• Sander Zagzebski | M&A Outlook for the Rest of 2020
    POSTED 9.22.20 M&A Masters Podcast

    Back in May, Sander Zagzebski maintained that COVID-19 was not a black swan. He even saw a silver lining in the pandemic in the form of opportunity for savvy players in the M&A world to make significant gains.

    In this episode we talk about his original prediction and how it has manifested today.

    Sander, of Greenspoon Marder LLP,  says the current economic crisis is similar to what happened in 2008/09 but also quite different in key aspects, including the cause and how the presence of trillions of dollars of dry powder means there is actually money to invest this time around.

    Sander shares how he’s advising his M&A clients right now, and we also talk about…

    • What he thinks will happen in Q3
    • Why companies can’t “wait out” the pandemic – and what they must do now
    • How to account for legal and regulatory uncertainty going forward
    • A unique insurance product – perfect for the pandemic – that transfers risk
    • And more

    Listen now…

    Mentioned in this episode:



    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders, and their investors. Today I’m joined by Sander Zagzebski, partner of The Corporate and Business Practices Group of Greenspoon Marder. Greenspoon Marder is a full-service business law firm with over 200 attorneys in 26 locations throughout the United States and has been ranked consistently among American lawyers Am Law 200.

    It’s one of the top law firms in the country since 2015. Sander wrote an article back in May for C-Suite Quarterly, and it had the subtitle taking advantage of the disruptive opportunities during the coronavirus pandemic. And this was one of the first articles out there that was pointing to a silver lining in the pandemic. And I’m pleased to have Sander here as my guest to discuss this piece, which is both, it will be linked on our show notes. But it is contrary to conventional wisdom.

    And when you consider the time that this came out, the first week of May, we were just getting, you know, into that settle in place, the fatigue was coming in, the stock market may have been bouncing off of the March lows, but still, there was a lot of uncertainty. And Sander’s article has a lot more credibility now because since that came out in May, there have been at least a dozen other prominent authors out there putting out very similar predictions for not just economic recovery, but recovery in mergers and acquisitions. And so I’m pleased to have Sander here. Sander, welcome to the podcast today.

    Sander Zagzebski: Thank you, Patrick. Appreciate the invite. Lawyers love listening to themselves speak and I’m no different. So thanks for having me.

    Patrick: Well, that’s why we’re not short on content with you. Now, before we get into this article and how you saw the trend, which is a unique way that you looked at it, let’s talk about yourself real quick. Okay, how did you get to this point in your career?

    How Sander Got to Where He is Today

    Sander: Yeah, I’m a, I’ve been practicing as a corporate securities M&A private equity lawyer for 23 years. I started in a large regional firm and a large international firm. But I’ve also run my own law firm for six and a half years. And so more recently, kind of bounced back up the food chain a little bit and joined Greenspoon Marder, which is an Am Law 200 firm, meaning it’s one of the 200 largest law firms in the country. And I, you know, one of the corporate partners and I head up the corporate practice on the west coast.

    It’s, you know, I got here, I guess, in large part because I’m a little bit adventurous. I like to try new things. And one of the things that we do very well is we sort of follow the entrepreneurs and, you know, try to harness their entrepreneurial spirit. And so we get involved in industries that maybe some of our competitors don’t pay as much attention to. Technology that is pretty saturated. But, you know, hospitality, entertainment, new media, Cannabis. We’re probably, we probably have the largest cannabis practice of any of the Am Law 200 firms.

    You know, blockchain digital assets. And we try to, you know, it’s more fun to go where the action is, and these are some of the places where the action is. So but from a skill set level, we are industry agnostic, and I do, you know, I do probably 40, 50% mergers and acquisitions. And my, you know, in a given year, maybe a third capital raising transactions. And, you know, the rest is kind of a mix of joint ventures, strategic alliances, other kind of significant corporate matters that don’t fit neatly within one of those two boxes of, you know, PE M&A capital markets type stuff.

    Patrick: It’s safe to say that Grinspoon Marder is not a boutique, but it’s got that feel and responsiveness and passion of a boutique but with all the leverage and all the services and all the resources of the larger firms.

    Sander: Absolutely. I love it when you sell me.

    Patrick: Well, let’s go over this transition over to your piece, okay? Because that was one of the other predictors out there, the reflex prediction out there was there’s going to be just the M&A field will be exclusively distressed, you know, bankruptcies and distressed assets out there. And that’s all that we’re going to see across the landscape.

    And in your piece, you go ahead and you go contrary to conventional wisdom, and you just say, you know, unlike what a lot of people are saying, this COVID-19 this is not a black swan, okay? And, you know, you do this uniquely because, again, you didn’t have some positive thinking, hopeful aspirations out there. You actually looked at the past and found key markers in the past that could lead to what could happen in the future. So let’s talk about that please.

    COVID-19 Not a Black Swan Event?

    Sander: Well, sure, you know, it’s, I’ve been doing this long enough that, you know, I certainly can still remember the financial crisis of 08 and 09 and can draw parallels that I’m sure many others are drawing as well, you know, with the current situation. And, you know, Professor Nassim Taleb who actually coined the phrase, the black swan, in his book that came out, I believe, around the time of the financial crisis.

    I think it was either right before or, you know, even during the financial crisis. You know, this term black swan has kind of become something that means a little bit, it means whatever you want it to mean, right? It’s, and a lot of people use it as just sort of a, you know, what’s the Black Swan event of this year? Well, Taleb himself, you know, the idea of the black swan is that it’s a highly unusual event. It’s something that’s really unforeseen and one that can have very, very dramatic consequences.

    And I think from his perspective, as an investor, he’s looking at it more from the perspective of risk, right? Fail risk and the like. But he, I was kind of, I found it curious because I saw him talking about the Coronavirus and the government’s responses to the Coronavirus. And he resisted calling it a black swan. And the reason was, he said, Look, a pandemic is a highly predictable event. We’ve had these before. We know what these things are all about. So in other words, he sort of chafed at the notion that this would be thrown in as a black swan.

    Now, part of his perspective there candidly, may have been because he has previously written about the risk of a global pandemic and kind of lumps himself in with Bill Gates and some others who have talked about a pandemic as something that systems, you know, his whole concept, I’m not, I haven’t read all of his books, but this whole antifragile concept for you, right, where you want to build some robustness into systems. You know, one of his observations is that, hey, you know, we have this interconnected global economy with supply chains and the like, and it doesn’t take a whole lot, you know, for it all to come crashing down.

    But from my perspective, you know, looking at the parallels between the financial crisis of 08 and 09 and the current situation, once shutdown started to happen, it seemed obvious to me that there was going to be a dramatic economic effect. And we could look to 08 and 09 to maybe remind us about what was going to come next. So that’s kind of the premise there.

    I’m not sure really think too much about whether it would be called a white swan versus a black swan. You know, that doesn’t really do too much in my world or yours. It’s really, you know, how significant is this? You know, what are the winners or losers going to look like? And then how do we, as deal professionals, position ourselves to provide the services to our clients that we would like to provide going forward? What are they going to be doing? And what are we going to be doing to help?

