also believe that women just, people coming from different perspectives, but particularly women, there’s a different skill set that you bring to the table. And that diversity and different diversity and approach and everything avoids groupthink and gets other perspectives as you look at opportunities. And there are opportunities that could have been missed had it not been for different viewpoints.

    Why Diversity in the Workplace is More Than Just Filling Quotas

    Suzanne: I think diversity is, we talked a little bit earlier about trends, right? In the market. And diversity is a trend, but it’s not a trend to be trendy. It’s a trend because the statistics, right? That show that if you have a diverse board, companies outperform when they have diversity in their leadership ranks and when they have diversity on a board. So that’s both gender and ethnic and experience. You can’t have everybody thinking the same way. So I actually attribute some, a lot, of our success at Kinzie to that and not because I’m a woman and I have an ethnic background, but more when you look at our entire team and you see the different experiences we’ve had.

    So me having grown up within the financial sector professionally, my partner who grew up in technology consulting and fixing companies, my colleague who came from a corporate finance background and really worked inside a large company as an operator. And then in just the various backgrounds we have, we all bring very different perspectives that help us think through issues at any of our portfolio companies. And I’ve never operated a company before, except for Kinzie. And I was always a deal person.

    And so having those different perspectives, we have like accounting, we have to deal with honors or we have an accounting issue or we have to figure out how to make a project management software work properly so that it’s communicating across this lower middle market company because the larger the companies are, a lot of those things are fixed and they’re set because there’s a lot of professionalism. So we’re professionalizing an organization. And it’s very difficult to do that if you don’t have different perspectives and experiences. So we really take diversity, we think it’s very important. We know that it’s important for results.

    Patrick: Well, I think the other element of diversity is you need to be flexible, you need to be able to be nimble and not reactive, but proactive, in every phase of operating a business. If you’re set in your ways and you’re monolithic, you’re doomed to failure. Well, diversity is just one of those other elements there that’s being brought to the table. And it’s also, I mean, the thing about mergers and acquisitions to me is it is not one company buying another company. It is one group of people choosing to partner and join another group of people. And the expectation is one plus one equals six.

    So, or whatever the Kinzie Formula is for that, but one plus one Kinzie formula is going to go, a multiple. That’s what it’s about. And so this is just another part of the human element that comes in. So Suzanne, been very, very informative. Thank you so much for joining us today and sharing your thoughts and congratulations with you and Kinzie and hopefully, the successes of 2020 come follow you into 2021 and COVID stays behind. How can our audience members reach you? How can we find you?

    Suzanne: So we’re on LinkedIn. And we actually are pretty active, or we try to stay as active as possible on LinkedIn. And also go to our website, www.Kinziecp.com. And you can contact us through there. And then our whole team is accessible again on LinkedIn. We have a Facebook account and a Twitter account. We try to do it, we try to stay relevant. So we’d love to hear from you.

    Patrick: Suzanne, it’s absolute pleasure. You have a good afternoon. Thanks again.

    Suzanne: Yeah, thank you very much, Patrick. Appreciate everything.

     

  • Emerging Trends in R&W Claims 
    POSTED 12.8.20 Insurance

    As the major player in the industry, AIG has been the long-standing, nearly sole source of claims information for the Representations and Warranty (R&W) insurance market. In 2020, Liberty Mutual, which has been actively writing M&A-oriented policies for about 10 years, issued its first such report based on their own experiences in this space.

    An important factor to note is that overall, the number of claim notifications is going up, with 19% of policies bound in 2017 with notifications, up from the 14% from 2012 to 2015, and 15% in 2016. Liberty Mutual expects to hit or exceed 19% for policies written in 2018 and 2019; as notifications are still coming in steadily for those years.

    Why the jump? Simple. As R&W insurance, which transfers indemnity risk to a third party (the insurer), has been…

    • Recognized as advantageous for both Buyers and Sellers
    • Opened up to smaller deal sizes, especially to the lower middle market transactions
    • Reduced in price

    … more policies than ever are being written. It’s only natural that the more policies there are out there, the more claims there will be. It does not point to a problem with this specialized type of insurance in the M&A world at all.

    I’m not worried that this rising trend in notifications and claims will impact the viability of R&W insurance. Neither will this cause coverage to shrink or prices to rise. This trend is not foreshadowing a rate increase or lack of capacity.

    Quite the contrary, because there are good reasons for this increase in notifications and claims: not only are more R&W policies being placed than at any point in history, including many deals in the sub-$250M transaction value, but policyholders are more aware that they can use their R&W policy for reporting.

    The increased reporting of breaches in recent years will not trigger higher prices because properly underwritten deals have not suddenly become riskier to insure despite the increase in notification frequency. As the report points out, no more than a quarter of notifications actually result in a request for payment from the policyholder. And only a fraction of reported breaches actually exceeds the retention and lead to payment by the Insurer.

    It’s also worth noting that tax-related notifications (in the form of audits) are among the most common breaches reported, usually within three years. Tax authorities aim or are required to commence an audit within one to two years of receiving returns due to the statute of limitations.

    There may be nothing wrong, but because the IRS is launching an audit, policyholders will report it to the insurance company to put them on notice so they can bring their resources to bear to defend them if necessary. However, these audits usually do not result in a claim. Most agreements require a six-year survival period for tax Reps, which may not be necessary.

    Overall, R&W insurance has established itself as credible, reliable, and sustainable. This is a respected, solid product. It’s on everybody’s checklist right now.

