Insights

  • Jennifer Mandelbaum | Female Led Ventures Changing the Future of How Families Live
    POSTED 5.3.22 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with Jennifer Mandelbaum, Senior Investment Director at Halogen Ventures.

    Halogen Ventures is a California-based Venture Capital fund focused on investing in early stage consumer technology startups with a female on the founding team.
    Read More >

  • A New Trend in M&A Insurance You Should Know About
    POSTED 4.26.22 M&A

    In this era of sky-high valuations, PE firms seeking inorganic growth are increasingly looking at an alternative to acquiring fully built out platform companies.

    The strategy is to buy a platform that is not fully built out yet and available for a lower price and then “add on” other small companies. Not only are these acquisitions cheaper, but they are also easier to transition into the platform, which helps accelerate growth.

    This trend has also led to increasing adoption of two unique M&A insurance products that have been available for a couple of years but were not widely used until now.

    More on that in a moment. But first, why are valuations so high?

    Well, 2021 was a banner year in M&A, with 8,624 deals with a combined value of $1.2 trillion. That’s 50% above the previous record for deal value in a single year.

    What brought about all those deals? As Pitchbook in the 2021 US PE Breakdown:

    “GPs were motivated by the availability of debt, the wave of sellers coming to market to avoid anticipated tax hikes, and the urge to deploy capital quickly in order to return to the fundraising market. Many industries, if not most, experienced intense competition for deals as a result, and multiples elevated to 2019 levels or higher in 2021.”

    On other words, it’s a seller’s market, with intense competition for target companies pushing prices higher.

    A compelling trend has emerged out of all, says the Pitchbook report:

    “The current deal climate has been particularly conducive for buy-and-build strategies, and add-ons as a proportion of the number of total US buyouts reached an all-time high of 72.8%. During the market dislocation in 2020, firms had turned to add-on dealmaking to continue deploying capital with diminished risk, because add-ons are typically smaller deals and the GP has a firm grasp on its platform.”

    As I’ve written before, PE firms these days use Representations and Warranty (R&W) coverage to protect their deals as a matter of course. It’s become standard. So, it’s no surprise that they’ve sought out similar insurance products when doing add-on acquisitions.

    Add-On Insurance

    For transactions under $20M in deal value, PE firms use Transaction Liability Private Enterprise (TLPE) insurance. For example, I recently brokered TLPE coverage for a deal in which a sports apparel manufacturer bought a high-performance glove wholesaler for under $2M. The process took two days and cost just $20,000.

    By having this TLPE coverage in place, the Seller was able to reduce their holdback from $140,000 to $14,000— matching the policy retention.  The standard retention level for TLPE is  1% of enterprise value or $10,000, whichever is higher. Compared to the usual escrow or holdback of 10% of purchase price, no wonder TLPE is so popular.

    As this manufacturer looks at other add-ons, they will again look to be covered by TLPE insurance, which offers six-year policy periods with a limit that is 100% of enterprise value. TLPE isn’t just for Sellers. Now Buyers can be named as Loss Payee in a TLPE policy which ensures faster collection from covered losses.

    What about strategies where the planned add-ons are expected to be above the $20M TLPE threshold? CFC Underwriting has created an innovative coverage called a Portfolio Policy where an initial portfolio platform is underwritten and insured by CFC consistent with a standard R&W policy.  The Portfolio Policy can grow as companies are added to the platform at a discount.

    Under the Portfolio Policy, R&W coverage is arranged for the PE’s platform investment.   As add-ons are brought in, the Portfolio Policy is amended to add new limits for each new entity brought on board. Each new Limit is independent of the other acquired entity Limits, so there’s no dilution as companies scale.

    The thinking is that the Underwriters who underwrote the original platform acquisition will be familiar enough that it will save time and money on the underwriting process (lower UW fees and discounted premium rates.)

    They can see how the new add-ons fit on the platform and will understand the investment theory of the PE firm making the decision to acquire the add-on. In other words, they are already familiar with the key players and aren’t coming at this fresh.

    With familiarity comes comfort and Underwriters can add new companies to a platform for a fraction of the underwriting fee because they’ve already done most of the legwork. Considering the increasing costs for R&W, a scalable product should be a welcome alternative. Another perk: processing time will be cut down as well, with the underwriting call cut in half at least.

    If a PE firm is going into an acquisition and knows upfront that add-ons will be bought, the Portfolio Policy is the correct route.

    Otherwise, they should go with traditional R&W insurance for the platform. For add-ons they could go with another R&W policy if the enterprise value of the add-on is above $20M. If it is lower than $20M, TLPE is the way to go.

    When seeking out this specialized and relatively new M&A insurance, it’s best to reach out to an insurance broker experienced in this type of coverage

    I’m happy to help. You can contact me here at pstroth@rubiconins.com.

  • New Targets for Ransomware Attacks – and How to Protect Yourself
    POSTED 3.29.22 M&A

    The dream of every startup is to one day be acquired by a PE or VC firm or a Strategic Buyer.

    All the hard work and dedication finally pays off. And it’s only natural that these firms will announce the happy news to the world with a press release whether it’s a merger or announcement of a successful round of fundraising.

    Unfortunately, these days such announcements have put a target squarely on the backs of soon-to-be or newly acquired companies in all sorts of industries, from manufacturing to tech to healthcare to consumer-oriented businesses. These days, of course, every company has a database full of sensitive data about its customers, clients, and/or own operations and systems. Just as importantly, most companies today rely on their IT systems for day to day operations.  Being locked out can cause operations to grind to a halt. Who can go for a day without access to their system?

    As noted in a recent article in the Wall Street Journal, hackers involved in ransomware attacks are shifting their focus away from big corporations to smaller targets, including midmarket acquisition targets. Government authorities and law enforcement have noted this trend has been heating up in the last year or so, even as bigger targets like the Colonial Pipeline grabbed the headlines last year.

    These cyber criminals know that:

    • The PE firms and other deal-makers have deep pockets or the newly acquired company has quick access to cash thanks to their recent payday.
    • These startups, which have been focused on growth, may not have very robust cybersecurity measures in place, which makes them easier to hack.
    • This lack of cybersecurity could allow the hackers to also sneak into the Acquirer’s systems, as well as other firms in its portfolio, through an unsecured backdoor.
    • By attacking smaller, midsize companies they won’t get as much attention from authorities and law enforcement. Even if they ransoms are smaller, they bring that “income” in steadily

    In one such case cited in the Journal article, a midsize manufacturer was bought the 4th quarter of 2021 by a PE firm. Two months later, a Russian ransomware group locked up its hardware systems and demanded $1.2 million to release them. The company paid.

    This is typical of these attacks. And deal-makers have taken note and are seeking measures to protect themselves and their acquisitions from financial losses and loss of reputation.

    Fortunately, there are some best practices that can help prevent such attacks, as well as protections that can provide financial compensation if a ransom is paid.

    As noted in my previous article on cyber liability insurance, this specialized type of coverage is fast becoming a must-have in deals. Buyers are basically requiring Sellers to have a policy that will respond to any cyber claims. And Buyers are taking out their own policies as well to cover what the Seller’s policy does not.

    When writing these policies, Underwriters have a common set of questions they ask to verify the cyber security and privacy measures in place. If they’re not satisfied, no policy. Or, at the very least, they will load down the policy with broad exclusions and narrow limits.

    On the plus side, this has forced companies to bolster their security measures and given them clear direction on how to do so.

    One of my contacts, an Underwriting Manager for Toko Marine HCC – Cyber & Professional Lines Group, provided a list of security controls they look for when writing a policy (otherwise they will not write the policy or adjust terms accordingly):

    1.  Multi-factor authentication (MFA) is required for all remote access to the Insured’s network.

    2.  MFA is required for all local and remote access to privileged user accounts.

    3.  A preferred Endpoint Detection and Response tool is required.

    As the Underwriter noted:

    If the Insured is missing any of these three important controls the premium and deductible will increase and we will sublimit Breach Event Costs, System Failure, Dependent System Failure, and Cyber Extortion to $250k. Additionally, we will include an endorsement with a $250k ransomware sublimit/50% coinsurance for all losses/expenses related to a ransomware attack.

     “If the Insured does not use MFA for all access to emails through a web browser or non-corporate device, cyber crime will be reduced to $25k. If they use MFA for email access, the maximum cyber crime limit available is $100k.”

    The implementation of cyber liability insurance is more important than ever, as cyber security has become one of the most costly and largest exposures out there. As a result, Insurers are looking to exclude cyber claims from other M&A insurance products, such as Representations and Warranty coverage.

    You should also note for board members of a startup that suffers from cyber security issues, that Directors and Officers insurance may not protect you from investor lawsuits if you did not take proper cyber security measures to protect the company. Failure to Affect and Maintain proper insurance is a standard exclusion clause in D&O policies.

    Insurers want deal-makers to take out stand-alone cyber liability policies which are more appropriately underwritten and broader in scope to best handle these exposures. They don’t want D&O or R&W insurance to become “umbrella policies.”

    When seeking out help in securing cyber liability coverage, it’s best to reach out to an IT specialist or an insurance broker who is connected with such experts.

    I’m happy to help you secure cyber insurance. You can contact me here at pstroth@rubiconins.com.

  • Cyber Security & Privacy Liability
    POSTED 3.8.22 M&A

    Cyber crime is a major problem in the United States and around the world.

    It seems every day there is another news story about hackers and other criminals who have been able to breach company networks and get their hands on confidential data…or take companies hostage by locking them out of their networks or even shutting down a business’s operations until a ransom is paid.

    Remember, the Colonial Pipeline ransomware attack in May 2021? Cyber criminals managed to access computerized equipment that operates the pipeline, which runs from Texas and New York and delivers about 36 billion gallons per year to the eastern seaboard.

    The incident cost the company $25 million. And all the hackers had to get in was use one compromised password that was leaked on the dark web.

    Also in May 2021, the data of more than 100 million Android users was compromised. Personal info from over 700 million LinkedIn users was found for sale online. Facebook users were hit too – 553 million of them.

    It’s clear this is a serious problem. And it extends to all industries.

    Every company these days, from retailers (online and brick-and-mortar) to restaurants to healthcare providers, collects confidential information, also known as personally identifiable information, or PII. This can include customer names, birth dates, Social Security numbers, driver’s license numbers, credit card numbers, bank information, medical records, and more. Everything a hacker would need to steal an identity.

    It can be collected by the company directly or through a third-party, like a payment processor like PayPal.

    But in any case, if there is a fault of security and that data goes out into the world, customers are going to blame the business they patronize. They’ve shared their information with the company, and the company breached their trust. That certainly doesn’t encourage repeat business. Plus, there are costs related to notifying all the people affected. There can be legal penalties and fines as well, particularly when healthcare information is involved.

    Not to mention, in some cases, the affected customers have a right to claim compensation if they suffered material or non-material damage.

    Enter cyber liability insurance to make these payouts on behalf of the company.