    Patrick: What were some of the steps that were taken or not taken in the wake of 2008, 2009 that served to be lessons for investors and deal makers now?

    Lessons Learned From the 08, 09 Recession

    Sander: Well, one of the things that really struck me about 08 and 09 was that the dramatic shift in sentiment, particularly in the financial services industries, but really, across the board was so significant that it really created a lot of opportunities. And when we look at 08 and 09, at least when I look back at 08 and 09, there’s a lot of writing about the folks that predicted, to some degree, the crash and the decline in real estate prices, the resulting impact it would have on all sorts of different financial products that were associated with real estate.

    So, you know, we focus on books like The Big Short, right? And the movie that came out about the same events. We look at, you know, folks like Kyle Bass and others, and there’s a bunch of folks that figured out how to make some very timely bets before the crisis to profit from the decline, but I think there’s been a lot less in the way of press devoted to the folks that came in, I can’t remember who the famous investor that said, you know, the best time to buy is when there’s blood in the streets, right?

    There was certainly blood in the streets in 08 and 09, and some people were able to take advantage of that opportunity and make some pretty significant gains. So, you know, in the article, for example, I talked about Oaktree went in and they put a really significant multi-billion dollar bet on corporate debt.

    And, you know, one of the co-Chief Investment Officers of Oaktree, I guess, was quoted as saying Look, this is either the greatest buying opportunity in my career or the world is gonna end. And he kind of reasoned if the world was gonna end, you’d have bigger problems anyway. So he decided to take advantage of the buying opportunity on behalf of his clients and did quite well. And there’s a couple of other examples of people that made, investment professionals have very timely bets. I think Leonard Green made a minority investment in Whole Foods.

    Again, and there was I think the other one that was significant and it was reported by the New York Times is that essentially the, one of the, if not the biggest wins in private equity history was this bet Apollo made on the chemical company. And what I think is so interesting to me about both of those moves is that these were completely out of the financial services sector. These are just folks that took advantage of an opportunity that presented itself because of the crisis, right?

    I mean, it was, Leonard Green had an opportunity to come into Whole Foods, presumably did the analysis and determined that this was a good time to get in at the right price. Similarly, Apollo’s is interesting because it was a distressed transaction and that they went out and acquired a lot of discounted debt and then pushed that company which is the third-largest chemical company on the planet, pushed them through a bankruptcy and then came out with an enormous return when they converted their bonds into equity.

    So to me, that was really, you know, the reason for the article, it’s okay COVID-19 has everybody inside, you know, doing Zoom happy hours and learning French or whatever it is that you do when you have downtime. But let’s think about what’s going to happen. Let the talking heads deal with good versus bad policy.

    You know, what’s going to happen in the world and how are dealmakers and deal professionals going to cope with it? What’s going to happen next? And where it really struck me that, you know, the unsung song of 08 and 09 are the people that came in, went long at the bottom and really profited. Everybody’s heard about The Big Short, people that went short at the top, and took it all the way down. But you don’t hear nearly as much about the people that came in and saw the opportunities. And so it just strikes me that we’re going to start seeing people making moves because they’re going to see those opportunities.

    Patrick: So I think the other contrast with the last recession, and I’m stealing this from somebody else, but the last recession, you know, there are all these opportunities, but nobody had money. Now we’ve got a lot of money and we’re waiting to see where the opportunities are. I mean, this was not an issue in the financial system or anything, and in the areas that you and I both work with private equity.

    There were articles about their trillions, plural, of dry powder that had been accumulating and they’re waiting to deploy it. Well, that didn’t disappear. I mean, they’re extending more resources to support their portfolio companies, but they still have quite a bit. So I think it’s just they’re going to start finding things at the right price.

    And I sincerely believe private equity is going to be the ones that lead us out. I also think that, you know, even looking back at those ventures that were tried, I mean, they were multibillion-dollar investments. And back then, a billion dollars was still pretty significant. Now, you know, you’ve got companies doing that on a strategic acquisition and it’s no big whoop.

    So there are those types of things out there. And also, I just think that, as you said, all the focus was on the people that shorted and watch everything go down, whereas every, you know, a lot of smart money was coming in, you know, buying up things at a discount. I had also pointed just recently in Silicon Valley, there has been just short of a billion dollars being raised by companies, multiple companies, five or 10 a day, but is totaling 700, to a billion dollars for the last five days, last two weeks.

    So companies are raising money, there is activity that’s happening. And so if you fall into the trap of, like you said, listening to talking heads or all the other noise out there, you’re going to join the group out there and start getting depressed. Whereas if you focus on these opportunities, I sincerely believe they’re out there. And, you know, there’s just going to be more, you just have to look for it.

    Sander: I think that’s, right. I mean, I would also just observe, and I tried to mention the article, right? It’s easy to draw analogies or parallels, but sometimes you can take it too far. And the financial crisis was just that, right? It was a financial crisis driven by, you know, the precipitous decline in real estate prices.

    And, you know, as it had that sort of snowball effect. And here COVID-19 is still COVID-19, right? It’s still a pandemic, the virus is still out there. And, in fact, what hadn’t happened at the time I wrote my article, but of course, has happened since is, you know, the stuff out of Minneapolis, right? George Floyd, the protests and all, you know, the focus on police brutality and minority rights.

    And, you know, these are all, again, very good things and worthy to be talked about. What I think COVID and some of these other things now sort of amplify, potentially at least, is the legal risk, if you will. The regulatory landscape. We don’t know, for example, whether, you know, private equity funds that have portfolio companies that took relief loans from the government. Is there going to be a law that tries to attach some sort of penalty? There’s already been some public shaming, if you will, of folks that have larger financial backers, you know, taking some of these relief loans.

    Are you going to see something along the lines of, you know, the congress tries to, you know, once again deal with, you know, screwing around with the carried interest and how it’s taxed or something that they want to do in order to try to, in their minds at least, level the playing field between the, you know, the private equity professionals, you know, the top one-percenters as they’ll probably call it, and the entrepreneurs. So, I think that’s actually where things get a little more dicey is goalposts are going to start moving and we really don’t know exactly how that’s going to shake out, right?

    Patrick: Yeah. Well, what are you telling your clients? If there are, those that are anticipating or were looking for an acquisition target or were looking before but now are, you what are you telling them?

    Sander: Well, I think the nice thing about it is when you’re a lawyer, a lot of the stuff I’m doing is all just for fun. It’s not like people come to me for my economic advice. But the, what I’m telling people is to essentially what I’ve told people in good times and in bad, which is still be prudent, right? I mean, in other words, the, everybody that’s out there and has looked at deals and as analyzed deals, has been trained to look for the variables and handicap those, right?

    And so, we’re in a situation, it’s certainly uncharted territory to most of us. I mean, I don’t think the, you know, the quarantines, the shutdowns, love them or hate them, I mean, I’ll let other people talk about that. But certainly, it’s one of the most, if not the most significant responses to an event that we’ve seen in peacetime in our history of our country, right? So big things have happened and it’s causing disruption.