    The simple fact that Liberty Mutual has issued this report is reassuring. AIG was the only insurance company to put out any information about claims before now. This new report shows this is a maturing market.

    More competition brings better products and services and lower prices. It’s innovation in action.

    It’s also important to note that insurers like Liberty Mutual and AIG do pay these claims. As Gareth Rees, Liberty GTS Chief Underwriting Officer, put it:

    “In the past, R&W insurance was essentially something that helped solve a deal problem and get a deal over the line, but then often forgotten about post- closing. Now it is also seen as an asset from which an insured can recover value in the future, and much greater thought is given from the outset as to whether a policy claim exists.”

    The Liberty Mutual report, 2020 Claims Study: Exclusive Insight Driven by 10 Years of Data, is worth a close look, especially the section on emerging trends in the claims R&W insurance policyholders make. Here are the issues they expect to be leading claims generators in the next 12 months.

    Stock and Inventory Issues

    There are a few elements at play in these types of claims, which, as you might expect, are most common in retail and manufacturing businesses and mostly involve slow moving, obsolete, or damaged stock. The COVID-19 pandemic has only intensified this trend.

    There is more risk if the business is seasonal, or if the products in question are frequently updated or subject to price volatility or physical damage. There is even more risk, says the report, in so-called locked-box deals with no stock-take at, or following, closing.

    Why are these claims relatively common?

    Gareth Rees says: “The reality is that stock can be a difficult area to diligence, particularly on a deal that is moving very quickly. A lockdown situation obviously makes it difficult to carry out any physical checks.”

    “Also, there will be many companies that have built up large quantities of stock as a result of the lockdowns, but which may not have updated their policies around obsolete and slow-moving stock to reflect this. This is an issue of heightened underwriting focus for our team at the moment.”

    Accounts Receivables

    As with the previous trend, we are likely to see a pandemic-related impact here as well, which is why underwriters are taking a closer look at “the size of the accounts receivable figure in the accounts relative to the size of the balance sheet and asking more questions around this issue.”

    Common allegations with regards to accounts receivable claims include the setting of inadequate bad debt reserves and errors in quantifying the acquisition’s total accounts receivables. In some cases, it’s unclear in these times whether a customer on the books is “real” or will disappear or even shut down due to COVID.

    Software Licensing

    Essentially, this is when you have onsite audits from software providers to check how many people at a company are using software that has been licensed. According to Liberty Mutual’s report, these types of audits are on the rise.

    An acquired company could state that they have 100 licenses, but it turns out that 300 employees are actually using the software. That’s a big no-no. Punishments range from penalties, to a requirement by the vendor that the company buy new software at list price and pay support costs.

    This issue could be very impactful for SaaS companies and other tech businesses.

    Insurers are taking a closer look at software licensing in the underwriting phase too, says the report, which states: “[We] expect it will also become an area of focus for buyers and their advisors during the due diligence process as target businesses become more digitally enabled and more reliant on licensed software.”

    Revenue Recognition

    When you sell a company, you can’t have zero cash in the bank on closing day. The incoming Buyer needs money for payroll, leases, etc. for, say, 90 days post-closing. The Buyer will make an amount, say it’s $9M, part of the deal. But they will ask the Seller what amount is needed for operating expenses for that 90 days.

    This can be trickier than you might think when you consider the different ways revenue is recognized and then booked for accounting purposes. When there is a disconnect, a claim results.

    According to the report, this is an issue particularly with project-based work. In these cases, revenue is recognized over time and compared to incurred costs, instead of in line with actual income received. The fact that the projects involved are long-term and have multiple elements makes this even more complicated. This means tougher due diligence in this area.

    States the report: “We are increasingly looking for signs that management have been challenged appropriately in key areas of judgement associated with the entity’s revenue recognition practices and sufficient evidence has been obtained to support those judgements.”

    This has become such as issue that SRS Acquiom is adding side-escrows for revenue recognized and net operating revenue in the deals they oversee.

    Minimum Wage Legislation

    Minimum wage provisions are excluded by most R&W policies. So, although this can be a serious issue to those companies impacted by employees’ claims for backpay, increased tax liabilities, and fines from governmental authorities, it’s not something that insurers have to worry about in most cases.

    Reclassification of Contractors as Employees

    State governments, facing reduced tax receipts and pressure from advocacy groups, are increasingly seeking to classify independent contractors as employees. California is the perfect example.

    This could, says the report, “result in a large number of notifications with the potential for significant consequences for a business, both in terms of increased tax liabilities and payroll costs.”

    Health and Safety

    With increased regulation, especially in the real estate sector, and more stringent compliance measures, we are seeing more claims related to breaches of health and safety laws. The result, as the report states, are significant business disruption and remedial costs to get into compliance.

    As the report states: “We anticipate that this will lead to buyers and their advisors focusing more on this area as part of their due diligence, with technical reports addressing this specific issue becoming more common.”

    Climate Change

    The Liberty Mutual report does see climate change as an area of concern and increasing risk, but it’s mostly an issue for companies operating in the European Union.

    The Key Takeaway

    As I stated earlier, more R&W insurance policies are being written, so more notifications are being made. More notifications that don’t result in claims being paid out means that R&W isn’t any riskier than before.

    This trend of rising notifications actually points to sustainability and maturity in the R&W insurance market. As a result, we should have stable pricing for the foreseeable future.

    One thing to keep an eye on are new trends related to COVID-19, with Underwriters scrutinizing new potential areas of exposure, such as:

    1. Labor-related third-party claims from contracts terminated on the basis of force majeure.
    2. Claims related to key customer insolvency where the warrantors knew that the customer was facing financial difficulty.
    3. Claims related to incorrect use of government-enacted job retention plans.