    But there is another wrinkle in this issue you may not have considered, where again cyber insurance comes to the rescue.

    Say you acquire a restaurant or hotel chain or a group of healthcare companies and, six months or a year post-closing, one of these breaches of confidential data is discovered. (It is very common these incidents are not discovered until six months or more after they occurred.)

    As the Buyer, you are on the hook. When the deal is done that exposure has been transferred to you from the target company. That’s even if the incident occurred before the sale.

    It doesn’t matter if, during the diligence process, you asked the Seller about any data breaches. To their knowledge, they had none.

    Again, enter Cyber Security & Privacy Liability insurance. And here’s the best way to protect yourself as a Buyer:

    1.   Make sure the Seller has a robust cyber liability policy in place that will respond to these claims. There should be at least a $5M limit. That will cover the expenses associated with notifying all the customers whose data was stolen. This should be the first batch of money that is used for any expenses from a data breach.

    2.  Make sure you, as the Buyer, also have a cyber liability policy. This may cover what the Seller’s policy does not.

    Keep in mind that a stolen personal information incident is also a breach of the Representation and Warranty policy covering the deal. So the R&W insurance will effectively sit right on top of the cyber policies.

    This will help not only cover expenses but also potential loss of value of the target company. And this kind of fallout can happen.

    Say there is major data breach of a hotel or retail chain. Those customers are probably going to have second thoughts about ever doing business there again.

    Cyber liability can also cover the impact from ransomware that cause outages and a loss of business. For example, the computer network and payment system for a chain of sports bars is held hostage during the Super Bowl…reducing the bars to only accepting cash! A big loss.

    Cyber liability insurance means extra diligence in the run up to the sale.

    I’ve put together some common diligence questions asked during that process. I would recommend viewing them and keeping them handy during your next acquisition.

    You can get this free download here: Sample Cyber Liability/Privacy Questions in Diligence

    You can also discuss this issue with me, Patrick Stroth. You can contact me here at pstroth@rubiconins.com.

  • Renny Sie | Forging Relationships with Founders and Family-Owned Businesses
    POSTED 2.22.22 M&A Masters Podcast

    On this week’s episode of M&A Masters, we’re sitting down with Renny Sie, Vice President of Business Development and Investor Relations at the private equity firm Boyne Capital.

    Established in 2006, Boyne Capital takes a different approach to investing—one that forges lasting and collaborative relationships with companies whose founders and families are still deeply involved in growing their businesses. It’s a term they call a value cultivator approach.

    Renny says, “Partnership is extremely important to us. The fit is important because this is going to be a long-term partnership to grow this thing together and make it bigger and better for everyone.”

    Listen to discover:

    • How to propel family-owned businesses to the next level—partnering NOW to prosper in the future
    • Boyne Capital’s unique value cultivator approach to the lower middle market—building the right team through focusing on relationships, recruiting, and retention
    • Why they feel that Rep & Warranty Insurance is an important component for their deals

    And much more

    MENTIONED IN THIS EPISODE:

    TRANSCRIPT:

    Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in executive and transactional liability and president of Rubicon M&A Insurance Services. Now a proud member of the Liberty Company Insurance Broker Network. 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 Renny Sie, Vice President for Business Development for Boyne Capital. Boyne Capital was established in 2006 in Miami, Florida, with a focus on investing in lower middle market companies. Boyne has a unique approach to investing. It’s an approach to forges lasting and collaborative relationships with companies whose founders and families are still deeply involved with growing their business. It’s a term they call a value cultivator approach. Renny is a pleasure to have you. Thanks for joining me today.

    Renny Sie: Thank you, Patrick. It’s great to be here.

    Patrick: Now, before we get into Boyne Capital and the value cultivator approach, I just think is a unique wording there. So that’s, that’s very, very interesting. Let’s start with you. What brought you to this point in your career?

    Renny: Oh, gosh, where do I even start? I guess I have what you call a non traditional background. So starting from the very beginning, I was born and raised in Jakarta, Indonesia, the oldest of three siblings, the first one to actually go to college. I came to the US to attend college at California State University Fresno. So right by you. And my major was classical piano performance. After graduating from CSU Fresno, I went on to do my masters and then audition to a bunch of different schools to try to find a scholarship for me to keep going to school, because I liked school that much. Eventually ended up in University of Miami Frost School of Music doing my doctorate in classical piano performance. So did that until 2016. And then I found myself married with a young child and then realize that, oh, my I’ve been doing this for my whole life, and it’s not going to pay the bills, unfortunately. 

    Patrick: Yes. 

    Renny: My husband told me I should go back to business school and get MBA and I told him, he was crazy. But I’m glad I took the chance, went back to business school at University of Miami did a full time MBA three year program there. Interned with Goldman Sachs in the summer, took a full time job with them in their Florida office. Three years in learned a lot from Goldman. Really enjoyed working there. But always had a knack with entrepreneurship and private equity and that world. My dad is an entrepreneur. So I got in touch with Derek McDowell at Boyne Capital. And technically I basically just asked him for a job and he gave me he gave me a chance. So that was more than three and a half years ago, I’m still sitting happily here at Boyne Capital. My primary focus here at Boyne is deal originations and LP relations. So what that means is, I connect us with the potential sellers or what we call potential partners.

    Patrick: And so you’re around that connection. Is there any, you know, the skill set you have from being a high level concert pianist, into the financial world? I just it that’s a really unique matchup.

    Renny: Yeah, I would say, you know, contrary to popular belief, people think that artists or musicians are on a creative side. Or more prone to creativity, you know, an art side. I’m not. And I think most of my colleagues in the music world isn’t either. We’re trained to like stare at tiny little notes and tiny little details. So I would say that we have really attentive to details. That’s one.

    Patrick: Focus, yes.

    Renny: And then when, focus and then the discipline, you’re used to like practicing eight, nine hours a day, I guess, without paying for, without, like actual benefits, right? Other than getting better. So those skills that like I brought over and I have found like my training in classical music has been very helpful.

    Patrick: Tell me about Boyne. And why don’t we start with this? How did they come up with the name because that usually gives you some insight into the culture and the founder.

    Renny: Yeah, so like I said, Boyne was founded in 2006 by Derek McDowell, our CEO and Managing Partner who today still very involved in all aspects of the firm. The name Boyne Capital came from River Boyne in Ireland. A very pretty river. So I’m not sure about what specials are of Boyne, I should probably educate myself about that. But that’s where it came from. We are a lower middle market focused private equity firm. We are based in Miami, there is 26 of us sitting in Miami, which is crazy, because when I joined three years ago, there’s only 16, 17 of us. 

    So we have grown a lot, which is exciting time. And lower middle market is what we define as companies with EBITDA between three to $15 million, typically revenues under $100 million. And you asked me why lower middle market space? You know, it’s because I think we can provide the most value in this space. You know, lower middle market companies, often are family owned, you know, and they usually do not have either the infrastructure or the capital to grow on their own without eating into the sellers, or the management teams time and personal capital, right. So that’s where we came in. We we like to partner with business owners management team, or, you know, I guess the sellers, in this case. 

    We do majority recapitalization and usually position ourselves as a solution provider. Because if you think about it, most business owners think about PE partnerships as an exit route, right? Is like oh a PE firm wants to buy me, therefore, I must exit 100% and give give them the keys to my house. But that’s not usually the case. Especially not with us. With us, it’s not 100% exit. And for the most part, we actually do not encourage that. We encourage them to hang on to a minority equity, because we will help them grow their business. Together, we’re going to maximize enterprise value, and then they will actually have a much bigger exit the second time around.

    Patrick: Yeah, that second bite of the apple.

    Renny: Correct. Yeah. And that’s where the value cultivator concept come in, right. We always joke internally. We’re not good at leverage buyout, but we’re excellent in leverage buy in. So we buy into those, those management teams and those owners of the businesses and really support them through their growth initiatives. And, and there are many ways that I can go into detail with examples of how we how we support them.

    Patrick: Well, I think that is very helpful, because there are a lot of owners and founders that they reach an inflection point, some of them are looking for an exit. And then it says, well, do they really want an exit? Or do they just want to change, they just don’t know how to do it. And as we’re finding a lot of owner founder businesses, where an owner can, you know, commences a process, then all of a sudden, is reluctant and starts dragging their feet there, which can get very, very frustrating, because they really didn’t want to give up something that was the core of their life. And, you know, and there are those that do want to do that. And there’s an avenue but the others that they don’t want to give everything away, they’ve spent a lifetime building something. 

    And there, as I mentioned, the inflection point where they’re, they’re too small to be enterprise, but they’re too big to be small now. And so what do they do? And they just don’t know where to go. And unfortunately, and this is why we wanted to go and meet with Boyne Capital is that if they don’t know, the owners of founders, if they don’t know about Boyne Capital, they may default to you know, partner with a strategic that may not have their best interests at heart, or they’re going to go to an you know, an institution and you know. Where, where if you go to an institution, you’re going to get underserved, you’re going to get overpriced, and you’re not going to get what you really wanted. 

    But a lot of people don’t know about this. And the thing with Boyne Capital particularly is, okay, you started in 2006. In 2019, there are over 5000 private equity firms now, okay. More than half of them look to the lower middle market. And so, you know, you have to have something unique that comes and speaks to these owners and founders depending on what they want. If the ones that want an exit, they can go someplace others that want to get to that other side and see how to cross the finish line. They can come to an organization like Boyne. You mentioned that with your value cultivator approach. There are a couple ways that that manifests. Give us a couple of examples if you could.

    Renny: So for most of our platform, investments, like I said, typically they don’t have the necessary key executives in place. Typically, like a CFO or controller, that they would actually have to go out and hire and recruiting and hiring takes a lot of time away from the CEOs from running the business. Right. So our team, our operations team in house has a team of operations people that actually work hand in hand with the portfolio company management team to do financial reporting and you know, executing their growth plans, talking through strategy, and within the team, my colleague, who’s whose title is VP of human capital, and she’s been instrumental in hiring and adding key hires to portfolio companies as they become on board so the management team doesn’t have to. 

    You save time, and that’s definitely a valuable thing to present to potential partners. And then also, of course, you know, when when you’re trying to grow by acquisition, you’re trying to do it on your own. It is a huge undertaking, right? Even if you’re doing it, not to sell your company, but to acquire companies to grow your own. It is helpful to have somebody like us, you know, with capital and more than just capital, to help you execute, identify targets and make sure that you’re going down the right path.

    Patrick: Yeah, experience helps, doesn’t it?

    Renny: Yeah, for sure. For sure. And also, like, given the pandemic, some businesses, you know, thrive, some businesses didn’t. But I bet a lot of business owners would not want to go go through that again, alone. Helpful always have a partner.