    And what I tell clients and anybody else who is interested in my opinion, it’s simply to say, opportunities are always created in this environment, right? And that’s really what the lesson was from 08 and 09. It wasn’t just the opportunities that were created before the event, but there’s opportunities created in the event. And so, you have to look at whether, you know, you can acquire debt positions in order to gain a controlling interest in a target, or whether, you know, you can make a strategic acquisition, provide liquidity to somebody in your supply chain.

    Whether you can, there’s a whole bunch of different things that people can and will look at in these types of environments. And so, and it’s, you know, it’s a good time to do it. And people who have that dry powder, as you mentioned, the private equity funds. I do think they are, you know, I doubt that they’re just going on vacation waiting for all to end. I think the good ones are already looking to see how can we benefit from this? How can we lead us out of this crisis?

    Patrick: Well, the other thing this highlights to us just when we get a big disruption like this and a shock to the system, suddenly people start worrying about risk again. Suddenly those antennae go out a little bit and they’re a little worried about it. And so when they used to not worry about risk and figure, I’m an entrepreneur and we’re going to go and we’re going to hang in bang with them, and you know, good things will happen if we think positive. Now, I think there’s going to be more of a focus and some value associated with transferring some risk or limiting risk, however, you can do it.

    And I bring that up because there’s a lot of what we do in our practice with rep and warranty insurance, is we remove the risk exposure between buyers and sellers and transfer the risk that they have to a third party, which is an insurance company. And in almost every case, the insurance company has deeper pockets than both players combined so it’s a real safe place to go and transfer risk. Because of your practice with M&A, share with me whatever experience good, bad or indifferent you’ve had with rep and warranty on deals.

    Sander’s Experience With Rep and Warranty

    Sander: You know, we do a lot of M&A in the middle market space. We’ve been particularly active in cannabis in recent months. And as you and I have talked about, right now, M&A, insurance, rep and warranty insurance isn’t an option in the cannabis space. But likely with some legal changes and regulatory changes will start to become an option.

    So in those deals, obviously, we’re not looking at M&A, or not looking at rep warranty insurance, and we’re dealing with everything your old fashioned way, right? Just hyper-focused on the language of the reps, hyper-focused on the schedules and the indemnities and the baskets and caps and escrows of their escrows and that sort of thing. In non-cannabis we dealt with rep and warranty insurance a handful of times in recent years and the, my experience has frankly been, I would say, guardedly positive.

    And the only reason I say guardedly positive is I have actually personally never, on one of my transactions where I was lead counsel, I’ve never had occasion to make a claim against, you know, against an insurer. So perhaps that’s because my team is still very focused on schedules and making sure that, you know, when they make reps and warranties, they’re not going to create a scenario where there’s actually any reason to have a claim.

    So perhaps that’s, I don’t know if that’s good or bad, but my experience has generally been positive in that the, as long as you get in early, you talk about the rep and warranty policy and how it works. In my experience, it was, actually, I think, in all cases, it was a private equity relationship that was driving the rep and warranty insurance. But as long as you get in early and you work the process, it hasn’t slowed down deals, it’s you know, everything is worked out the way it’s supposed to. I think your industry is getting it, starting to get it right.

    Patrick: I appreciate it. There are two big points that you have in that response. The importance of introducing the concept of rep and warranty as early as possible the deal, it can always be removed. I mean, my wife does that all the time where she’ll order a bunch of stuff, like we can always remove it, so don’t worry about it.

    It just slows down the deal of all of a sudden you’re, you know, 10 yards from the goal line and now well, let’s introduce this new process that the parties might be unfamiliar with. And so the sooner you do it, the better. So that’s usually helpful. Yeah. The other side on a claim side, I’m pleased you haven’t had one, the one thing that’s fearful for us insurance people is in order for, you know, the policy to quote-unquote work, a claim has to get paid. That means something bad’s gonna happen.

    And so while we stand by, you know, all the reports so far is that rep and warranty, and actually, cyber liability insurance are the two insurance products that really deliver on the claims payment, less hassle and all that. So they’ve had a very, very solid track record, which is good. But at the end of the day, I always kind of like where, well, I’d rather have an instant be reported and clients like, well, it amounted to nothing, eventually turned out it was okay. But boy, I felt good that I had this behind me just in case. So it’s kind of nice that way.

    You Need a User-Friendly Professional 

    Sander: Well, let me, if I can cut in real quick, Patrick. So I think what I would say is it’s always important in a major transaction. And, you know, as an aside, I think when you’re doing M&A, for most of us, if it’s in the middle market, it’s a major transaction for your client even if it’s not necessarily a major transaction for your firm, right? I mean, generally speaking, these entrepreneurs, this is their business.

    This is their recent life’s work if not their entire life’s work. And so for them, rep and warranty insurance is a significant benefit to them to just sleep better at night knowing that their deals close and they have something behind them if something, they have an insurer behind them if something goes wrong. For deal professionals, I think the real key is interacting with experienced folks like you when it comes to products like this because even though I’ve done a number of times in my conversations with you, I’ve learned more about it and how it works.

    And you really, I think you need a user-friendly professional to help keep that piece of the deal on track, right? Because, again, it’s one of those things where the deal professionals don’t necessarily think of it as, they don’t plug the insurers into the whole deal. They do their deal and then they like to sort of dump it all on the insurers. But the reality is if you’re on a deal team and you’re getting a deal done, you’ve got to loop in those folks early and proactively because then, number one, you don’t have any surprises, number two, you have a better product. In other words, you have a much higher likelihood of a successful claim if one needs to be made.

    And then number three, you don’t have any problems getting the deal done, right? You don’t run into any issues at the 11th hour that caused you to have to delay closing or reprice or do whatever. So that’s what I think is the good reminder for entrepreneurs is, you know, rep and warranty insurance in particular, highly specialized, it’s a niche market and you need to have the experienced professionals helping you. And it’s worth the investment and it’s worth, you know, getting them on the phone early.

    Patrick: I’m going to stop it there and just say I couldn’t say that any better. So we’ll go with that. Those are words to live by, folks. Sander, as we’re going through, we’ve had this, you know, sell in place now for a while. We’ve been seeing a kind of as we’re recording this, we’re opening up and then we’re having some, you know, we’re stubbing our toes, you know, Texas, in particular, and some other places, as the rollout isn’t going as planned and cases are rising. So there’s a lot of fear out there. Give me your idea just based on where we are today, and this is midway through 2020, what do you see for M&A?

    Sander: I think it’s going to accelerate, for sure. I think, look, you know you’ve had at least one pretty sizable transaction that was reported. You’re in the gig economy space and you’re delivering product to people that are holed up in our homes right now, your valuation has certainly benefited from this, right? And, you know, the door dashes and the like. The, like it or not, as hard as it will be for our policymakers will try to create rules to mitigate this, but there will be winners and losers and always are in these sorts of things.

    It’s just an unfortunate fact of life. And so, I think when it’s amplified like this, and this one, I don’t think I’ve seen anything amplified to this degree, right? I mean, if you’re a Spinal Tap fan, right, this one goes to 11. This is going to be because, only because, you know, major, the world’s major economies just stopped for a couple months, right? And even as we get back, moving again, it’s very uneven in how it’s happening and there are likely to be additional waves of the virus, right?