    For guidance on the use of Representations and Warranty insurance in the time of COVID-19 and beyond, contact me, Patrick Stroth, at pstroth@rubiconins.com for all the details.

  • Peter Lyall | The Role of Marketing Communications Within M&A
    POSTED 12.1.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we’re joined by special guest, Peter Lyall, Group Director of Strategy at Fifth Ring, a marketing-communications company with locations in the Americas, Europe, and Asia. They promote the ultra-simple message of helping B2B companies sell more stuff and build better brands. Peter’s goal during this episode is to shed some light on the role of MarComm during M&A transactions and to explain why this is often a blind spot during the acquisition process.

    “There are quite a few skeptics about the role of MarComm within an M&A transaction, even to the point of saying that the brand isn’t important,” says Peter. “So, I did a little experiment: In a room of 50-60 people, I asked everybody to put up their hands if they had chosen their wristwatch because of the brand. They all had. Then I asked them if they’d chosen their car because of the brand. They all had. These people were very brand savvy, but couldn’t quite transition this thought, this appeal, this attraction of a brand, from the consumer environment to the B2B environment, which is where they’re living on a day to day basis.”

    We chat in detail about:

    • Legacy issues and the challenge they pose to marcomms post-acquisition
    • Implementing cultural values and brand messaging
    • Utilizing employees as brand ambassadors in messaging
    • Why cultural integration is a blind spot in M&A
    • Structuring multi-brand portfolios
    • The power of 3— Where 3 words can change everything
    • The future of energy
    • New tools to measure the intangible
    • And more

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    Mentioned in this episode:

    Transcript

    Patrick Stroth: Hello there. I’m Patrick Stroth, President of Rubicon M&A Insurance Services. 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 Peter Lyall, Group Director of Strategy of Fifth Ring. Fifth Ring is a Marketing Communications Company, which today we call the lingo is MarComm. So Fifth Ring is a MarComm company with locations in the Americas, Europe, and Asia. They’re ultra simple messages. We help B2B companies sell more stuff and build better brands. And at essence, I can’t think of a clearer message to be out there for B2B companies. I’m pleased to have Peter join me today to discuss what I believe is a true blind spot in M&A, which is marketing, brands, and cultural integration challenges pre and post-acquisition. Peter, welcome to the program. Thanks for joining me today.

    Peter Lyall: Patrick, thank you very much for your kind invitation. It’s a pleasure to join you.

    Patrick: Oh, Peter, before we get into Fifth Ring and talking about this blind spot for M&A integration, why don’t we set the table for our audience, tell us about you. What got you to this point in your career?

    Peter: Well, it’s quite a long story. I have been in marketing services since about 1980. When I graduated from university, I started life wanting to be a journalist, but couldn’t find a job. So as a writer worked my way through advertising agencies in London, and eventually, with a few people, we set up our own agency. And actually, an early theme that came through for me was at a certain level, agencies are not considered on a par with professional services, companies. They’re nice people to be around. But when you’ve got really big important decisions to make that they can wait. So slightly tempered by that I went off to Henley Business School to do an MBA, which I did in the 90s. And then I came back to Aberdeen, where I’m from Aberdeen and northeast of Scotland, and eventually joined an agency here, which, as you say, has representation around the world. And that was really one of the attractions for me, was the international. In fact, when I worked in London, I kind of walked to clients. But now, well, not now, of course, because of COVID. But traditionally, I would be flying all over the place to service client needs. Armed with an MBA and an advertising agency background, I did a stint in management consultancy as well, in a firm just outside Oxford. And I’ve been at Fifth Ring for about 15 years, shareholder and director. And I think particularly interesting from the perspective of this audience. Our business was acquired in 2016 by a private family business media company in the northeast of Scotland. So I know what it’s like to be as an observer and a participant. And I think that gives an extra insight into the topic.

    Patrick: Well, that’s that’s something Peter, the helpful thing is, is you’ve been on both sides of the negotiating table. So I know you’ve walked in everyone’s shoes. So it’s great to have your perspective on this. Fifth Ring, tell me about that. What is it? What does it do? And I think the best way to kind of describe your firm is, and I asked this to a lot of my guests. How did you come up with the name? I mean, unlike other firms and insurance firms, most of them, just named them as the founder’s last names, which is really boring. There’s no creativity there. So go ahead and give us the story about Fifth Ring.

    Peter: Well, we certainly ought to have some creativity about that since that’s what we sell. I wasn’t there at the time. The business was set up in 1991. I joined in 2005. But the two individuals one of whom is CEO today, Ian Ord, and the previous owner, Cliff Kohler there. They came up with the name or classic agency founded in a kitchen table scenario. Ian was very experienced in the highly competitive individual and martial arts, martial arts, sorry. And in that sphere, there is a book by a gentleman called Miyamoto Musashi. It’s called the book of five rings. It is worth a read in its own right. Yes, it’s about martial arts, but there are lessons in there for general living discipline as part of that, but also Indeed, for management as well. And there are five books, ground wind, fire and water and you might say that they are acquainted maybe to the left brain side of one psyche, which is that the organized things that you have to do, you have to have a sharp knife, you have to know your competition, you have to be prepared, you have to be properly fed and watered. These are the things that any martial arts exponent, any businessman, any human being has mastered the basics in place.