    Patrick: Yeah, I can imagine. Well, the other thing is key when you’re, you got the skill set with the human capital, particularly now, it’s not only a challenge to recruit, but it’s retain. And I think, probably what you have is a great skill set and an advantage on that front. The other thing that’s interesting is that you’re not coming in and the the procession with a lot of private equity firms from outside is that the private equity firm is going to come in, as you said, load them up on debt and do a lot of financial reengineering. You don’t do that. You’re looking at no, we want we want to go ahead, and we’re going to reset and get some operations and get people in.

    Renny: That’s right. So for from our side, partnership is extremely important, right? The fit is important, because we have the mindset of like this is going to be a long term partnership to grow this thing together to make it bigger, make it better for everyone. So it’s not just kind of like acquire and hold or like come in and clean house and put in as much as our people on the board. No, it’s not that. So every single major decision making is made in partnership with management team. So we think that’s very important. Again, there’s like something for everyone, right? So if someone wants to, like retire 100% and hand over the keys, probably not for us. Like if someone who wants to actually a partner who supports their growth and willing to roll up our sleeves and actually do the work. Like putting in infrastructure putting in NetSuite doing key hires and actually clean up everything and make it you know, better and more more professional, then we would probably be a good fit.

    Patrick: Talk about, you mentioned lower middle market, where you’ve got owner and founder involved. Fill out the profile. What’s the profile of Boyne Capital’s ideal target? What are you looking for?

    Renny: So aside from the financial profile, three to 15 million EBITDA, revenue under 100, typically what we look for some some a business with good growth potential, proven profitability. I guess that’s probably kind of normal. But someone who has grown their business to a point that they can’t anymore, or they need help to do more, and they want to do more, right. So that’s the key. So like you said, it’s inflection point, but they want to push through that inflection point. Instead of like okay, this inflection point, and I think I’m done for the day. And in terms of industries, we’re pretty agnostic. We like business services, more acid like businesses, you know, in a bunch of different different verticals. And we have an areas of interest that we’ll list on our website, if you want to go and check it out. But most importantly, it’s a partnership. It has to be with the right management team, yeah.

    Patrick: So that’s the, that’s where the fit is. Any issues on geographical?

    Renny: We invest in US and Canada. If you look at our current active portfolio, portfolio companies or even former portfolio companies is all over the place. We have companies in Florida, California, Wisconsin, Kansas City. Officially, we are looking for investments in Canada, we just haven’t found one yet.

    Patrick: One of the recent trends has been happening in mergers and acquisitions and why we’ve had such a big growth in private equity is the successful transition that M&A transactions are having right now. They’re happening more efficiently. They’re happening, cheaper, faster, all those other wonderful terms that you have, and one of the reasons why the industry has gone from a few 100 private equity firms to 5000 today is that the transactions themselves are a lot easier to execute. And one of the byproducts of that, or one of the creators of that has been that there’s been a product out in the insurance world called reps and warranties insurance. 

    And what it has done is really elegantly transferred risk away from buyer versus seller, to a third party with deeper pockets so that if both parties can transfer risk for reasonable price, okay, deals go forward. And not only do they close, but then the post closing transition is that much easier, because again, you don’t have one party against another. And so you know, don’t take my word for it. Renny, good, bad or  indifferent. What’s your experience been with rep and warranty insurance?

    Renny: I totally agree with you, Patrick. We have had a very good experience using it as a way to take a major area of buyer seller negotiation off the table. For many of our transactions. I think we use it in about like 80% of our platform transactions now. And it removes the often contentious issue of escrow size and exposure cap for seller indemnification. And it gets more cash in their pockets at closing. And it still protects us from from unknown issues in the business that are discovered, put close. So we’re a big proponent of rep and warranty. And we will, we will continue to keep using rep and warranty insurance. And now the rep and warranty insurance market is so robust. So there’s we can typically find good coverage and options for pricing.

    Patrick: I could not have said it better myself. Thank you. Thank you so much. I think one of the great things about the platform we want to bring to people’s attention in the audience is that reps and warranties used to be a product reserved for deals at $100 million dollar enterprise value and up. They had rigorous due diligence requirements, financial requirements, all those things, and the price was still relatively good. But the eligibility criteria to get in was difficult, particularly for the lower middle market. And what’s great is there’s been a new product that’s been introduced that provides a sell side rep and warranty policy. And it protects sellers and the buyers involved in deals at a $15 million transaction value and down. 

    So you can buy up to $10 million in limits on a 10 or $11 million company and cover everything all the way up to the thing. It’s a fraction of the cost. And what’s nice is the more that organizations like yours and lower middle market are aware of this because it’s not only good for platform acquisition, but for add ons, which usually you know, you had to go bear because they weren’t eligible. Now it’s there. So it’s one of those things we wanted to make sure we pointed out to everybody. Renny, as we just turned the corner from 2021 to 2022. And I don’t see robust M&A activity dropping anytime soon. Share with me, what trends do you see either an M&A or Boyne Capital? Tell me what you see.

    Renny: So I can’t predict your future, Patrick. I don’t have a crystal ball. But what I can tell you is like I think the trend of what we were seeing in 2021 has been going to continue. Just from macro environment, the pandemic, I guess, is still here, surprisingly, right. So people still have that mentality, probably they don’t want to go through another round of difficulties alone. So that’s going to drive some activity. And some people probably have some difficult situations happen with, you know, house, or family that got them to rethink their priorities. And maybe they want to step back, retire from the business. And some people probably want to start their own business because like they quit their corporate jobs, right. So those definitely will contribute to stronger M&A environment. And things like tesco changes, also. So a lot of things that could potentially make it even more robust, or whatever it is, you know, like I see just good things, hopefully happening in 2022. We are excited to see what it has in store for us.

    Patrick: I completely agree. I mean, one of the things that I’m stealing from a prior guest is that, you know, we have economic cycles come and go. Pandemics are going to come and go and tax changes are going to come and go. One thing that is gonna be constant is time. And as you know, a lot of these owners and founders, many are baby boomers, they’re getting to the point where they’re going to reach their own personal inflection point. And that’s that’s going to be father time. So I think that there’s going to be a very large transition as we go forward. And that’s going to carry forward I believe, sincerely for the next couple of years. But, you know, we’ll keep our fingers crossed and hopefully, things things will move as they’ve been moving. So this is good. Now Rennym, how can our audience members find you and Boyne Capital?

    Renny: First place to check is our website and www.boynecapital.com. And it’s spelled B as in boy, O as an Oscar, Y, N as in Natalie, E as an echo capital.com. You can find myself there with my contact information. It’s Renny Sie, I always tell people it’s like Jenny with an R. It’s easier. My email is rsie@boynecapital.com. It’s spelled R as in Robert, S as in Sierra, I as in echo. No, I as in Italy, E as in echo @boynecapital.com and you can call me at 305-856-9500.

    Patrick: Fantastic, Renny Sie from Boyne Capital absolute pleasure talking to you in this value cultivator approach. I really, really like it. It’s very, very refreshing. It’s just, it’s this abundance thing where you take something you’re just going to make more for everybody and I think it’s just very, very positive. Thanks for joining me today.

    Renny: Thank you for having me, Patrick. Take care.

  • Material Contracts and Representations and Warranty Insurance
    POSTED 2.15.22 M&A

    As Representations and Warranty insurance matures as a product and comes into wider use, Underwriters are taking lessons learned from past claims to equip future policyholders on ways to either identify pre-closing trouble-spots, or to mitigate their impact post-closing. They’re looking for patterns or “danger areas” where breaches are more likely to occur.

    Many such breaches result in losses far exceeding the R&W policy limit. So, it’s essential that Buyers take action so that they can catch any issues before a deal closes. That way they can address the issue with the Seller. (Read to the end of this article for key questions to ask in this regard during the due diligence process.)

    The cynical view is that insurance companies are taking such an interest in order to exclude parts of the deal from the policies they provide so they don’t have to pay claims.

    But I see it as an attempt to protect Buyers and give them the chance to go to the Seller for a remedy. That could be a lower price or having the Seller address the issue. This way the risk is transferred away and does not have an impact on the R&W policy for the deal.

    All industry types are impacted by material contract breaches. But the biggest “hot spots” are manufacturing, tech, and government contractors.

    Trouble Areas to Look Out For

    Currently, material contracts are now the third leading cause of R&W claims overall worldwide, preceded by financial misstatements and violation of laws, and tied with tax issues. Material contracts represent 14% of reported incidents, as reported in AIG’s M&A Insurance Comes of Age report.

    If a Buyer acquires a target company with bad contracts and it is not disclosed, the Buyer is left holding the bag. And that bag can be quite big. Damages in material contract claims can be sizeable.

    Think a $20M material contract claim with a $10M R&W policy.

    There are four leading types of material contract breaches.

    1.  Issues around profitability of a contract (e.g. improper accounting for expenses).

    2.  Target in breach of a material contract.

    3.  Change in a customer relationship (e.g. termination or curtailing of purchasing levels). This could involve contracts with key customers where a customer is allowed to go to another provider for lower costs, leaving the new owner without revenue they expected. This is a major issue.

    4.  Failure to disclose existence of a material contract or material term (e.g. undisclosed discounts)

    Due Diligence Questions You Can Use

    The below are questions regarding material contracts taken from actual due diligence calls with Underwriters. I would recommend you make this a standard part of due diligence in your deals.

    1.  Discuss the scope of your diligence of Company contracts. Was this reviewed in house by the Buyer? What diligence was memorialized in writing, if any? Have you reviewed all material customer and vendor contracts? Confirm you’ve reviewed all form agreements and material deviations therefrom.

    2.  Please confirm no issues were identified in the top 15 customer and service provider contracts.

    3.  Please confirm that you did not identify any material vendor or supplier that cannot be readily replaced.

    4.  Discuss any notable provisions (e.g. change in control, anti-assignment, most-favored nation, termination, preferential pricing, restrictive covenants, atypical indemnity, powers of attorney). How does Company ensure compliance?

    5.  Describe the indemnification provisions in the material contracts. Have there been any breaches (actual or alleged) of any contract? Any other material disputes or declines in business under any contract? Are you aware of any other planned terminations or other issues with respect to the Company’s material relationships?

    6.  Did you or any advisor conduct customer calls/surveys? If so, describe the results.

    7.  Confirm Company is not a party to any government contract. If so, describe.

    8.  Have any customers provided any notice of intent to terminate? Are there any concerns related to this?

    9.  Any other concerns related to material contracts?

    Material contract breaches can be a serious issue for any M&A Buyer. But armed with knowledge, it’s a problem easily avoided before a deal closes.

    I’m happy to discuss this issue with you further. You can contact me

    You can contact me Patrick Stroth, at pstroth@rubiconins.com.

  • Laurin Parthemos | Beyond the Dress Code: The Outgrowth of Culture in an Organization
    POSTED 2.8.22 M&A Masters Podcast

    On this week’s episode of M&A Masters, we sit down with Laurin Parthemos to talk about culture. Laurin is a Principal at Kotter, a company named after Dr. John Kotter, the world’s foremost change expert. Kotter’s approach to merger & acquisition integration focuses on culture and people first.