    It’s likely from what I’ve read, there’s seasonality. And like I said earlier, I think there’s going to be a lot of tinkering with the law. So to me, what would slow things down is legal and regulatory uncertainty because certainly, if you’re a private equity fund, you got money, you’re looking around, you just want to make sure that you don’t do something that turns out, in hindsight, with legal or regulatory changes to be a really dumb move.

    But I think what is driving it is frankly, just going to be pure necessity. I mean, things are so different now. You know, huge numbers of tenants, both residential and retail haven’t paid their rent in the last X number of months, you have a huge number of debt payments that have been missed. We got a lot of very significant bankruptcies. I read that Microsoft is going to close virtually all of their retail stores. You can just see how this stuff starts to ripple, and so you will have folks that can come in and buy an asset that has been devalued temporarily.

    And I think it’s, they’re not all going to be, you know, record-setting valuation deals, but I think the volume is going to go up significantly, probably starting in q3, but certainly by q4. I gotta think we’re going to be just seeing a whole lot of action, as will you, right? It’s just looking at the macro aspect of it, right? I mean, because, again, you’re gonna see a lot of, we’re seeing big bankruptcies already, a number of significant ones, right? And so, those are going to be dealt with in some degree, which will involve significant strategic transactions, whether it’s M&A or something else, right?

    But it’s so, to me, it’s so big. It’s so significant. It really, it affects virtually everybody, right? Virtually all companies are going to be affected to some degree. And so the question is, do they just sit still and wait it out? Some will. But I think a lot of others will realize that they have to either combine with somebody, shed some weight, right? A lot of stuff is going to have to happen because it’s just so significant. There really isn’t gonna be an option to wait it out for a lot of folks.

    Patrick: There are companies that are good before the pandemic, they’re probably going to be really good after. And coming from California where you guys are or up here in Silicon Valley, I mean, literally every company here is for sale. And it’s just a matter of time and is going to come around. So we will see what happens, but Sander, again, I greatly appreciate the piece that you put and just great perspectives here. And it’s always nice hearing, you know, from a variety of forward thinkers out there. Now, how can our audience find you?

    Sander: Sure. Well, and by the way, thank you for reading it and paying attention. It’s always nice to know I’m not just writing to an empty audience, right? I have at least one fan. Listeners can find me certainly at our website, Greenspoon Marder. Just google Greenspoon Marder or go to First name Sander last name Zagzebski with a Z, ZAGZEBSKI. So listeners, it’s not too hard to find me on the website. And then you can also, you can reach me by phone 323-880-4525 is my office line. Email is I think I’ve given you everything. The easiest way to just get online. That’s how you find everybody these days.

    Patrick: If you went to the website and they looked up attorneys by name, are you the only Z in your office?

    Sander: No, no. Look, we have 240 lawyers so I think we have four or five people with Zs. Actually, my, the head of our entertainment practice in Miami, Lesley Zeagle is actually behind me. I can’t even say I’m the last person on the list. But yeah, if you click on the Z on the far right, you know, you’re not gonna, you’ll find me pretty fast. I’m in Los Angeles. So, you know, run the corporate practice on the west coast and, you know, M&A, strategic transactions, private equity venture, that’s our life, right?

    That’s what we’re doing. We’re not going to stop doing it just because times have gotten tough because a number of the folks in our office, including myself, have done quite a bit of deal-making when times are tough and I think you will too, Patrick, because it’s, you know, your world, M&A, you know, in the M&A world, rep and warranty insurances is kind of become the standard for certain types of deals.

    And the only thing I would say to your listeners is, because I’ve sort of made this mistake myself and you kind of, you called me out on that a little bit is it’s not, the product is getting good enough and the process is getting efficient enough that it makes sense for deals that are much smaller in size, then, you know, we would have considered rep and warranty insurance for say two, three years ago, right? So if you got any deal that’s over, what would you say people should call you if the deal is over 20 million? Or what’s the

    Patrick: Over 10 million? I mean, it’s that small. And saving on a 500,000 or a million-dollar escrow by having a policy instead. That’s a lot more for some than a $100 million deal.

    Sander: Oh, 100%. I think it smooths things out, right? It doesn’t obviously eliminate the need to have good deal professionals put the deal together. Certainly, as with anything in insurance, you’d rather not be making a claim than having to make a claim. And so you still need to run through the process, but your clients, in particular, will love having that assurance. My experience has been the private equity folks have embraced it. And since they tend to set the deal terms for the industry and determine what’s quote-unquote market or quote-unquote standard, it’s now de facto standard to deals that are, you know, in the middle market.

    Patrick: Great. Sander, absolute pleasure having you. We’ll be talking again.

    Sander: Sounds good. Thanks, Patrick.

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

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

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

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

    Tune in to discover…

    • How rep and warranty insurance has changed the game
    • Avoiding “extra” tax liabilities as a seller – and how counsel can help
    • The biggest mistakes companies and founders make with IP
    • What the future of M&A looks like in a post-pandemic world
    • And more

    Listen now…

    Mentioned in this episode:



    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Louis Lehot, founder of L2 Counsel. L2 Counsel provides practical and commercial deal lawyers for founders and their investors. L2 is focused on legal strategies and solutions that make sense, which is really important when you’re getting into some complex deals.

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

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

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

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

    How Louis Got to This Point in His Career

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

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

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

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

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

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

    Every Company is a Technology Company

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

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

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

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

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

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

    Structures for Exit Plans

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

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

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

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

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

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

    Patrick: Grabbing the talent. Yeah.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Intellectual Property Acquisition Red Flags

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

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

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

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

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

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

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

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

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

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

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

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

    Who is L2 Counsel’s Ideal Client?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Patrick: You do the same.

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

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

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

    We chat more about Strait Capital, as well as:

    • The importance of partnership
    • Common challenges for clients in the middle market
    • What type of clients Strait seeks and why
    • M&A trends in light of COVID-19
    • And more

    Listen now…

    Mentioned in this episode:



    Patrick Stroth: Hello there, I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Laura Simms, who handles business development at Strait. Strait is a fund solutions provider offering a full range of financial solutions to hedge funds, private equity, family offices and alternative asset managers.

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

    Laura Simms: Patrick, thanks for the opportunity.

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

    How Laura Got to This Point in Her Career

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

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

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

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

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

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

    Patrick: That’s a lot of growth.

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

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

    All About Strait Capital

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Laura: Absolutely.

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

    Laura: That’s absolutely correct.

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

    How Strait Helps Their Clients

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

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

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

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

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

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

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

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

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

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

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

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

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

    The Ideal Client for Strait

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

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

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

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

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

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

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

    Laura: That’s right.

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

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

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

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

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

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

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

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

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

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

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

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

    M&A Trends Amidst COVID-19

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

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

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

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

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

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

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

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

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

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

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

    Laura: Yes, that’s right.

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

    Laura: Thanks, Patrick.