    But then there’s the fifth book, which is called the void. And this is about intuition and flair and imagination and perhaps going against the trend and, and perhaps putting that to one side, all the sensible things to do, and taking a flyer. So he and Cliff decided, it’s the fifth book that matters. It’s the void, hence Fifth Ring. And so that gives you an insight about where the name came from, in terms of what we do. And we’ll come back to your comment on building brands and selling stuff later. But so we were Scotland’s first integrated marketing communications agency, which means that instead of just being a creative agency, or a media buying agency, or strategy, or planning or digital, we actually have all the services in house, which was a first, so I run the consultancy bit, but the front end piece in terms of establishing at a high level what businesses want to do.

    And then in house, we have designers, we have writers, we have digital experts, we have PR people who can take an idea and then distribute it through all the various channels. And that service, of having the integrated offering doesn’t appeal to everybody, we do sell bits of it, for those that just want bits of it. But not only can we deliver it locally, but we can deliver it regionally and internationally. And that’s what gives us our edge.

    And the second thing and the significant thing is, knowing what you do is doing it selectively, and we set out our stole very early on to focus on the energy sector, Aberdeen being an oil and gas center, but also our bases in Houston in Texas, Singapore, in Southeast Asia, we were in Dubai, we moved out of Dubai, we just find it too difficult a place to do business. But we have a discreet offering for a select marketplace. A marketplace, it has to be said that goes through peaks and troughs. And we’ve followed that ourselves as well. But when it’s up, it’s up when it’s done, then a diversified portfolio is essential. And so we do move outside the energy space at times as well.

    Patrick: Let’s talk about marketing communications and consultancy services. Because this is where we can touch on the blind spot that I saw, because of direct your services toward mergers and acquisitions, that activity where you’re engaged by companies that are looking to buy and what you provide, because there are all types of service providers out there providing tangible, measurable items, valuation, accounting services, compliance services, you know, legal services, all of those things out there. And on paper, all of those services added up could make a deal look really good on paper. And yet the best deal on paper with hundreds of millions of dollars at stake doesn’t work. And this is you know where you come in. So let’s talk about that those types of services that you do.

    Peter: Yes, it is fascinating. And, and to some extent, it’s by happenstance, but we are very experienced in the M&A field, primarily because of the energy industry, and by that, I’m fundamentally talking about upstream oil and gas is the sector that spends a lot of time buying and selling companies. And we have benefited from that.

    Because of course, as they buy and sell companies, so they buy and sell brands. And what is fascinating about this, and I have yet to get a great explanation from the financiers is they will pay a premium price for a brand. And yet when you quiz them and say so how are we going to manage that brand? Or how are we going to look after? How are we going to care for it? How are we going to nurture it? How are we going to look after the people that created it, it’s almost dismissed as “Hang on a sec, don’t worry about that we’ve got the numbers to worry about.” So there is this fascinating dichotomy between paying a premium for something I’ll give you a little insight into this we rebranded an organization, a global organization based out of Southeast Asia many years ago. And there are quite a few skeptics in the audience about the whole role of marketing communications within this M&A this within this transaction. And they even to the point of saying the brand isn’t important. Let’s not worry about that right now. And I did a little experiment I asked everybody to put up their hands if they had chosen that wristwatch because of the brand, no, about 50 or 60 people in the room, and they all had, and I asked them if they chose their car because of the brand. And they all had. And this is a mix of financiers and engineers. And then I asked them about their clothing, what kind of suits were being worn. And they were all branded suits.

    And so actually, as human beings, these people were very seriously brand savvy, they wouldn’t be seen dead in a Skoda when they could actually have an Audi. They had to have a Gucci suit, most of them are wearing Omega watches. But they couldn’t quite transition this thought, this appeal, this attraction of a brand, from the consumer environment to the B2B environment, which is where they earn their living on a day to day basis.

    And once we were able to convince them that that’s where it actually matters as much, then we got some real advocates and supporters to the process. So there is the environment in which we operate, the services that we provide there for our and usually, it’s after the event, and we’ll come on to that, why it should be before the event later. But after the event, people say, “Well, we’ve now got an extra half a dozen brands in our portfolio, how should we manage them? Do some actually compete with brands we’ve already got? Don’t quite know how that happened. What should we do about that?” We have several stories to tell the old story, the new story, a story for our staff, our story for our customers, our story for our suppliers, how should we evolve that story? How should we tell it? So this idea of coming to the event afterward, is always fascinating for us? Because we will then start asking questions such as so when you started thinking about this deal? What sort of story did you have in mind? And quite often it is? Well, we weren’t really thinking about that. We were just thinking about doing the deal.

    Patrick: Buying spasm?

    Peter: Yeah. And it’s like, well, Wasn’t there a strategy which said, We need market expansion, or we need to kill a competitor? Or we need market penetration? Or we need new technology? Or we need that hotspot of technological or innovation? Wasn’t there something? Yeah, yeah, yeah, Yes, there was. Okay, can you articulate it simply? No, but we’ve got a 200 page due to diligence document as to why we’re going to increase market share in Kazakhstan or wherever happens to be.

    So that this is the fascinating bit we then have to pick up the pieces that they are there, the pieces, we have to pick them up and say so you did this because, because, because you saw an opportunity here, there’s a new audience, an expanded audience, perhaps you can bring more products to your existing customers, whatever it happens to be, we get it now. Okay, there is a rationale there. Right, we will help you articulate that story into something meaningful.