    Laurin says, “Culture is more and more seen as that differentiator within an industry to say we have a strong culture where people want to work.” 

    Listen as she walks us through:

    • Three ways to acknowledge (and counter) the survive or thrive mindset of change and help an organization move forward 
    • The key to the path forward when integrating organizations with varying cultures—she’ll share a case study of the positive results they achieved (with long-time rival companies) 
    • The monumental shift in the talent pool—what’s behind it 
    • One of the most overlooked things most miss when planning integration and catalysts for forward momentum
    • And much more

    MENTIONED IN THIS EPISODE:

    TRANSCRIPT:

    Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in executive and transactional liability, and President of Rubicon M&A Insurance Services. Now a proud member of the Liberty Company Insurance Broker Network. 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 Laurin Parthemos, Principal of Kotter. With offices on both coasts, Kotter helps organizations mobilize their people to achieve unimaginable results at unprecedented speeds. And I gotta tell you it for a marketing thing, that’s a lot to unpack in one sentence. So there’s a very efficient intro right there. Laurin, welcome to M&A Masters. Thanks for joining me today.

    Laurin Parthemos: Yeah, thanks so much for having me. 

    Patrick: Now, before we get into Kotter, which is a major consulting firm at the forefront of change. Let’s just start with you. How did you get to this point your career?

    Laurin: Absolutely. So I like to say I kind of grew up in the banking industry. So I started my career off in one of those typical but no longer really exist big training programs, working on the lending side. Transitioned into M&A myself doing fundraising for startups, then working with the tier one investment banks, all their processes and operations and how to actually optimize and be efficient. And really, throughout my entire time, through each and every one of those phases within the industry, I really just found myself scratching my head as to why everything was so KPI focused and why things weren’t working, and really leaning on my previous role. 

    And what I was doing back in my college days, which was being a sailing coach, and really trying to motivate people and teaching people how to continue going, despite obstacles that you’re seeing. And I really realized that that human element in terms of change, and how you’re dealing with the day to day is just missing in so many organizations. And it’s that unpredictable factor that really can make or break an organization. So when I was looking for my next opportunity, I came across Kotter and that light bulb moment happened, where I just realized, oh, my gosh, I’m not the only one who thinks that. 

    And not only is there a whole body of work behind this, but it’s operationalized. And it’s actually out in the industry. And it’s not just theories talking about potential research, but it’s actually happening in the real world. So I’d say the short and sweet is that I just kind of was trying to find my home in terms of people who understood that change isn’t just about financial success metrics, that if you don’t have that integrated body of work underneath it, that takes into consideration all factors, then you’re not gonna be successful.

    Patrick: Well, I think that change is at the core of M&A. Alright, and the objective with a good M&A strategy is it’s it’s a situation where you’ve got, it’s not company A buying company B, and now you’ve got something, okay. It is one group of people agreeing to partner with another group of people with the objective that look, the whole is going to be greater than the sum of its parts. And because we’ve got people at the core of this, okay, that’s changed, people are resistant to change. And so it’s always fascinating to see how you address that. 

    A lot of organizations just, you know, they they muscle through that however they can, and you know, they’ve got that attitude. Well, you know, we’ve gone through this before, and we’ve done it before, we’ll do it again. And you know, suck it up. Let’s go. And it’s just so counterintuitive to what’s really happening out there. And so now we come to Kotter. And it’s Kotter with a K which was formed after Dr. John Carter, Kotter, excuse me. And he’s a leading expert in leading change, not just change itself, but leading it. And so talk about Kotter, the organization and what kind of services it’s about on a macro level.

    Laurin: Yeah, absolutely. So the foundation of our business really was John Kotter’s body of work. He’s a former Harvard Business School professor that was doing extensive research around leadership and what makes organizations successful. And in the 90s, he published an article called Why Transformations Fail. And it was 10 years of research, over 100 organizations studied. And realized that 70% of those organizations actually failed some metric that leadership had established in terms of what does success look like in terms of this transformation. Can be whatever budget win over time. 

    But the ones that were successful had this foundation of what he called the eight accelerators, and essentially these various different pieces and it’s not steps that you can kind of check off like a waterfall method but various different pieces with an ecosystem that when activated, means that you’ll be more successful. And so what we do is actually bring those eight accelerators to life when we partner with organizations, and especially in the M&A field. We work a lot on the post deal integration side. Really, really a function of that’s when people start thinking about culture, it’s not because that’s when we should be brought in.

    Patrick: They’re not running into the obstacles yet. You know, coming together, and then once you’re together, okay, now what? So, yeah.

    Laurin: Yeah, absolutely. So what we like to do and what really sets us apart, I think, is that we partner with organizations. We do not come in as a consulting firm and say, here’s our plan. Here’s what the research we did here’s statistics, plop the plan down, leave and call it a day. We work directly with people from across the organization. So that diagonal cross section there all the way from senior leaders, to those junior people on the ground to come up together with plans that will actually make a change successful. And when you’re thinking about that integration process, worst case scenario, you’re going to have a group of people who just feel a sincere sense of loss when they go through. 

    And these integrations, because realistically speaking, you’re dealing with a body of people. And this isn’t the leadership, but the actual employees on the ground doing the work and making the organization successful, that have just had their futures determined for them. They no longer have control, and they’re no longer able to have any certainty around what’s going on. Because it’s just a flash Band-Aid rip most of the time. And so that if you read our latest book that came out this summer, Change, we talk a lot about that in terms of the survive and thrive mindsets. And announcements like that really activate that survive. 

    So you immediately have a rush of cortisol running through your body. You’re not able to really think strategically anymore as an individual, and you really are just in that fight or flight mode in terms of how do you do things. So we try to not only acknowledge that that is a realistic possibility, but actively counteract it to make sure that people aren’t thrown into that. But come up with ways for your own organization, to move away from that into that thrive mindset where you can actually think creatively and be more future oriented in terms of how you can be successful.

    Patrick: Well it’s interesting, because you talked about the people, again, we’re falling back on this people are at the center of this. But it’s interesting, because there are there are other shows out there where they interview firms that merge together, entrepreneurs that sold their company and merged. And one of the common questions comes up. When did you tell your people? And and a lot of them agonized over that because you know, what was the outcome? Obviously, you’ve got that fight or flight, immediate response, particularly when this process has been going on for months. And then the announcement comes to the to the team, like within days of it happening, or in some cases, hours of it taking effect. 

    So you’ve got that natural thing. The other thing is interesting, I appreciate this is that what Dr. Kotter did was he was looking if integration didn’t go well, well, rather than than looking at the ones that failed, which is easy to do, try to pull out the what was common about the ones that succeeded. Because that’s the formula to move forward rather than, you know, Monday morning quarterbacking, you know, others of those deals. So that’s, that’s a unique thing. And this whole issue now where you guys have and again, we’re still macro, but the science of change, and there’s an awareness there. 

    And I think as more understanding happens, that’s fantastic. And that’s leading, you know, we’re Kotter’s kind of leading, leading the change. You know, the the group on that. One of the things that you and I had spoken about before, and we will get into this a little bit more, but it is a big, you know, kind of California, wishy washy kind of thing is is a topic of culture, and how you know, Kotter, one of the things that you guys look at is, you know, the importance of it. And it’s beyond this whole thing of well, these guys dress, you know, have a dress code these people don’t. It goes way deeper than that to talk about culture a little bit for me.

    Laurin: Absolutely. And I will say that one of the things that is really important is that we don’t deal with culture in the sense that that’s the only thing we care about. But that’s how we differentiate ourselves. Because there’s all we obviously care about business practices, and what are the strategies and processes behind something. But culture should always be tied to that strategic objective. And there should always be that measurement going forward. It’s just as important as how we do the work. It’s not a fun little tier off to the side. So when we think about culture, it’s really the behaviors of that organization. 

    So how are decisions made? How are you communicating with people? If you’re a people manager? What are those practices around actually growing the organization? How do you handle professional development? What are your policies around whether it be feedback or how you’re actually just going about the day? Are you a nine to five, only organization? Do you work outside of those bounds? And it’s just all those tiny little behaviors that then culminate into this larger topic of culture. And it’s not that kind of wishy washy California, as you mentioned earlier, but it’s all those little tiny practices, how much does your vision come to life in your day to day? Or does it not? If it doesn’t, that’s okay. But it’s more of an acknowledgement of how that actually is brought in. And understanding the foundations of that is really what’s important.

    Patrick: And the issue with culture also is, as you and I’m stealing from you from an earlier conversation, but it’s the importance of bringing joy and higher achievement in. This isn’t some esoteric, you know, we’re gonna have a company look, and this is it’s really, you know, performance, this enhances performance.

    Laurin: Absolutely. Culture is not just a piece of paper where someone wrote down, like, we are a technology focused firm, where we love collaborating, and then it gets thrown into a drawer and never spoken of again. Culture, whether it’s defined or not, is how people within your organization actually operate. And that’s the key of success and knowing how does that actually work? And if you change some of these levers, in terms of how do we slowly migrate people into one direction, or maybe quickly in another, in order to pull levers to improve performance for the organization as a whole.

    Patrick: And the thing in there, Kotter’s, not alone in this, you’re just at the front of the line on this, but this culture really is trying, organizations are trying to see if they can quantify it, if they can measure it, and then see if they can harness it as a strategic advantage. And and I think, you know, the dynamic of the workforce now is an unmistakable element of the outgrowth of culture. Let’s just talk about that where we had the scenario in the banking industry.

    Laurin: Absolutely. So you’ll see it easily in the financial services industry, where what used to be that exciting field of investment banking, where you had all the graduates wanting to funnel themselves in and fight for those top tier positions in banks are no longer going towards those at the same rate. They’re going towards FinTech, those various different organizations, that could be startups, they could be larger at this point, starting to get some extra funding and are really expanding. But it’s, the hallmark behind it is really, because the cultures are very different. 

    There’s the thought process behind having to work those long hours for the same amount of pay. And the same amount of incredibly high or the hierarchical demoralizing, what can be seen as demoralizing for this generation, environment, versus one where they can create their own path, and they can start defining things for themselves is much more exciting for these generations. So there’s a huge shift in the talent pool in the younger generations wanting to find something new and culture is really at the heart of it.

    Patrick: But with culture it’s also, it’s not just, you know, retaining talent and keeping people but you’ve got to be aware of it when you’re bringing one force to join another force. And and you’ve got to know the potential clash of cultures there. And you’ve experienced that. Talk about that real quick.

    Laurin: Absolutely. So we had one organization that it was two competitors, who were top in their field. Unfortunately, I can’t give the actual names. And I would love to give actual details, because the details are just 10 times more impactful, but when we anonymize it, you can’t really see that full picture. But two, huge top of the industry, competitors formed into one. Merged together. And as we were going through their integration strategy, and what really needed to come out of it, we realized really early on that if we were going to make a proof point of this integration in terms of how to be successful, we needed to generate wins early on. And I would say that’s fairly typical across the board. 