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

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

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

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

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

    Tune in to find out…

    • Why credit insurance is a powerful tool for private equity
    • Services credit insurers provide that will surprise you
    • How credit insurance fits in with M&A
    • The biggest mistake companies make with credit insurance
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there, I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Jo Bennett-Coles, Managing Director of the global finance leader FGI. FGI’s slogan, no deal is too complex and no market is out of reach. Jo brings a wealth of experience in a specific field of finance that will play a significant role as companies look to recover from COVID-19.

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

    Jo Bennett-Coles: Thank you, Patrick.

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

    How Jo Got to This Point in Her Career

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

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

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

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

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

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

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

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

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

    Why it’s Going to be Different This Time

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

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

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

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

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

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

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

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

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

    The Lowdown On Credit Insurance

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

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

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

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

    Patrick: In other words…

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

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

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

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

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

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

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

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

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

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

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

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

    Credit Insurance and M&A

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    FGI’s Niche

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Alex MacLaverty | Solving Business Challenges With Communications
    POSTED 7.14.20 M&A Masters Podcast

    Communication is vital during an M&A transaction, on both sides, externally and internally. Clarity is a PR firm that works to help companies get through the deal, from media relations to crisis management.

    It can be a stressful process… and certainly not the time to “wing it.”

    As Alex explains, they use a change management model called ADKAR to shepherd organizations and people through times of transition, get buy in, and make sure new policies and procedures “stick.”

    We get into detail on that, as well as…

    • Strategies for integrating vastly different company cultures (and customer bases)
    • COVID and post-COVID communications strategies
    • What they do when deal details leak
    • How they balance confidentiality and the need to share information
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined again by Alex MacLaverty global COO of Clarity PR. Clarity PR defines itself as an agency with a heart of a startup, working with rebels and Titans. We take risks, solve problems, learn, adapt, and deliver fearless global communications.

    This is the second of two conversations I had with Alex discussing the role of communications in mergers and acquisitions. In the first conversation we had, Alex talked about the role of communications for Clarity PR as its own strategic acquire itself where it has had a number of acquisitions and we’ve talked through case studies of what she did. To find that recording, simply go to Google, Apple iTunes, look up the podcasts and just search for M&A Masters and you’ll find it. M ampersand A Masters.

    It’ll be there, it’s the only one out there. Today we’re going to discuss the best practices for communications both internally and externally for participants in an M&A transaction, and this is where Clarity provides the role of advisor on holding the hand and shepherding the parties through this process. Communications in M&A are absolutely critical, particularly when you consider how much confidential sensitive information is being handled by a limited number of parties and how do you get that message out as other parties are added to the process. So it’s not as easy as it looks as I like to think. Alex, welcome back. Thanks again for joining me.

    Alex MacLaverty: It’s a pleasure to be back.

    Patrick: Now before we get into the nuts and bolts on what Clarity PR does in terms of communications for others in M&A, let’s get a little context. Tell us about Clarity PR itself.

    Who Are Clarity PR and What Are They All About?

    Alex: Well, thank you for the introduction. I think you said a lot of it already actually, which is great. Saves me a job. But to give you a feel for us, Clarity was an agency founded specifically to bridge the gap between the very large multinational agencies that you’ve probably all heard of, and the sort of small local boutique agencies and we like to think that we are in the perfect spot where we’re not too big, not too small for our clients.

    We’ve got offices at the moment in London, New York, San Francisco and LA. So we serve, obviously, the US market and Europe out of London. And we’ve got partners across the world as well that we work with because obviously, a lot of comms needs to be handled in multiple markets these days. But we really focus on tech-enabled companies.

    Not usually the biggest player in the markets, we tend to sit very well to the heart of a startup filled with challenges. So, some of the companies that are doing the most disruptive, innovative things in the market and really looking to challenge what’s out there already. And we specifically enjoy working with clients that have exciting stories to tell where there’s a really positive change coming out of the work that they’re doing and we’re able to bring that to life.

    Patrick: And this is more than just press releases too. This is also going to be internal communications on how you go ahead and get messaging internally through, and then with the counterparties and so forth.

    Alex: Yeah, absolutely. Yeah, sorry. We cover everything from media relations through to content marketing, digital, social, internal comms, crisis management, of which there is a lot in M&A as you know, and everything in between. So we tend to enjoy a very privileged position as advisors on sort of business strategy as well in a lot of cases because we get to deal quite often with, directly with a CEO, particularly in mergers and acquisitions.

    Patrick: Let’s look at what we’re doing with communication specifically in the world of M&A, okay? And I, and you and I’ve had this conversation before. The communication is a skill set that a lot of us take for granted because particularly if you’re in the professional field, we believe we’re communicating all the time. We either spoken or written, we’re constantly using sophisticated language and, you know, being aware and getting out there to a whole lot of people.

    And that’s not the same skillset you need when you’re dealing with, you know, highly sensitive, confidential information and being able to get it out at a measured time, particularly in the case of an M&A situation. You really can’t wing it. And you guys don’t. You’re not improvising on this on the fly. You go ahead and you have a real set process. So could you briefly go over that process that you use for the, I guess the hierarchy of the communications?


    Alex: Yeah, absolutely. I mean, the most important thing is to take a look at the whole picture of what you’re trying to achieve with the deal and then work back from it. And I think it’s very easy for communications to end up siloed in individual departments or with individual people. And so our role is really to take that overview of the whole process so that we can make sure that everything’s been joined up and is working consistently.

    There’s a process I talked about on the last podcast, which is the ADKAR model, ADKAR, which is, we’ve used for many years with great success, which just really acts as a reminder of the different processes you need to go through. It was devised for change management. So if you think of a deal as a process of change, both for the individuals being impacted, for the market, for the businesses as a whole, it seems to work well in terms of making sure that you just check off everything you need to. Just to recap very briefly, the first step one, that is awareness, so making sure that the parties involved have an understanding that there is a need to change.

    The D is the second step which stands for desire, which is actually inculcating in the people involved this desire to have that change happen. So for a positive outcome, and it’s only at that stage that you then start to impart the knowledge, which can take the form of training or communications to the team so that they really start to understand what it means for them and how they’re going to be working with it. The A is the ability, so giving them the toolkits they need to apply that change. So that could be equipping sales teams with new materials, it could be doing some of the sort of operational and logistics side of things.

    And then the R stands for reinforcement, which is obviously, just making sure that once the change has happened, you don’t just assume that it’s stuck. And it’s about going back again and reinforcing that awareness and that desire for the change until you feel like you’ve got a properly integrated business once again. It’s a very helpful way to navigate the uncertainties and the kind of scariness I think for lots of people involved either, you know, at a senior level or at a sort of junior level, in any kind of change. And it certainly helps to inform our communication strategies when we’re working with clients.

    Patrick: So what I like about this is that this isn’t just composing a press release announcing a deal. There’s got to be a way that you are ensuring that the deal ends up with a post-closing integration process that’s successful. And in order for that, and I love how you guys frame this, is this is all about change, and that people have to be aware of the change.