    So that’s a good case scenario. For us, it’s not the perfect one. Because the perfect one we’d like to be in before the deal is made advising people saying, “Well, if you’re going to buy that brand, you realize you’re going to complicate your existing story, you’re going to actually have complications within your brand portfolio.” Again, I’m sure we’ll come on to that later. But that gives you an insight into the role that we play.

    And of course, just to supplement that we have to be perceived as peers at this point. Because we might be giving some pretty strong, no admonishments, but pretty strong advice to clients, which is, you know, you’ve created a problem for yourself here, don’t you? And we do it with a smile. And we, you know, we’re advisors at the end of the day, and they can choose to ignore our advice, of course, but it’s this idea of taking the role of bits, which you might have expected to be better thought through, and then turning them into an articulate, compelling, interesting story, and then disseminating that story.

    And just to add to that, Patrick, an interesting bit is quite often you get a sense, they want to tell the world first, but actually, they forget to tell their own people that sometimes, and it is and seems like the obvious thing, but we stress in B2B marketing communications activity has to be from the inside out. And we learned this from one particular major international oilfield services company that was represented in 46. companies. It had 26,000 people working for it when we did this project. And the client said You know what, we have about 170 clients around the world that we’re interested in, and we have 26,000 people. So we’re here to make sure that we use our army of people to tell our customers our new story. Rather than going straight to the market, putting out press releases whatever it happens to be. So that’s, that, that gives you a bit of an insight into the role we play and the timing of that in the process,

    Patrick: From our prior conversation, you had a great analogy where you were talking about how most of the parties you deal with were 90% engineers, or very objective, tangible decision-makers, and so forth. And however, most of their decisions they don’t make on an objective basis. They make it from instinct. Let’s talk about that real quick.

    Peter: Yes, it is nice. And it used to irritate me, but no, I actually find it quite entertaining. But yeah, as you say, in the oil and gas space, the concept of having a marketing department is relatively new. And so and even if it’s well established, it’s probably populated with engineers by training. And certainly the C suite individuals, always the CEO, probably got a strong engineering background. And they take a meticulous and analytical and, you know, very thorough view of everything that comes across their desk.

    But if we put a creative piece of work, an advertising campaign or design of a new website, or whatever, and say, This is what you should do, because and we will base it on the data and the Allison, the discovery work that we’ve done, we may get feedback, which is why I don’t like it by Well, I don’t like red. Okay, well, that’s fascinating, but it’s irrelevant. So we’ve had to find a way of getting around this and, and it’s okay. And we and we do it with a smile and the clients do. But you’re right, that there is this sense that somehow when it gets into that creative space, the typical persona evaporates. And this somewhat more flighty and individual with personality and emotion. So it comes to the fore, and that’s fine. But it is, it did take a bit of getting used to that for sure.

    Patrick: I think you’re familiar with that you realize and appreciate that people are going to act, particularly when they’re stepping out of their comfort zone, they’re going to be acting on instinct, and dissipate that and you bring that through, which I think is always helpful. And that’s what you know, professionals do now is they realize the limitations of what they know and don’t know, and they’ll, they’ll reach out to other places. And that just helps them, you know, lower the learning curve. And flatten that out so they can get to, you know, proper execution.

    I again, I think this is, it sounds a little simplistic, but when you consider there are hundreds of millions of dollars at stake, that you want to get it right, and we’re on the insurance side, and we want to make sure that things, you know, go well, otherwise, we’re gonna have to pay a big, big claim check. If some of these issues are thought about and anticipated, then you’re gonna have a much more successful outcome down the road, that’s good for all parties. Peter, can you give us an example, you would mention one where you know the very large energy company, but give us a quick little case study on what you did with a particular client?

    Peter: Yeah, I think dealing with legacy issues brought about by mergers and acquisitions is very typical,

    Patrick: It’s universal.

    Peter: Yeah. And it’s often stimulated by leadership change, I would say or ownership, you investors, whatever it is, and they will look at a company which has grown up probably quite successfully by buying competitors by buying by expanding its portfolio, and it wakes up one morning and goes, this is a bag of nails. We can’t explain this to anybody. We’ve got this business, we’ve got that business, we’ve got the same service being offered in different territories, but with different names. We need to sort this out so that anybody can understand it quickly. Whether that’s a potential future investor, whether that is a potential new recruit new member of staff, whether it is a new customer, multiple stakeholders, of course.

    So we did a major exercise for a global exercise again, for an oil and gas contracting business, who had got themselves into this exact state. They’d been involved in many joint ventures over the years, they had allowed their local marketeers to be quite flexible with how the actual brand was presented when they started dipping their toes into renewables, and then they had a wind farm operation. The actual logo appeared in green in one place. So this is a major corporate and so it’s a mess. So our job is to tidy it up. And of course, with the mess, often comes internal territorial battles, you know, I exist, I have power because I have a logo, you know what I’m going to say, you are a member of this organization, you may be a head of a division, but it’s, it’s the corporate brand that matters.

    So you have to deal with that sense of taking away from people. So you’ve got a number of sides on it, you’ve got to do this quite subtly. You’ve got to engage people, we do a lot of interviews, a lot of focus groups, how did the situation get to be as it is? What was the rationale? What was the justification? How would you envisage change, because what we’re going to have, ultimately, is probably what we call a monolithic brand, which is just the brand, and no subsidiary names, no house of brands? And so it’s involving it’s collaborative. In this particular case of this company, they were very good at that. I think we did 70 interviews around the world, we did two quantitative surveys of all 26,000 individuals. So you really get a sense of how something happened, why it happened, what people would think about in terms of options for change, then it is our job as creative people to say to the client, this is what good looks like, in order to meet your corporate vision and your corporate strategy, you now have to present your brand in this way, in our belief, as experts in the field, that is always subject to some debate, you know, whether it’s logo style, whether it’s colorwise, whether it’s a visual presentation, whatever it is, people will have a view. And that’s fine. And we accept that.