    You always want to be generating wins to boost morale and create that snowball effect of moving forward. And the way that we were going to do it and be most successful and most impactful was to get the sales teams working together. Because if the sales teams could work together, who were rivals and did not like each other, if we can get them on the same team collaborating and actively working as a unit. Then that makes the proof point for the rest of the organization to say you know what, they can do it, why can’t I. So what we did is after we brought them together, we really allowed them and created a space where they can decide what that collaboration looks like and decide what their path forward is. It’s like I said, it’s not us coming in and detailing out high level plans, it’s working with the organization to create that for them. 

    So what they decided to do is that they were going to sell one product together. And it did not matter what industry you focused on. So they were selling products across a variety of different sub sectors. And they all went back and said, you know, what, by the way, have you seen XYZ in the market? Really exciting. I know, it doesn’t apply to you, but maybe look into it. Might be of some interest. And through that, and all of them deciding, we have a goal of we want to sell X amount of this product, we’re all going to do it together doesn’t matter who does it. Let’s do this as a team. It ended up being by far the largest selling product in that industry.

    Patrick: So you get the results right there. I just, you know, when you go the uber hyper competitive forces, okay, now they’re forced to work together. Okay. If they can work, then everybody else can. But what really struck me about this is not only I mean, it’s easy to see also, because we’re in marketing and sales, we appreciate this. But it’s also the, you didn’t take this universal approach, where okay, we’re going to change everything. Okay, you’re just let’s just get, prioritize a couple things and like you said, get some wins and moving forward. 

    I think that’s what happens is, everybody appreciates that, as they’re bringing on onboarding services and so forth, it’s just get those little wins to move down, let’s get those first downs and move on. We don’t have to have the big long pass because a lot of times that could delay things. And then people are just there again, in that space of they don’t know things are changing. They don’t know how it’s factoring, but they don’t see anything happening. And then you get nervous there. So I really appreciate how you guys can break that down.

    Laurin: Absolutely. I would say one of the most important things that often gets overlooked in terms of these plans is that it’s just saying, okay, we introduced you guys to each other, we’re done. High five or something along those lines. And it’s culture and the people integration isn’t taken into the same level of detail, as you see technology integration, or process integration, which does need to be considered at a high level. And if you think of Roger’s law of diffusion, when you’re regarding innovations. 

    It’s the same principle that you need to start with a group of people who are willing to accept that change, create those early wins and proof points, because as you create and generate those small wins and create momentum, you’re creating that rationale for the people who are more resistant to change and wanting to step back to say, you know what, this group did it, they were successful, I’m bought in. And then when you get those people who are partially resistant to change, you start getting the people who are very resistant to change, and you start making a movement that way. It’s not forcing it, but it’s creating proof points of success around that entire process,

    Patrick: Define or give me a profile of your of Kotter’s ideal client. Where are you looking as the ideal client where you can make these changes?

    Laurin: Absolutely. I think, realistically speaking at Kotter, we consider ourselves generalists, but what we really like to focus on are those calcified industries. The ones who haven’t necessarily changed yet, and are looking for that new generation to be that catalyst to move forward. And that’s really where we’re going to see our most success. I would say, anyone who is in a leadership position, where they are already having these thoughts and feelings around this is I want to change differently. I’ve done this time and time again, without success by going through the traditional methods. Let me try something new. That’s going to be our target audience. Because if we have someone within an organization who is willing to try some of the things that, from a traditionalist standpoint, sound a little off the wall, but are proven time and time again by both research and outcomes from our clients, that they do work.

    Patrick: This doesn’t happen unless you get buy in from the top, obviously. Now, Laurin, you mentioned calcified industries. Give us an example of a few others. You mentioned banking, what besides banking would be calcified?

    Laurin: Absolutely, I would say healthcare as a whole very much in that wanting to transition phase and wanting to accelerate phase but hasn’t necessarily gotten there yet. Very much government entities, still working on how to actually become as efficient as humanly possible within their structures. You’ll see it in higher education who are still very slow moving on various pieces depending on the cycles that they’re in in terms of their semester. You’ll see, and you do see it across the board. And you also see, you’ll see it in manufacturing at times and supply chain. It’s very much, I would say a universal piece for all the ones that aren’t talked about in the news necessarily on a regular basis, I would say the rest of them are still looking to really accelerate.

    Patrick: Talk about the onboarding process, how long it takes and things like that.

    Laurin: Absolutely. So onboarding for us, when we first start working with a client, we take a couple of months to actually do that discovery work. And discovery isn’t just kind of sitting in the background, reading some old documents. Yes, we do do that we need to do that and do our research to see what’s actually happened. But it also can consist of doing culture change surveys, and actually figuring out what that network within your organization looks like. And how ready is your organization with what are the general sentiments in your organization. Going through and doing stakeholder interviews, and not just interviewing leadership, but interviewing various different people within the organization who are doing the work to really understand what that landscape looks like, and then going into an alignment session to really define out what is your big opportunity in terms of this. 

    And that’s not saying it’s going to replace a mission or vision statement, because they do not. They supplement it. Because an opportunity is a window of time, it is a strategically held short term opportunity where you can charge towards that and everything that the organization does, should support that opportunity in terms of achieving it. And that opportunity will then flow into your mission and vision and your strategic objectives that you want to achieve for the 10 year vision, or the 30 year vision depending on what you have. 

    Patrick: Gotcha. Now I appreciate, Rome wasn’t built in a day. So this isn’t, you know, an overnight fix. But matter of weeks, months? Ballpark?

    Laurin: I would say months. It depends on after we go through that discovery phase of a few months, we go through and define custom plans and roadmaps for an organization based off of the level of need. If we’re doing a one off, you’ve purchased an entity, great, you’ve got the target company, you need to integrate it in much shorter timeframe, then building out a conglomerate where someone purchased a ton of various different entities. And now you’re trying to make one holistic unit. So really depends on what landscape we’re dealing with. I’d say about a year timeframe, we really like to work through organizations and do a lot of this work on that shorter end, not because it takes that entire year long necessarily. 

    It depends on the organization again, but more so embedding behaviors, take does take time. So you can have that switch. And if you read anything on habits, you can quickly change but then you can regress back if those behaviors aren’t reinforced. So it’s doing, making sure that that repetition is there and making sure that that reinforcement is there across the board in terms of how you incentivizes there in order to make it as successful as possible.

    Patrick: Gotcha. Well, I think that this is important. And one of the things I just pulled from you is that this isn’t just limited to strategic acquirers where they’re going to make an acquisition here or there. You could literally have this for private or private equity clients where they have multiple, very diverse portfolio companies. And although they don’t work hand in hand, the various portfolios, intermix with each other that often, many PE firms are trying to do that. That’s one of their strategic advantages is seeing how they can take, leverage strengths and to overcome weaknesses among the portfolio companies. We want to get, you know, our culture, not just within the PE firm of the investors, but within the portfolio across the breadth of the portfolio. And so I could see that being something that would be very, very helpful.

    Laurin: Absolutely. It’s something that we’ve been talking to clients about in recent years. And I would say, if you think about venture instead of PE, for example, just making all of those bets and saying not all of them are gonna pan out, we’ll have a couple of successes that are runaway successes to pay for the investments that don’t necessarily work out. But how can you actually structure your portfolio to complement each other? And actually work together as a cohesive unit? Not necessarily from going as formal as a joint venture, creating those agreements, but how can you actually work your portfolio to maximize and create cultures where it is okay to collaborate with each other?

    Patrick: So, I mean, this is great, because it’s not just culture isn’t just micro, here is macro on the other side, and that’s a great place where you can be brought in because you’re proven at that level. You’ve done it at that level as well. Laurin, we’re having this conversation just after first of the year. So we’re all getting used to change on writing 2022 now on the dates instead of 2021. So it’s going to take a little while for people to do it, but we’ll all change and then we’ll be sitting in 2023 but what do you see going forward either with Kotter or macro change M&A? And what do you see for the coming year?

    Laurin: I would say, in general, and this isn’t necessarily for 2022. But it’s been a general progression in recent years that there’s more acceptance around what’s considered the quote unquote, softer side of deals and culture. You’re not as frequently getting that eye roll. When you say culture in a boardroom, as you might have 10, 15 years ago. Where people were like, oh, it’s culture, okay, wonderful. Like, that’s not necessarily happening anymore. And, for example, we were working with a firm and within a year, they actually referenced culture at a 22% increase in that one year timeframe after we started working with them. 

    And directly targeted in their annual report, the reason behind their incredible success during the pandemic, was because the culture that they had fostered beforehand. And culture is more and more seen as that differentiator within an industry to say we have a strong culture where people want to work, and especially when you’re starting to think about the great recession. And as people are leaving organizations, when you’re doing an integration, as we talked about a little bit before doing things to people and activating that survive mindset, you have a more vulnerable employee population who is more quickly going to have that thought bubble of, if I can’t define this for myself, and I no longer have control, why don’t I leave? 

    And it’s already prevalent, but it’s even more so in these target companies. So something to absolutely be aware of, as you’re going through in the next year of how do you really retain the talent and the culture of your target, and integrate some of their best practices and their culture into the acquiring company, and create the best of both.

    Patrick: You mentioned the softer side, the two biggest developments in the last couple years. You’ve got ESG and the awareness of that. And then culture is hand in glove with that. So I agree completely with you is that going forward. Laurin Parthemos it’s been a pleasure having you here. For our audience members who are interested in this, how can our audience members find you and Kotter?

    Laurin: Absolutely. So you can find Kotter on our website at kotterinc.com. I have a lot of resources there and various different articles or background research that we’ve done. You can find me personally at laurin.parthemos@kotterinc.com. I will not go through the trouble of spelling that you can easily look on your podcast page. Check out the show notes. It will be there. And then you can also find me on LinkedIn. I’m more than happy to speak with anyone who’s interested personally.

    Patrick: Well great. Laurin Parthemos of Kotter, thank you so much for being here today.

    Laurin: Thanks for having me. It’s been a pleasure.

    Patrick: Great.

  • Staging Your Deal for a Better Rep and Warranty Experience
    POSTED 2.1.22 M&A

    When you sell your house, one of the best ways to get noticed by potential buyers is to “stage” the home. This is interior design. Nice furniture and décor. No personal items or family photos. No family photos on the wall. No crazy paint schemes on the wall.

    Some sellers even hire professional decorators to arrange their homes in this way.

    Similarly, in the M&A world, if you want to use Representations and Warranty (R&W) insurance, you should be prepared to stage your deal to make it more appealing to Underwriters who would be approving and writing your policy.

    Doing so will get your deal noticed and your policy priced appropriately.

    Why should you have to jump through hoops for a policy you pay for? Wasn’t it just a few years ago that insurers were hawking R&W coverage to anyone who would listen…?

    Things have changed.

    As I mentioned in my article, “Bandwidth,” the problem is that Underwriters are overwhelmed right now.