    They’ve got to understand, not only understand it, but then actually want it before you spend a lot of energy-giving them the skill set and the tools to move forward. If they don’t want it, you could have the greatest training in the world and they’re just not gonna buy into it. With mergers and acquisitions, we got issues with confidentiality and, you know, it can go big swings, depending on the parties in place, and the sensitivity of the information. How do you balance the need to make people aware and confidentiality?

    When Details Leak…

    Alex:  it’s a gray area to focus on because it is a very tricky one. And I think there is something in human nature that means when you know a secret, you really want to tell everyone about it. And particularly when you’re excited about a deal, I think people find it very hard to keep it to themselves. Particularly with the workload that involves, you know, people just have a need to share, which obviously isn’t always the most sensible thing to do.

    Obviously, it’s critical that you observe the terms of any deal and keep things confidential when you have to. I think there’s a few challenges specifically around that. One is that usually the most senior people in an organization seem to feel that that rule doesn’t always apply to them. So some of the most interesting challenges I’ve faced on the communication side of things has been from a CEO letting it slip to somebody who’s a friend in a club or whatever.

    And we’re the ones I have to pick up the pieces on that. Journalists are very good at getting, thinking they can get information off the record when obviously, if the information is interesting enough, then nothing is off the record. So keeping things to yourself is always a bit of a challenge, just generally. Where I see our role is really in having taken that bigger view of what the challenges are likely to be and what the communications considerations are, is trying to get involved as early as possible in the tabling of the deal and the discussions around what can and can’t be said so that we are in a position to try and influence that for the best.

    Experience shows that the earlier you can start to bring people along on the journey with you, the better the outcome. And therefore if we can put certain, you know, opportunities in place to start getting a team up to speed with the fact that change is coming, even if we’re not able to discuss what that change might be or speak to the media about plans and ambitions so that they’re getting warmed up, ready to accept a change in circumstance and that usually really helps us out and helps the client out in terms of getting the outcome they want.

    So we try to get involved as early as possible. I think the other thing is that you need to have a very clear comms plan so that you can be agile, because you never know, as we’re discussing, when something’s going to come out. So the comms has to come right at the beginning of any planning. It’s not an add on, it’s not a secondary thing. We’ll figure that out once a deal is signed.

    We like to get involved as early as possible so that should something go awry, we are able to kick in with a plan straightaway. So I’ve had an example where the deal was leaked to an employee who then told the rest of the staff. And so obviously, luckily enough, we had a, we had the commerce plan ready so we were able to kick in straight away. We had that email prepped from the CEO explaining what was going on. So with a few quick tweaks, we were able to address that situation immediately. If we didn’t get organized so far in advance, that kind of situation can be very easy to mishandle.

    Patrick: Yeah, that gets real difficult too because if the message gets out and you’re scrambling and you’re not prepared to respond within less than 24 hours, I can imagine the narrative has been written. Why don’t you, because that’s always a real big issue is dealing with the employees because obviously, they’re going to hit the panic button. Their first survival instinct is what about me and my job and so forth. So I can imagine a lot of things like that happened. Talk about a couple of cases where, as you alluded to just now, where your services come in and impact the deal. How does what you do benefit clients?

    Alex: I’ll give you a couple of examples naming no names. But to give you one example, so there was a client that I worked on who were very well known in their market kind of tech brand, but they were very, very cool in their space. They have a lot of fairly a sort of gang of followers, if you like, among the tech community. So quite geeky. They like to get the sweatshirts. And they go to the events and they were seen as a real sort of challenger in the space.

    And that company was being bought by a very large, very established, quite boring, definitely not cool, larger tech player. And so the challenge, obviously, from the outset was how do we bring their fan base and their client base along which was a key reason for the acquisition without disenfranchising them because we knew that as soon as they heard who they were, you know, who they were being bought by, they were going to be kicking off all over social media and, you know, saying terrible things. So

    Patrick: Were those sellouts?

    Alex: Absolutely, absolutely. And so there was a lot of stock in being able to secure that fan base on that client base, because obviously, if that goes, then there’s much less point to the deal. So we started working in the very early doors to make sure that we’ve got the messaging, right. We worked with, on a very confidential basis, with a couple of influences who we took into the confidence of the deal and we were able to actually run ideas past. And so we’re able to use them as a sanity check on the messaging that we’re using.

    They were able to advise us on points that may be as non-geeks, we hadn’t thought about things that would resonate with the community and things that wouldn’t. And so we ended up with a commerce arm which was quite different to a lot of the client-focused plans that we put together, normally, and this one involves a lot of roadshows and events where we’d actually go and meet the fans, you know, in a sort of comfortable environment for them. We media train the CEO of the acquiring company specifically, told him what to wear so that he didn’t allow them with his suits and his, you know, monogram shirts.

    So we turned that down a little, and also looked a lot more at things like social content. We produce some animations for them to use to kind of get the right write messages across so that people could understand why this change was happening. And that was a really useful way to do it because we were getting the inside knowledge, which was obviously very helpful to create the right messaging platforms. But also, we’re able to really get the content to the place where the fans were able to understand why the change was happening And we’re able to sort of, they were never 100% happy with the deal.

    I think it was hard to convert everybody. But the client drop off rate was very low. And, you know, we were reliably told that that was a lot to do with the way that we’d handled the client taking the customer base with us. It’s great when we get given a lot of free reign because, you know, the more client leans on us, the better able we are to serve them. When we’re just told we need a press release on this, it’s never going to end well. Whereas if we’re able to get under the skin of all the different challenges, we can put together a much more comprehensive program for the client.

    Patrick: Give me a profile. What’s an ideal client for Clarity PR?

    Alex: The clients that we like to work with are, tend to be more in the scale upside of things. They tend to be very progressive, usually challenger brands in their markets doing something disruptive, as I said. The key thing is that they have a really solid business challenge and they’re there looking for a partner in overcoming that challenge through communications. As I say, I think things, relationships where we’re expected to just put out press releases for any agency, that’s never a particularly inspiring role and I don’t think it creates any value for our clients.

    And so the best clients are the ones that will allow us, will sort of give us the keys to the kingdom and allow us in to spend time with the team to really get to grips with what their challenges are, and then give us free rein to put some proposals in place that will help to address those. But tech is a fantastic space. And luckily, there’s no shortage of exciting businesses in that space. So we’re very spoiled, particularly at the moment, because technology is just such a hot area. So it’s great to In such a vibrant kind of marketplace at the moment.

    Patrick: And I would say there’s no industry with a more glaring, I’m not going to call it weakness but a glaring non-strength is human chain of communications within technology. And so I think that’s an ideal fit for where you bring in the softer side, the people skills and that fun stuff. When you’re onboarding, let’s talk about timeline, what’s the usual life cycle for you, particularly in an M&A situation? Okay, how long in advance should they be talking to you? Or can you get up and running quickly? Give us an idea of what the onboarding process looks like.