    That’s a fairly standard process. Enjoys, you know, good success doing that. And then you get to a point of decision, which is yes, we are going to structure our brand portfolio in this way, we’re not going to have a mess anymore. It’s going to be clean, neat, tidy, structured, you can see at a glance, this company is endorsed by the holding company, for example, or you can see at a glance, because of the way the colors, look that we’re all part of the same family, there is a semblance that there is a unity. And it could be in all sorts of different ways. That’s all relatively straightforward. The next bit comes to the implementation. And this is, again, hard. Because and this particular instance, remember when we completed the implementation, the big boss said, but what about the ships? Weren’t we going to repaint them? And we said, boss, we decided, as you had 26 ships in your fleet, it might be too big a deal to repaint them. And his response was, Oh, no, maybe it would have been nice to repaint them.

    So, you never quite know. But anyway, getting back to the point of implementation, and there’s the hard side of it, which is uniforms, signage, anything that represents the organization can be rebranded physically, relatively straightforward. You can choose to do overnight and spend a lot of time and money on it. Or you can take a more of a replacement point of view. And behind that, is, of course, the culture of it. Those people that were in an acquired business that grew up being Company X, and know their company, why they have loyalties to what, where does their corporate story come from? Where does their understanding of what matters, what gets them out of bed in the morning, they’re suddenly being asked to package that away, forget about it, and think about this, and be really focused on something new and different? And of course, that’s hard.

    We talk about change quite glibly, I think as everybody hates change, which we actually fundamentally disagree with that a lot of people are crying out for change. But what they don’t like is a bad change. So are loosely implemented or half-done changes. So you have to have a really thorough way of internally managing the messaging. Going back to the focus groups, going back to the people you spoke to say, this is how it’s going to be this is why we need your help. To share the story. We need your help as brand ambassadors as advocates, as powerful, influential people to take the story and that cultural bit.

    It’s the bit that never gets discussed in the deal-making. At least they may do but not in my experience. It’s the bit where the people from different organizations are brought close together and expected to work together, they don’t even know each other. And they’re expected to represent an organization and work together. And so it’s fundamentally, it’s hard. And it takes time. And it has to be done in a very clear and concise way of people speaking to people and explaining and explaining and making no assumptions. And the best example that we’ve seen, of the clients that we’ve had over the years, is a business that acquired businesses regularly. And they had it so slick, they actually had an implementation team, it was made up usually about 8 or 10 workstreams, from the basics of integrating ERP systems, to you know, that the softer skills, a bit of cultural integration. And if, if there was a lesson that we’ve learned, and which I would share it is, that’s the way to do it. And be absolutely clear that if you want someone on the front line, to represent your brand, you better tell them what you want them to do, rather than just sending them an email and hope they pick it up. And just to conclude on this piece, the message that we’ve sent to clients over the years is, if you want someone in the frontline, to know your news story, to understand your brand, you got to tell them seven times, in seven different ways.

    Patrick: So the cultural integration is one of those blind spots. And a lot of people keep thinking about that as an HR issue. And where you have clashes of cultures, where you may have a formally dressed office versus somebody that affirms that as everybody’s in casual clothes, and so forth. And that’s not just the dress, it’s just the people who have had a mission to accomplish. And they believe in their firm now that our mission is changed from an acquisition. And so always, you know, getting them to buy in because the most I think the most important thing with business is, it’s not the shareholders of a company. Now for the publicly traded companies. It’s not that is first of all your people. And then secondly is taking care of the customers, the people that are buying your goods and services. And if they’re not taking care of that, that’s going to kill you.

    And the best way, fastest way to do that is taken, you know, get your people on a mission, take very good care of them. So they have no fear, and then they move forward and take care of your customers. And then your customers end up buying more. It’s simple, but it’s not easy. You know, it’s one of those things for coming together. But one of the things you mentioned that I definitely want to touch on is, is giving a message a simple message to the people, you have to tell them seven times. Okay, and seven different messaging, I think what you guys do is essential, and I think is a great value add that you have where you make it ultra simple. And I’ll read back again what yours is. For Fifth Ring B2B companies sell more stuff and build better brands. No wasted words. They’re a very simple concept direct everything. Okay. Talk about not only just being creative, but why is so essential to have not just a message but a simple message?

    Peter: Well, it’s a great question, Patrick, and I’ll give you two sides of this, one from the front line. You know, I come from an MBA background, I read all the books, read Harvard Business Review, I speak the highfalutin language of the consultant. And I can tell you the difference between a vision and a mission and a strategy and a value proposition. And I can actually provide words for all these different things. And so can all my colleagues.