    R&W coverage has become standard in many circles, including PE firms and Strategic Buyers. It’s more popular than ever as M&A players have come to understand its benefits, that claims are paid properly and on time, and that this specialized insurance can actually smooth negotiation and speed up deal-making.

    Combine that with an increase in M&A activity overall and, in particular, a rise in the number of so-called mega deals of $1B+ in transaction value (TV), which get priority from Underwriters…

    And the result is that the teams of Underwriters out there (who are also short-staffed as companies can’t hire enough people fast enough to meet demand) simply don’t have the capacity to research and understand all the deals and determine coverage and terms for all the Buyers and Sellers out there who want a policy.

    In fact, insurers are actually declining to cover otherwise great risks because their Underwriters lack bandwidth. They’re just stretched too thin. Actually, national insurance brokers are not covering deals under $400M in transaction value in most cases.

    Unfortunately, that means to secure R&W coverage for your deals, you have to be prepared to put in some legwork. And while there are some common themes, there is also industry-specific prep you must consider depending on what space your deal is in.

    First, the best way to stage your deal is preparing your due diligence. The goal: to make the Underwriters life easier and make less work for them. Ninety percent of R&W policies are buy-side, which means it’s up to the Buyer to do the prep work.

    In this case, that means:

    1. Having all the proper due diligence done before approaching the Underwriter. Loop in your experts now, including your lawyers and accountants. Identify potential areas of concern…and have answers or solutions ready.

    Have that work done upfront so the Underwriter can review quickly, have their most common concerns mollified, and write that policy. And the Buyer should also be prepared to address any new concerns or requests for new documentation that come up.

    2. You know the concept of supply and demand. Demand goes up, supply goes down…costs go up. That is what is happening with R&W policies. So, plan for increases in due diligence costs, insurance costs…and higher R&W premiums. Prepare any decision-makers for these increased costs to prevent delays.

    Something to note. If you have a deal under $400M TV, forget going to one of those nationwide brokers as they simply don’t have the time for you. You need to look for a boutique broker, somebody regional, somebody experienced. This goes the same for any law or accounting firms you want to work with on the due diligence process. Oh, and be sure to contact these firms ASAP and get on their calendar. They’re busy too.

    Also, healthcare, technology, service businesses, restaurant industry, entertainment…every industry has its own little processes you should follow to best stage your deal.

    More on that in a future article.

    For now, if you’re working on a deal and are worried that R&W coverage might not be available to you, as a boutique broker with long-time experience with this insurance product, I’m happy to chat with you.

    You can contact me Patrick Stroth, at pstroth@rubiconins.com.

  • The Reluctant Strategic Acquirer
    POSTED 1.11.22 M&A

    Representations and Warranty insurance transfers all the risk in an M&A deal, including the indemnity obligation, to a third party – that’s the insurer.

    It’s hard to argue against a major benefit like that. Plus, R&W coverage makes negotiations smoother and faster (and cheaper when it comes to less attorney fees) because all the nitty-gritty of a deal doesn’t have to be picked over. If there’s a breach, a claim is filed, and the insurance company pays.

    Easy. It’s no wonder it is more widely available and widely used than ever before.

    The perception may be that R&W coverage has gone from an obscure insurance product to something that is ubiquitous in the M&A process. And if you’re Private Equity that may be the case. PE firms are the most common repeat buyers. They’ve embraced this coverage in a big way – so much, in fact, that demand has grown exponentially.

    But not everybody is totally convinced of the value of this coverage.

    In the case of one Strategic Buyer I interviewed recently, while he didn’t object to R&W insurance being part of the deal, there was definite reluctance on his part. Simply because it was the first time he had used it on a deal.

    This reluctance to take on R&W insurance – or at least their lack of exposure to it – on the part of Strategic Buyers is no surprise. In the past, they never really needed it. Until a few years ago, it was more of a Buyer’s market… the Buyer had more leverage, especially a Strategic Acquirer like a massive corporation buying a smaller company.

    So, the Buyer didn’t have to accommodate the Seller with R&W coverage. They could impose escrow requirements and essentially be unopposed. The Seller had no recourse. In many cases, Strategics have been convinced by their attorneys that there is nothing more secure than having cold hard cash sitting in an escrow account.

    Also a factor: Because Strategic Acquirers have not used this insurance before, there is a fear that it would slow the deal down or alter the process in a way that would cause a delay. They didn’t want to add this new, “foreign” element they weren’t familiar with to get in the way of what had been their smooth, well-oiled machine.

    Then, things changed…

    Why Strategic Buyers Are Changing Their Mind on Rep and Warranty Insurance

     Strategic Buyers seemingly had plenty of reason to push R&W insurance to the side. But they can’t ignore it any longer.

    It’s a Seller’s market out there right now. And Sellers, even smaller companies being acquired by vastly larger companies, now have leverage. And they’re using that power to make R&W coverage standard in M&A deals.

    So Strategics have been forced to make this accommodation in increasing numbers to make quality deals to buy solid companies they want.

    The good news is, the process to secure this specialized coverage, even if you’re totally new to it, is straightforward. Here are some things to keep in mind:

    1.  A professional Strategic Buyer, when making such a big investment as acquiring a company, is going to be doing thorough and appropriate due diligence. That’s a given.

    Well, that means they’ve probably done enough due diligence to qualify for R&W insurance. You simply send the diligence over to the Underwriters. It’ll probably have to be rearranged or organized in a different way, but the diligence is there.

    2.  Underwriters are ready to work with Strategic Buyers, so it never hurts to look at R&W coverage to see what the options are. Underwriters will provide applicants with a quote that outlines the major policy terms before committing funds for underwriting fees. Within those indications, the Underwriters will comment on what they’re concerned about with the deal, what they call “heightened areas of risk.”

    They’ll put in their quote that they’ll be looking closely at Topic A, Topic B, Topic C, etc. So, if a Strategic can respond to these topics and show their diligence in these specific areas, Underwriters will be satisfied.

    This eliminates a concern had by many Strategic Buyers: that they’ll pay an underwriting fee to get R&W insurance and then there will be a lot of exclusions on the policy. But it’s not true. You can go in with eyes wide open and get all the details before you spend a dollar.

    3.  Working with an experienced broker who knows M&A and Rep and Warranty coverage is key. A broker can convey information back and forth between the Buyer and the Underwriter. A broker knows what information is needed. They can manage expectations, provide reasonable timelines, be diligent in following up to make sure the proper due diligence and documentation – in the proper format – is flowing to the Underwriters.

    Not just any broker will do. Some less experienced brokers have a tendency to be reluctant to ask a client for more documentation when requested by the Underwriter. They don’t want to be a bother or have the client ask why they didn’t request the document at the beginning of the process.

    But the truth is, and an experienced broker knows this, that sometimes, in the course of the underwriting process, there are questions that come up that must be satisfied. An experienced broker can head that off somewhat because they’ll have identified those areas of heightened areas of concern and addressed those with the Buyer upfront.

    Where to Go From Here

    With the right help, the process to underwrite a R&W policy have this coverage in place in an M&A deal is actually quite easy. That’s even for a Strategic Buyer that has never used this insurance before.

    If you’re engaged with accounting firms and law firms experienced in this area, along with an experienced broker who can work with Buyer and Underwriters alike to shepherd the policy from application to closing day, it can be a frictionless process.

    And having that coverage means that between Buyer and Seller all the most sensitive issues of a deal – indemnity, escrow, etc. – are now non-issues.

    Soon enough, I expect more Strategic Buyers to happily embrace R&W coverage and become converts. All it takes is facing the unknown and going through the process once.

    My firm has extensive experience in Representations and Warranty insurance. If you’re looking at this coverage for the first time, or are already an enthusiastic user, you can contact me, Patrick Stroth to chat about your next deal. You can reach me at pstroth@rubiconins.com.

  • Samantha Ory | Strategies for Creating Organic Partnerships that Thrive
    POSTED 1.4.22 M&A Masters Podcast

    On this week’s episode of M&A Masters, we sit down with Samantha Ory to talk about choosing partnership over buyout. Samantha’s company, Ouroboros Group, is a private investment firm specializing in middle market corporate acquisitions and operations in the manufacturing, healthcare, and consumer sectors.

    Samantha says, “I found that there is this segment of outlier companies and CEOs who are looking for something a little bit different. We cater a lot to the CEOs. We always ask ‘what can we do for you?’ It builds trust, but it’s also very genuine… we really want to know.”

    Listen as she walks us through:

    • How her non-traditional background led to a unique approach for the Ouroboros Group
    • Two atypical things they focus on to take a company to the next level (post buyout)
    • The 3 algorithmic strategies they use to find deals
    • The key to developing organic partnerships
    • And much more

    MENTIONED IN THIS EPISODE:

    TRANSCRIPT:

    Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in executive and transactional liability and president of Rubicon M&A Insurance Services. Now a proud member of The Liberty Company Insurance Group of Brokers. Welcome to M&A Masters, where 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 Samantha Ory, Founder and General Partner of Ouroboros Group. Ouroboros Group is a private investment firm specializing in middle market acquisitions and operations within the healthcare, consumer, manufacturing and distribution spaces. The firm has offices in Boston and New York. 

    And in addition to their middle market buyout practice also has a minority investment arm specializing in early stage and minority investments within the consumer vertical. And as of this recording, today, there are over 5000 private equity firms in the US. Most people outside of M&A think of private equity as a monolithic even within mergers and acquisitions. A lot of professionals think of private equity by either size, sector or region. I gotta tell you that that’s contrary to the truth really, and is no better personified by Samantha today is that when you see one private equity firm, you’ve seen one private equity firm. Their owners and founders are unique and have a great story. And this is why I wanted to do the podcast, quite frankly, is because nobody tells these stories better. And I’m really thrilled to have you. Sam, thanks for being here. Thanks for joining me.

    Samantha Ory: And Patrick, thank you so much for having me. This is wonderful, this is exciting.

    Patrick: It’s gonna it’s gonna be a lot of fun, because a lot, there’s a lot to get into what you in Ouroboros Group are doing. But before we get into all that, let’s just set the table real quick. Let’s talk about you. What got you to this point in your career?

    Samantha: Yeah, so it’s a great question. You know, I think that I’m going through a lot of different events within the financial industry, and also just kind of being molded in a very non conventional way to begin with. So many people don’t know this about me, but I actually didn’t start in finance, I started in art. And believe it or not, as the painting suggests, behind you, I actually used to do that. And I was one of the people that you know, would go take six hour drawing courses and paint in various mediums, pastels, oils, do photography, and just really be kind of that creative talent. And my path was much more towards going to the Pixar or Google or even an Apple, but more kind of a design or a tech track. 