    Onboarding at Clarity PR

    Alex: It’s possible to get started very quickly. There are some shortcuts to this kind of thing. But my recommendation is always that as soon as you think there’s a deal about to be, you know, a deal in the pipeline, then bring us on board. Ideally, you know, when you’re at the letter of intent kind of stage, that’s a great time to be starting to talk to us because we can help them form the process from there. You know, obviously some clients, this is a regular thing for them in the tech space.

    There’s something happening, you know, every other month, whereas other clients who may be that they literally just suddenly decide that they need some comms help because they’re about to do a deal. So we’d be important on both kinds of things. But the main thing is to invite us in as part of the team. You know, if we can have a seat at the table, we can understand the challenges that are going through among the people that are discussing the deal and are working through the processes, then that gives us, as we were discussing earlier, a huge amount of insight into where the problems might crop up.

    And there’s a, you know, there’s a lot about comms and I think people think that Oh, if you’re a publicist, you’re always about talking about the good news. That’s the really easy part. And the bit where we add the scale is identifying the tricky questions, the challenges we’re going to get from the media, the what about this? What does this mean? Why don’t you talk about this? So the quicker we can start thinking about the difficult questions the more we can help you avoid getting those questions in the first place.

    Patrick: Have there ever been any problems with communications where the message isn’t going to be good and as the buyer is considering a deal, as they’re looking at it and we’re talking about potential problems, how are we going to communicate these problems? Communications ever talked anybody out of the deal?

    Alex: Very good question. I’m gonna have to say no, in my experience, simply because I don’t want to be seen as a bad luck charm. But it does raise some very interesting questions. And I think that’s the other thing about having an independent person in the room in some of those conversations is that we can bring that independent perspective.

    We don’t have a financial stake in these deals, but we can put ourselves in the shoes of your employees, in the shoes of your clients, in the shoes of the media. And it almost gives us a license to ask the question. So quite often, other people in the room maybe want to ask but they don’t dare to. And so I think there’s also value in bringing that sort of outsider perspective to the table so that you can get all of these things ironed out ahead of the deal.

    Patrick: Wow. Well, as we’re sitting here talking now, we’re hopefully on the downside of the COVID-19. And there are already conversations about ramping up for businesses returning to work and so forth. If you can share with us, what are your projections for the future either with M&A, with communications for Clarity, you know, what do you see down the road probably, you know, late third quarter and beyond?

    Post-COVID Communication Strategies

    Alex: That’s a great question. And that’s what we’re spending a lot of time thinking about at the moment and working with clients on is what comes after COVID. And I think no one knows yet quite what that’s going to look like. But it’s definitely worth putting some thought into it at this stage. A lot of our clients, they’ve had to change the way that they communicate through this crisis. Some have stopped and doing other things. Some are doubling down on what they want to be saying.

    And some are obviously just changing tact, completely changing their messaging. So I think there’s going to be a period of settling down after this. And I think, you know, there’s still quite a lot of deals around. And as I said, we’re very lucky to be mainly focused around the tech sector, which is, there’s still a lot of deals going on. It will be interesting to see what happens once the deals that are currently in the pipeline have sort of made their way through.

    But I think certainly from a commerce perspective, there’s going to be a lot of regrouping and remessaging. I don’t think any of us can expect things to go back to exactly how they were pre the virus, and therefore, the way that we approach deals, the way that we approach communications, I think there’ll be a naturally a lot more caution, but also a willingness to kind of get back on and get back up to speed quite quickly. So it’s going to be an interesting time, I think, all around.

    Patrick: One other thing I want to just impart with the audience real quick and why I’m so pleased to have you, there was advice that I heard a father give his son who was a technology, very well educated in tech and was doing, he was on a good fast track to success. And his father insisted that he get a job, summer job either at a Starbucks or at just someplace where he had to talk to people. And the son, you know, stereotypical tech introvert guy, very, very sharp, nice kid just didn’t have the people skills.

    But the father said, you need to get out there and be with people and communicate and learn how to do that. And the son objected. And the father said, Look, the best ideas and the ideas in a boardroom that get listened to and your bosses out there, they’re going to promote, not, they’re not always promoting the smartest person in the room. They’re going to promote the person who has the best message who can pitch their idea most effectively.

    And so you can’t understate the value of communications. We’re human beings. This is, you know, everything happens with humans until artificial intelligence takes over. So I can’t stress that enough in the great work that Clarity PR does. And, you know, I wish you all the success. And thank you very much for joining us today. Alex, how can our audience find you?

    Alex: You can look me up on LinkedIn or give me an email at It would be great to hear from anyone.

    Patrick: Yes, some of us are visual. We say dot com by habit. It’s Alex, thanks again and we will talk again soon.

    Alex: Thank you.

  • Alex MacLaverty | Effective Communication in M&A Transactions
    POSTED 7.7.20 M&A Masters Podcast

    Clarity is a public relations firm that offers communications strategy, positioning, marketing, content creation, and other services to companies in the fast-moving world of global business.

    As Global COO, London-based Alex MacLaverty guides the growth of this ambitious agency. Part of that growth has been through recent strategic acquisitions of complementary PR agencies.

    Alex explains why they chose those specific agencies, how it will change their business, and why they had never met the team at one of the firms before the sale.

    We also talk about how they handled integrating two teams when they bought the other firm so that they had a running start when the deal was signed.

    In both cases, Alex and her colleagues were guided by a change management model known as ADKAR.

    In our talk, she explains the five parts of that strategy and why it’s key to follow in times of large-scale changes in an organization to ensure all the key players have the right mindset going forward.

    Tune in for all the details on that, as well as…

    • The biggest drivers of their strategic acquisitions
    • How they prevented client attrition
    • Why they don’t forget the people side of acquisitions – and how that impacts operations
    • What they do to get buy-in at a “deep level” from new team members
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Alex MacLaverty, global CEO of Clarity PR. Clarity PR defines itself as an agency with the heart of a startup working with rebels and titans.

    We take risks, solve problems, learn, adapt, and deliver fearless global communications. I like that fearless part. This will be the first of two conversations I have with Alex as she shares with us her perspectives on the importance of communication throughout an M&M process. Today as strategic acquirer, Clarity PR has had a number of acquisitions lately. Then on the next recording, as an advisor to other buyers, both strategic and financial, Alex, welcome to the program and thanks for joining me today.

    Alex MacLaverty: My pleasure.

    Patrick: Before we get into communications and Clarity PR’s fearless communications and everything, let’s give our audience a little bit of context. How did you get to this point in your career?

    How Alex Became COO of Clarity PR

    Alex: So, I’ve got about 20 years in primarily technology and PR. I started out as a commerce consultant and then moved into agency management as tends to happen. I’ve worked in agencies large and small with some of the world’s largest tech brands as clients.

    And I’m based in London, as you can probably tell by my accent, but my role for the last 10 years has been global, overseeing businesses across the US and Asia pact. And Clarity, I mean, Clarity is a very fast-growing, ambitious agency. We’ve got offices in London and across the US. So my role now is really all about ensuring we’re set up in the right way to achieve our ambitions.