    And I think what was a real eye-opener for me is we’ve taken a logistics firm, which specializes in oil and gas, needless to say, through a rebrand, given them a new story, we’ve done the cultural integration, we actually used actors to do roleplay and scenarios, which was a great way of getting that cultural piece aligned. And as it happens, we ran an event where there are prizes given and as a supplier to them, we were encouraged to give a prize. And we were given a prize for playing golf. And I took three guys from the company to play golf. And these are pretty frontline individuals. They worked on the docks, shipping, you know, crane operators, loading ships, moving stuff offshore. And I asked them as we’re playing golf, so what do you make of the new vision? I don’t know about that. But what about the mission? Yeah, I saw I saw a video about that there was a book that wasn’t there. You don’t know anything about that. So what do you think of the three words strategic principle that we came up with? What was that? So it was called “Trust well placed”. “Oh, I like that.” Well, yeah. Why’d you like it? “It’s what I do. My job is to people trust me, and I make sure that things are placed in the right place, and then they go on the boat. And then they get to the rig. And that’s, you know, yeah, I can go with that.” And, and so we were able to succinctly, in three words articulate the entire strategy for this organization “Trust well placed”. It’s not, it’s not an easy thing to do.

    And that’s kind of one of the benchmarks out there. And you think, “Well, okay, it takes a hell of a lot of creativity and imagination to come up with these things.” But it has to be linked back to the strategy. So that’s why we think simple messages really resonate with staff. But the other area, which is pertinent to what we’re talking about today, of course, is M&A. And the investor community, God bless them, doesn’t have much time. So it, it believes it has to understand instantly, what a business is all about to make some kind of rapid decision as to whether or not this is an interesting opportunity. I actually think that’s a little bit unfair. And of course, they do have to do the due diligence and look under the hood and test it and poke it and all the rest of it. But if you can articulate quickly, and simply what your business is about, you’ve got a far better chance of resonating with the different stakeholder audiences that you have. And so the history behind building brands and selling stuff from a differing point of view was that we were just using this internally. You know, guys, what do we do on a Monday morning, we get up, we go build some brands, and we said, go sell some stuff on behalf of our clients. And we started using it in a quite lacs way in front of clients. And they quite liked it. They said, Well, yeah, yeah. Could you do that for us? And we said, well, yeah. But that’s it’s a bit casual, isn’t it? casual? Yes. But we understand what it means. So then we started using it externally, then it finds its way onto his website. And now we’re even thinking about what does that means for job titles and roles? and other things fundamentals within the organization? Could we have ahead of selling stuff? You know, would that be the right thing to do. So it is permeated right into our business because as you rightly say, it matters to customers, they get it. And of course, from a marketing communications point of view, we’ve never been in a better place to help people sell stuff because we have the strategies, we have the tools. But above all, we now have the technology to micro-target, to demonstrate return on investment, to show through all sorts of new modern, sophisticated marketing automation ways that if you identify the right people, if you approach them in the right way, you can actually turn them into a qualified lead. And that’s why selling stuff is so significant in B2B.

    I would say as a footnote to that, there is still a huge place for personal relationship-oriented selling. And, you know, some of the contracts that our customers are selling are massive, you know, 10s of millions of dollars, hundreds of millions of dollars. So they’re not going to do that online. But they can find new audiences new opportunities online.

    Patrick: Then, of course, they bring in the experts, the technical experts, the strategic experts to convince that particular prospect of why it’s a good idea. But we would like to take this even further and link our remuneration to our performance. So getting away from fees, and into well, we produce that amount of reward for that business, we want to share of that reward. And that we think is the way our industry will go. Right.

    It removes the risk. At least mitigate that mitigates the risk, because that’s always the concern when you’re making a spend on something as particularly creative marketing type expenditures, because there are too many stories out there of decisions made spend a lot of dollars and didn’t get the return that they had hoped. And I think if you link in a successful model there then you’re both working together. So I think that’s a great trend. Peter, what do you see in the M&A trends wise, from your perspective, how do you think things are going? Or what do you see from where you are?

    Peter: I think the interesting arena for us. And this week has been christened and “BP Week,” because of the amount of news coverage that they’re getting. But we’re in what we call the energy transition. Now, the reliance on hydrocarbons is changing the growth of renewables is obviously here. And now. Have we reached the tipping point, no? Will we start using oil and gas tomorrow? No. But from an M&A point of view, and what we’re interested in is, what will happen to those smaller businesses that are currently in the renewable space? How will the big oil companies, the big oil operators, manage to bring them into their portfolios? And we’ve already seen a deal done with BP buying some of Ecuador’s renewables assets in the last few weeks? So so things are happening? So the under-recognized brands in the renewable space at the moment, because it’s still a relatively new arena. What role will they play as they add value to the portfolio of established oil and gas companies going forward? Will they add anything? Will their brands have value as they transition over? Or will they fundamentally just disappear? That’s going to be really interesting to see for us.

    Patrick: One thing about Fifth Ring, you develop your reputation and your experiences in that sector, that oil and gas sector and I think it’s helpful that you were very, very focused on industry but you’re not locked into that certainly, you can get into other industries as well, I think was significant for credibility wise for filtering is you’re working with deals that were in the billions of dollars, and you had organizations with billion-dollar checks being written, they trusted you. So if they can trust you, a lot of other industries should have no problem with your credibility in delivering on on a promise. Talk about who your ideal client is, and what Fifth Ring is looking for?