    And you know, I was probably halfway through my undergraduate degree at Parsons that I realized that it was more of a hobby, but less of something that I wanted to pursue in a work capacity. And I had been doing all of these internships. And my last job prior to exiting the school world was Prada. And I was actually a buyer for for Prada within their shoe departments at Bloomingdale’s, and Saks and Bergdorf. And I was one of their kind of account analysts that would go in and start to barter for the different prices, and also keep track of all of the different SKUs, and even really place the items within the showroom and could go through the curation process. I loved it. But I really like the math behind it. And I like to finance behind it. And I like the idea of how to maximize your profits with in one segment. 

    So a lot of friends who they were at NYU, and they were really, really interested in kind of your typical ibanking track right thing, Goldman Sachs Bank of America, Morgan Stanley. So they got me into the finance circuit. They said, well, if you like finance so much, why don’t you give it a whirl one summer for your very last internship before you graduate. So I pretty much begged Needham & Company, middle market investment bank to give me an internship one summer. I think they looked at me and they said, oh my goodness. what do you know about finance? And I said, not much but I know something about consumer. And you know, perhaps we can kind of strike a little bit of a happy medium here where you know, I can help with the research and the consumer perspective and you can teach me how to model and teach me kind of the ropes. 

    It was probably one of the most interesting summers of my life. Juxtaposed between painting and drawing for my final classes and executing different graphic design projects and modeling and for potential mergers and acquisitions that we were doing at Needham & Company. And that summer, we actually floated Zipcar as the tertiary underwriter. And I got to be a part of that, which was fantastic. It gave me something to talk about, it was an interesting bridge between consumer and between finance. And that really launched my career into finance, and really created this viewpoint of how I felt, you know, finance should be from from the lens of someone who didn’t have that package background. So that was kind of the beginning of it all.

    Patrick: I imagine it’s just that common denominator is the number, the number speak to you. And everybody thinks of numbers on one level, and as this cold objective viewpoint, and you inject an art and and context it. That’s amazing. So then you move on, you get get out to form Ouroboros Group from this experience, okay. Clearly, you didn’t name it, Ory group, okay, you put it out there. Talk about now Ouroboros Group, but I always like to ask, you know, first of all, where did you come up with the name?

    Samantha: It’s a great question. And it’s so funny you say that, actually, because everybody asks me, well, is it your street address? Or is it is it a golf course that you like to golf at? I mean, that’s really where the, the manifestation of a lot of these company names and the hedge fund and private equity world come from, and not to knock them. Um, but given my very creative background, I said, well, you know, I have half a brand new degree, you know, from from one of the world’s best art schools, why don’t I, you know, use that to my advantage when I’m creating my own company. So I wanted to do something that resonated from an international perspective, because I knew that we were going to be looking at deals like the outside of the country given globalization. 

    And I also, you know, wanting to be a kind of a talking piece, where people would ask me, and it’s a really nice icebreaker in finance, you kind of get the same conversation over and over and over again. And I find that you really get to bring out people’s personality, when it’s just kind of a, hey, how’d you come up with your name, and then you start, you know, gabbing away and before you know it, you know, you’re fast friends. So it was it was intentional. But the name being close to my last name was not completely unintentional. So Ouroboros means infinite returns in ancient Greek, there are two delineations. One is a dragon eating its tail. And the other is the serpent eating its tail, more of the Eastern European delineation, and I went with the Asian version.

    Patrick: Okay, I just infinite returns is always a nice picture for people to have as they out there. And you’re in you’re diverse and a lot of the sectors that you’re looking at, however, you’re more tilted toward the middle market, as opposed to the lower middle market, like a lot of my guests, but you’re in more than middle market. Let’s talk about that as what is Ouroboros Group, bringing to companies in that middle market space? Talk about you know, your target size, but don’t limit it to that. Just what then are you bringing, because you really do have a unique perspective. And I really liked that approach.

    Samantha: No, thank you. I really appreciate that, Patrick. You know, I think that’s for me, and you know, going all the way back again, I saw a lot of interesting arbitrage opportunities coming from the non traditional background. You start to see things that you love about the industry, and also things that you think you can, you know, change could could be better. And a couple of things that I saw, you know, were that every private equity shop structures deals in the same way. And they will also think about their post close strategy in the same way. They also go through the acquisition process in the same way with the CEO. It’s kind of the same song and dance, and it works really well, you know, for many companies, but I found that there’s the segment of kind of outlier companies. And outlier CEOs who are looking for something a little bit different. 

    So we cater more towards the CEO, when I think it wins a lot of trust over, you know, to them. We always ask, you know, what can we do for you? And they always look at us a little stunned and they say, well, what? You’re asking us? You’re, you’re pitching us on you, this is very different. And they like that it builds trust, but it’s also very genuine, because we really want to know, because post close, our goal isn’t to put, you know, six plus turns of leverage on a company. You know, we really stay between you know, that three to four range at the very max and really organically grow this company post close. And create a very sustainable growth strategy with a surrounding of operating partners. They could be retired CEOs, current CEOs, current C suite, and you know, we give them board positions course. And they help us and guide us, you know, through their rolodexes through their experiences to help take the company to the next level. 

    The other thing that we do that was a little bit different. So typically in private equity, it’s usually 100% buyout. You’re not, you don’t always see rollover. And if you do, it’s more for kind of just a transitionary period, or you’re seeing like the CEO, you know, it basically has kind of a final exit strategy in mind. But we’re actually, you know, really going for like 20 plus percent in some cases, the more the merrier is what we say. We want the CEOs to really believe in their company and believe in that strategy post closing and kind of, you know, feel like this is a partnership and not buy out, if that makes sense.

    Patrick: Is it? Is it fair to say in that a person, you’re not necessarily looking for CEOs who want to actually you’re looking for CEOs that are at that inflection point where they’re, they’re too big to be small, but they’re too small to be enterprise? And they want to they want to stick around?

    Samantha: 100%? It’s very counterintuitive. Yeah. But yeah.

    Patrick: Okay, that’s it. I’m sorry, I slowed your roll, please continue.

    Samantha: No, no, this is fantastic. I’m glad you clarified actually, because it’s very counterintuitive. That’s probably one of the biggest things that we do. It’s a bit different, I would say from a post close. And also from kind of a diligence perspective, we’re really making friends with the CEO. We’re flying there multiple times, and really getting kind of a sound look at their company, and really just making sure that they like us as much as we like them. Because this is something that you know, you’re in bed with, with the CEO for, you know, five plus years, and it keeps getting longer and longer as the trends go on. So it’s very important. Another thing that we do, which is a bit atypical, is we source all of our own deals. So it’s not to say that we don’t look at bank led deals we we do look at them. 

    But I would say that 98% of deals and deals that we’ve done in the past, deals that are currently in our pipeline, deals were under LOI with, they come from an algorithmic deal strategy. There’s three algorithmic deal strategies that we’ve actually come up with, I used to work for a hedge fund. And you know, for me, I developed these different methodologies. I’m actually uh, unbeknownst to most people, I’m a coder. I am a used to and still do code and about six different languages. And I’m able to kind of parlay that public market experience that I had when I was at Morgan Stanley and my hedge fund into more of the private equity world. So we have these algorithms that find us companies. 

    And if I, if I go too deep, I’d have to, I’d have to kill you, if I told you all of the algorithmic deal secrets. But I would say that for the most part, you know, it’s been incredibly successful. We’re finding exactly what we’re looking for from an EBITDA perspective, from a sector perspective. We’re able to reach out to these CEOs who don’t even necessarily know that they want to sell their company yet and then we’re able to pitch our story organically. What we actually would like to do, and then post close, you know, execute on it. So it’s very atypical, because typically private equity, you know, that you bank led deals, and they don’t have their own sourcing teams.

    Patrick: So when you’re doing that, you’re you’re actually finding you’re pre empting, you know, other prospective acquirers because you’re, you’re approaching these people probably early in the stage where they don’t even realize they’re going out yet, and so forth. And one of the things that comes across in our conversations before is, it’s a thing that we really believe over a Rubicon and now with Liberty is this commitment to service. To serving our clients. And you got you’re bringing that in spades because you’re approaching the CEO saying, literally, how can we serve you, and then it’s not just some big, you know, check that they’re going to get, but there’s more to it. And I think is what resonates is the saying that I that I’ve come across that I think comes with Ouroboros too, and I tell me if this, you know, connects with you. But you know, a lot of these CEOs are going to be saying, you know, what, I don’t care how much you know, until I know how much you care. And I think that that you’re already with that attitude of service, you’re already coming in that way.

    Samantha: 100%. You know, and I think that I mean, the CEOs, usually all love us because of this and at first they think we’re being disingenuous because they’re like, my goodness, this is everything that I have ever wanted and could you know, ask for and then they get to know us and they go oh my god, this is like unbelievable. And what’s nice is that you’re developing just a really organic partnership and you know, they’re telling you what they actually need, which is opposed to just kind of giving you lip service and then post close you’re stuck with a bit of a mess. And so the LPs love it too, because we tend to get you know, much more of a quality opportunity. 

    And I would say it’s one where the LPs, you know, come to us, and it’s just, they have usually a purpose for why they want to be in the deal. They’ve either done a transaction that’s similar, they have a buy and build strategy, or, you know, a family in the family office segments, you know, has made their money in a similar way. So it’s, that’s the best, of course, because they really, truly understand what it means to be a part of this company. So and, you know, I’d say that we tend to have very fair valuations, we’re definitely not value investors, and we’re certainly not, you know, paying a premium. I would say that everyone walks away, you know, from a transaction, feeling that this has been a fair, a fair multiple, which is really, you know, how it should be done. No one should feel robbed on either side of the table, so.

    Patrick: I kind of look at it as got the multiple figures out there, and people may have those, you know, in their head, but really is going to be the long run on, where are we going to bring this you know, from point A to point B. An approach that you guys have is you are not financially reengineering, or trying to grow profits by cutting expenses. You focus on an area that’s near and dear to my heart, which is marketing. You’re improving marketing, and the sales production in that. And so we could talk about that in one aspect. And I’m just wondering, as you come on board with this with the management team, and they brought you in, and now you’re together. Tell me about any epiphanies that you’ve witnessed them have, where they’re sitting down, saying, okay, I trust you show, show us what to do, you lay out the approach, and you just, you can visually see them with the light bulbs going off. Give us some of those examples, if you could.

    Samantha: Sure. Um, so yeah, I mean, we’re working on closing a franchisor right now. And it’s been really interesting, because we’re seeing a CEO who has built this company, just absolutely organically. And, you know, he has seen decades of iteration here, and it’s just his knowledge is just so incredible to us. And we’re able to, you know, kind of share the experience of, you know, the old and the new, and you just kind of see these light bulbs, you know, flickering, you know, going oh, my gosh, this is what the next iteration of my company could be like, but I, you know, I don’t know that I have the energy at this point to do that. But I still really want to be a part of this. And this is one of the rare cases where we are bringing on a new CEO, but really, it’s gonna be kind of a collaboration, you know, post close. And you kind of see the new CEO, and you see the founder, you know, kind of sitting there, and they have just these incredible ideas for what this concept could be. But also maintaining the the authenticity, and this this kind of retro modern approach. 