    Peter: Well, that’s a great question. And we discuss it a lot ourselves of course, in terms of who that actual ideal individual would be. And I say individual quite deliberately because we like to deal with the CEO. So that means it’s not going to be a massive, massive organization, it’ll be big, this individual will be quite enlightened, they will have an open mind to marketing, marketing communications and branding, they probably have some experience of it already. They won’t consider themselves an expert in the field, but they will know that it’s important. It’s probably an international organization, it’s probably going through a bit of flux and a bit of change. And probably got some new investment, maybe even a new leadership team. It’s ambitious, it’s in a hurry. It’s not afraid to be challenged, it’s quite demanding. It realizes the value of people, it doesn’t look at our staff in any particular way, just because they happen to be young, or ethnic, or female, or whatever it is, they’ve got a very open, transparent view of diversity. You know, I thought, that’s really I know, it’s quite topical. And I’m, could be accused of just saying this, but actually, I’m not, you know, it’s quite normal for us to employ young people. And so we want senior people in the client-side, to take these young people seriously. So that so that’s important to us. That’s another thing in the ideal client, I think they also have to be willing to take a little bit of risk. And when we come to them with an idea, and we say, you know, you might want to think twice about this, but it really could work. And they all go on, you know, what’s the downside? What’s the worst that could happen? So we quite like that. And also, ultimately, and I don’t want this to be taken the wrong way. But there should be an element of fun about this. You know, the last eight months have not been particularly fun, worldwide for the obvious reason. But actually, if we collaboratively can have a bit of fun, creating a new position for a brand creating a new story, seeing it engage people seeing it drive new business, and you can look back on it later, you know, that we enjoy doing that. What why wouldn’t that be something that you would actually look for in the perfect client?

    Patrick: You know, I just think that you know, as a father of two, you never get your kids working harder or expending more energy other than when they’re having fun. They’re having fun. It’s Unlimited, that type of stuff. So I think that’s a great element out there. That that can be there. And while you’re based in Scotland, Fifth Ring has a US presence to multiple offices with headquarters in Houston. And you’re eligible for companies and firms worldwide. So across the United States, correct?

    Peter: It is. And I personally have done a lot of work in Houston. I know it’s a cliche, but cliches usually have a bit of truth. In fact, that’s why they become cliches. But there is an entrepreneurialism that we notice amongst the techs and clientele that we work with. There is a willingness to give things a try. They like process, of course. But there is a sense. “Yeah, okay, come on. Let’s see what we can do.” And I’m not saying that it’s not the case with our European business or Southeast Asian business either. But that there is a sense, it’s, there’s an informality as well, which we like, it’s often quite difficult at the first meeting to work out who the big boss is, you know, the dress code, couldn’t sell them be a giveaway, you know, that there is a sense of not necessarily equality, but collaboration and entrepreneurialism. But funnily enough in the M&A space, we have seen plenty of successes and failures in Houston. But that doesn’t stop people from trying. And being part of that. The business environment is stimulating to say the least.

    Patrick: Well, Peter, how can our audience members, many are in Houston, but they’re also across the country. How can our audience members and our listeners find you?

    Peter: We have, of course, a website, which is constantly evolving and changing, very simple address is fifthring.com. And you will find a lot of good stories and information and background about us there. If you want to speak to me, and I have a very simple email address, which is Peter@fifthring.com. We have a simple recruitment policy, which is only one Peter. So that’s me. I think we have lots We had lots of Stephanies for a while. So we do actually use surnames as well in our email addresses. But there’s only one, Peter.

    I think that that this is a fascinating topic is it really has meaning that you’re absolutely spot on of you Patrick to realize that it’s a talking point, I know deep down that the investor community, the financiers, the bankers, the lawyers, they know this, they just occasionally need to be reminded that the cultural aspect, the branding aspect, the communications aspect, really is significant.

    And if there was one thing that people did want to get in touch to talk about, because we know that this tangible, intangible dichotomy is something that matters, we actually created a dashboard to try and put some of these softer, intangible things into the mix in the pre-deal phase. And so we’ve got some insight and ideas on that, that could be helpful to try and say to people, there is a metric by which you can test culture, see how it changes, and turn it the way that you want it to be over time. So that might be a topic for further conversation.

    Patrick: I appreciate you being here today. Because when you think about the M&A community, and it’s not shrinking, you’ve got thousands of private equity firms, you have thousands of family offices, you have thousands of strategic acquirers out there. And now we have the emergence of SPACs, special purpose acquisition companies, and they are doing IPOs, at least 20 to 30 new SPACs are coming the last four months consecutively. So we have all these buyers out here.

    How is the target to distinguish other than price? How are they going to distinguish one buyer from another? And I think that if you really wanted to separate your organization from the rest of the pack, you come in with something that’s different and I think this is why if you can address blind spots and culture I think is really big, but this puts the dollars and the motivation with the culture there with the integration, the brand that the target is always going to want their legacy to move forward or to be elevated. And that’s something you deliver.

    And I think that you know, particularly for the SPAC market which we can embrace immediately. This is a great way to differentiate yourself from a lot of the other others out there. And so I really appreciate what you have. And I recommend anybody to reach out to Peter and his team, they’ve got a fabulous story. And what’s more importantly, they’re going to help you create your story, which will close deals that will save you 10s, if not hundreds of millions of dollars. So it’s a pleasure for me to be able to provide that kind of thing to the community. So Peter, thank you very much for that.

    Peter: Right. Well, that’s kind of you, Patrick, I would just conclude to add to that point that you made, we saw this opportunity quite vividly about a year ago. So we are now working with a management consultancy firm in Houston a company called Carnrite, jointly. So they help businesses through the hard bit of the M&A the advice, the transition, the transformation, the implementation, and then we support in parallel on the communication and brand matters that go with it. And so we’re working under the joint title of walk the talk, they, help you do the walking, we Fifth Ring help you do the talking. It’s resonating pretty well, but it does go into the heart of what you just said about finding a point of differentiation.

    Patrick: Well, thank you very much, Peter. You got to find a three-word slogan for the Rubicon next.

    Peter: Thank you so much. We’ll do our very best. Thank you, Patrick.