    Patrick: Continuity.

    Samantha: Exactly, 100%. And I think that that is just it’s so special, to kind of see the old and the new come together. It happened again, on another transaction that we worked on, in the workwear space, you know, where we’re sitting there, and, you know, going my gosh, this is this is already a multinational company. But let’s start to kind of hone in on specific sectors that maybe could be complementary, you know, and a CEO is just going well, we tried this, and this didn’t work, we tried this. And that didn’t work. But maybe if we did this way, this could work. And then we’re bringing in our ops talent who are like, well, I did this with my last company, maybe we can try this. And just seeing this think tank come together. And I personally have learned just a tremendous amount. And what I love most about private equity is that you’re never done learning. It’s one of those, those those industries, where you have to just be prepared to always be humble, because you are never ever going to be a master of this craft.

    Patrick: Why I kind of look at it as if you’re in construction, and you just have your head down, you’re banging on a nail, you know, all day long. And you just, you know, you can get down on yourself saying, I’m just doing this little thing, but then you step back at the end of the day. And there’s something larger than when you started. And I could just see the same thing with you guys where it’s just not another deal. We were building the, we’re building something from nothing, but there’s something there but even more. So that’s got to be gratifying. And and, you know, as we go through that. As I mentioned in the opening, you are in the healthcare, consumer, distribution, you know, you’re in a lot of different sectors. Okay. And so they could, but they could spread you out a bit. But, you know, give us an idea about, you know, where you are in terms of what’s an ideal client for you. Ideal target. Explain what that is because I think anybody is listening that has a mid market company, they’re already getting a little bit, you know, interested.

    Samantha: Thank you. Yeah, absolutely. So I would say you know, ideal client is, um, you know, CEO who, you know, basically built this company. Typically, if there’s some family edge too, we love that we love, you know, multi generational families. We love family businesses. I myself came from a family business background. So I certainly emphasize and, and know what it takes. So family, family business, you know, CEOs, you know, organically creating the company, you know, typically, you know, they’ve been doing this for, you know, 10 plus years. You know, and a CEO who’s looking to stay on and really taking another bite of the apple, and is maybe looking to roll call it 15 to 20% equity. 

    And also, as you mentioned, within the healthcare, consumer, and manufacturing and distribution spaces. We are completely geographically agnostic. So we will look all over the world for interesting opportunities. And I would also say that we’re looking, you know, mainly for for strategies that, you know, can be, you know, a three plus year, sort of hold, buy and build strategies, and just in general, you know, really compliment our operating partners’ skills, too. So we’re coming in from that angle.

    Patrick: Okay. And in terms of value size, what kind of range are we looking at?

    Samantha: 5 million EBITDA and above.

    Patrick: 5 million EBITDA and above. Okay, excellent. One of the things has happened with that particular class of businesses help the transactions move a lot more efficiently is how risk has been able to be transferred away from the parties so that the, the deals can actually go forward without, you know, the big downside. And what I’m talking about with that is, there’s an insurance program called reps and warranties, which has been in that middle market space, even more so than ever, in the last five years. And you know, it’s done wonders for the middle market, not just the billion dollar but down, but don’t take my word for it. Samantha, good, bad or indifferent, what experiences have you had with rep and warranty on your deals?

    Samantha: Well, we love reps and warranties. I mean, I would say that the ideal candidate, at least from our perspective, for reps and warranties are deals that are a little bit bigger, you know. The reps and warranties are tough for smaller deals, I would say just because you know, it’s expensive. But I would say that when you’re doing bigger deals, it’s almost a must, especially if there’s any sort of risk. Anything that you know, has any sort of, you know, pre close, post close risk that you’re kind of identifying, you know, anything distressed, that has kind of that economies of scale already, you should certainly know reps and warranties and insurance. And I would say that, you know, in general, especially in this really frothy market, it’s really important to definitely consider it. You know, when you’re buying out a company.

    Patrick: I would say one of the great things about the platform for this podcast is also to get the word out that reps and warranties was originally the prime domain for 100 million dollar plus transaction. And now that has gone down market to where, you know, a transactions in the you know, $25 million valuation realm can be eligible. There are costs associated, which is why now there’s a brand new program out there for the micro market, and is called TLPE. And it insures deals from half a million transaction value to 10 million, which is a little bit below Ouroboros’ threshold, however it could be for add on. So it’s one thing out there for the guests to consider is that just because you’re not a $50 million, you know, transaction, there may still be alternatives out there. So I appreciate you know, your comments on this. And it’s great to see I’ve seen a consistent response here where, and it’s good for the insurance industry that we actually have a tool that is helpful as opposed to a hindrance for deals happening. Now, Samantha, I’m a father of two teenage daughters. 

    So I’m keenly aware of what’s happening with you know, women in the presence of finance sectors and so forth. And I really wanted to ask you this, because you also have a unique perspective as a background of a non finance person who came from the art sector. You know, in your background, as you came in you from the surface, it looks like you had no hindrance whatsoever, or barrier to entry getting in as a woman into the finance world. But share with me your thoughts because I believe still that women are underrepresented in finance and in M&A. And I’d like your insights on this because you bring something to the table that the standard, you know, profile doesn’t bring, but talk to me on that on that area.

    Samantha: I appreciate you saying that. Thank you, Patrick. You know, I think that um, I was acutely aware of it just you know, switching industries, um, you know, at a young age and you’re aware of it, I think when you’re at the beginning of your career. And then as you mature, and you build your toolkit, as I like to say, where you know, you have more and more skills, whether it be kind of the front ends, you know, bizdev, to the, to the modeling skills, to doing IR to doing admin stuff, and you kind of get that suite ability to just kind of wear all of these different hats. You kind of get so busy, you kind of forget, you know, that you’re a woman, honestly. Because it’s such a male dominated industry. 

     

    And when I was younger, I was much more aware of it. And it was a little bit stifling to me. And I, you know, I came off a little awkward, um, you know, at times, but then kind of as you mature, and as you, you know, build confidence, you think of yourself just as a person, and that makes it just, from kind of a, an aura standpoint, just more palatable. You know, when you’re in a room at a conference and, and one on, you just don’t think of gender anymore. And you’re more kind of thinking of, you know, oh, how can we collaborate on this and partnership. And I think a lot of that does come from the fact that, you know, so many males are in this industry, that you just kind of have to shut it off at some point. And everyone else is aware, you’re a woman, but you aren’t. 

    And I think that that really is truly an advantage. Because a lot of women tend to have a chip on their shoulder, you know, is they’re like, huh, well, I’m a woman in this industry. And I used to be like that, too. And then, you know, you get older and, you know, it doesn’t serve you very well. And, you know, I think it is changing slowly, you know, kind of as we go into things, but I think that, um, the industry is just really, it’s a grueling industry, you know, and it’s one where, you know, you kind of, as you get older, it leaves everybody out. Men and women, and they go into different segments, so.

    Patrick: Okay, yeah, I just think that as, as you know, the numbers in your view, and numbers and love numbers and so forth, transcended, you know, the the barriers that would have been there with finance and in art, and so forth. I think just in the nature of mergers and acquisitions is just, if you’ve got a better idea, the world’s going to beat a path to your door. And I mean, coming from Silicon Valley, it didn’t matter where you come from, you do not have to be a blueblood or someone that’s in the club in Silicon Valley to do very, very well. And that is, you know, infectious out there. And I think it’s the same thing. And what’s nice is, you know, money is going to go where success is. And so that’s, that’s one thing that’s, you know, you can’t deny it is just great seeing, you know, professionals like yourself out there serving it, you know, while you didn’t intend to be you are role models for the next generation coming on through and I really, really do appreciate that.

    Samantha: I agree. And thank you.

    Patrick: Yeah. So, you know, Samantha, we’re coming up on 2022. And, you know, this 2021, blinked right by. The pandemic is less of an issue now, it’s not gone. But it you know, we’ve, we’ve adapted. What trends do you see going forward, either in the middle market, or any of the sectors that you’re in, because you are also in the entry level in the consumer vertical. So talk to that, if you could.

    Samantha: Absolutely, I think you’re seeing gigantic paradigm shifts, and almost every industry honestly, and COVID, has really sped up these trends. And you’re seeing it, especially in the consumer sector, where already we’re kind of seeing the death of brick and mortar, if you will, and more of these experiential concepts coming up and more ecommerce. And I mean, it just completely, was ravaged and COVID and became much more cyberspace driven, less brick and mortar, even more experiential, just to kind of get the client in the door to buy the product. You know, I think that you’re really seeing the trends too, and healthcare and telemedicine and no longer needing to go to your specific doctor, but kind of having more of this fragmented branch out of going to an urgent care or having the televisit online first, to just kind of determine whether or not you should, you know, go to your primary or, you know, be triaged somewhere else. 

    And in manufacturing and distribution, you’re seeing just massive supply chain disruptions right now and everybody you know, you didn’t even have to be in the sector to know what’s going on. When you go into CVS and you can’t find the Advil. It’s really striking. You know, and it’s gonna probably go on for another six months to a year as things normalize. But I’d say the big, overarching trending scene within private equity and white collar jobs is work from home situation. It doesn’t seem to be going away, it seems to actually be becoming more of a hybrid situation where maybe you go into the office two to three days a week, and then you know, the rest of the time, you know, you’re at home, or maybe you’re working remotely, permanently, you know, in a different area of the country or a different area all together. It’s really fascinating. And they think that it’s going to create a really ferocious talent pool, where suddenly you don’t have to move to one of these cities, you can be top talents, you know, working from, you know, Asia or working from, you know, Texas if you’re based in Boston. So it’s really striking. You know, what’s happened. And I think it’s just going to continue to increase within the next year.

    Patrick: And I didn’t want to bring my own personal life into these interviews and everything is about you. But as somebody who had to wait seven weeks for a replacement refrigerator when ours died, yeah, those those, you know, supply chain, things are going to be something going in. I also agree with you, I think that not only in this but in mergers and acquisitions. As more innovations happen, as more collaborations happen. Mergers and acquisitions are only going to continue at this pace because of demographics as well. Because you’ve got CEOs that want to make a final change, whether there’s an exit, or it’s either now or never, we got to get up and change change what we’re doing. And they’re looking to organizations like Ouroboros to do that. And so, you know, we’ll we’ll see what happens but it but things are all positive, which I like, which which is always fun. Samantha, how can our audience members find you?

    Samantha: Via my email. Um, Patrick, you’re more than welcome to share my email, to share the website, you know, would absolutely love to connect. We’re in the business, it’s a relationship business, so please don’t hesitate to reach out to me for any purpose. It’s just always nice to make new contacts in the industry and find new ways to partner and work together either now or in the future.

    Patrick: We’ll have everything in the show notes. So we’ll have that all set. Samantha Ory from the Ouroboros Group. Thanks so much for being a guest. It’s just been a lot of fun.

    Samantha: Thank you so much for having me, Patrick. Such a pleasure.