    Patrick: Well then we’re going to talk about communications a little bit later, but, you know, let’s put it in the context of communications in an M&A process from your perspective as an acquirer, not advising outsiders. But let’s talk about, you know, give us a couple examples of experiences you’ve had with being part of Clarity through various different scenarios, because not every acquisition is the same.

    Alex: No, absolutely not. And I thought I’d share with you today the examples of our two most recent acquisitions. The first was completed in around November of last year. And that was the acquisition of a complementary PR focused agency out in Los Angeles, which we plan to add as a standalone office within our US business. The second completed in around December time of last year and was of an agency that was much more focused on technology startups and digital communications.

    So most of the team we’re based in London with a few people out in San Francisco. And this deal was much more focused on integrating their team into our existing London team. So slightly different setups for each of those deals. But not only that, they’re also very different in terms of the way that we roll them out. And we sort of manage those acquisitions.

    Due to the nature of the LA deal, we had the sort of interesting experience of not actually being able to meet with any of the team on the ground before the deal completed. So we haven’t met any of the key players, obviously, we’ve heard a lot about them and all good things. And we’re very excited to meet them. But we hadn’t actually spoken to any of the people that were going to be running the business for us out in LA. And the first time I met them, it was to tell them that they had been acquired.

    Patrick: So this was big-time confidentiality at the extreme.

    Alex: Yeah, absolutely. There was a lot of focus on the paperwork, getting the paperwork all done correctly, and making sure that that had happened before we said anything to anyone. So it was a very kind of secretive process. So there wasn’t really the ability to get much done behind the scenes in terms of communications, putting together a plan for that.

    Or any of the operational side of things which obviously had to follow. So it was quite a, everything was resting on the moment that the signature happened. I jumped on a plane over to L.A. as soon as I could, and then was able to meet the team. But it was an interesting experience too because when I got there, I felt like I knew them all already.

    I knew so much about them, their business, how things were working. And of course, they’d never heard of us before. They had no idea this was about to happen. So it was an interesting, not a clash, but it was an interesting differentiated between sort of my feeling going into it and obviously, they’re feeling being on the receiving end of our attention. So it’s quite an interesting experience.

    Patrick: Yeah, there’s a lot of pressure there because this isn’t just you’re gonna have to make a really good first impression. This opening message is, Hi, you don’t know me, but we own you now. What was the challenge like? How did you guys do that?

    The Big Acquisition Introduction

    Alex: I prepared very thoroughly in terms of trying to understand as much as I could without meeting them, the team, what will likely to be their concerns, their triggers, the things that they were going to be most interested in finding out about us, but also working out the best way that I could position our business for them so that they would understand their role moving forward within it.

    It was a bit like some sort of strange blind date where I’d done all the cyberstalking and I sort of found out all the facts about them, but they hadn’t done the same on me. So was trying to make sure that it was a, still felt like a collaborative process, even though actually the deal was already done. And to be honest, there wasn’t much they could do about it.

    Patrick: I’m gonna take your analogy there, instead of a blind date, it’s an arranged marriage.

    Alex: Yes. Yeah. Totally, yes.

    Patrick: There were mechanics that go into this and we can talk about later. What about the other situation?

    Alex: So, the other deal, the London deal was totally different. From very early on, the teams were told about the plan to that we were going to acquire the business and integrate the teams. It was important to us that we did that as early as possible. I think because so much rested on the teams getting on with each other.

    But there were also commercial imperatives. There were already clients that would have benefited from the combined team that we wanted to work on. And it also obviously made a lot of the operational planning much easier and communications planning much easier when we’re able to have the teams working closely together. So, in that deal, the team that we were acquiring actually moved into our office several weeks before the paperwork had been finished.

    Patrick: Sorry, say that one more time.

    Alex: So the team that we’re requiring moved into our London office several weeks before the paperwork was done. Which I appreciate is quite unusual, quite a risky move. And, you know, it was fun. I think there’s something, you know, we’re in a very lucky position to be able to work in that way. There was a great cultural fit between the teams anyway, which was one of the big drivers for making the acquisition and we felt that the team on both sides would respond better to being brought in as early as possible getting to know each other, raising their concerns as we went along, rather than having it landed on them suddenly.

    And that absolutely proved to be the case. We did have to swear everyone to absolute secrecy. And there were some tricky moments even just having the team members walking in and out of our office in case somebody saw them and was able to figure out what was happening, some challenges around that.

    But actually, it worked out incredibly well in the long run in that we have no client attrition, no team attrition, and due to the acquisition, which is a quite normal, you know, thing to happen in these circumstances. But more importantly, the team felt like family. Once the paperwork was done, we opened some champagne, but they’ve been part of the family for the last few weeks. And so it was a very natural sort of harmonious thing to do.

    Patrick: You were already joined and it was just a formality at that point.

    Alex: Yeah, it was. It was as if we’d all been living together for years before we actually got married.

    Patrick: Yeah. The two extremes, which is great. And both of them, and it resulted in successful acquisitions, successful integration, which is evidence that there’s no one way to do these things.

    Alex: Yeah, absolutely. And, but I think it’s, yeah, both were interesting learning experiences. But I think, you know, I know which way I’d prefer to do it in the future.

    Patrick: Gotcha. There was a lot of trust involved and so forth that has to come across with this. I think that with what, you know, Clarity PR does and what you do specifically dealing with communication, that’s a skill that I believe a lot of us take for granted because we’re communicating in one way or another all the time, formally, informally. And so there’s not the same appreciation for.

    And when you’ve got situations where you have a potential volatile situation where the wrong word, the wrong tone can damage a relationship, sometimes irreparably, that’s a big balance that’s got to be there. Now it’s your profession, is communication. So clearly you’re not winging it when you do this, okay? So there’s got to be a plan in place. Is there, describe your process or your plan in assessing a situation then how to deliver communication, when, how, all that.

    Alex: So, a long time ago, now I was introduced to a change management model called Adkar, ADKAR, which I found to be incredibly useful in any number of business and personal situations actually, in terms of planning out the right way to move forward with something big that requires not just a structural change, but a behavior change, a mindset change, an emotional acclimatization.

    And that’s really been at the heart of the processes that we’ve focused on around M&A and making it successful. And it’s a really great way to make sure you bring everyone along on the journey with you. And I think what it does, and I’ll sort of explain it a little bit shortly, but what it does is it allows you to, I think when you spend so long working through a deal, you as I was saying earlier, you feel like you really know the business, you know, the people you get really into the details of it.

    But you tend to forget quite easily that the people who are actually going to be on the receiving end of all this, the people who actually work in the business, this is all new to them. And so it’s very easy to skip far too quickly to the how, the operational side of things. Okay, so we’re going to change this, we’re going to do that we’re going to move things along without actually getting their buy-in.

    And so this process just is a very useful way of reminding you at every stage that the buy-in is probably the most important thing. And if you’ve got that emotional connection and that desire to be part of the business, then you, the operational stuff kind of works. itself out. And people are much more forgiving of any glitches in how the new structure works. The Adkar model is a really good way to do that and it makes things a lot easier in my experience. So, if I just talk you through, I’ll talk you through what each of those steps is, if it’s useful. I can explain a bit more to your listeners.

    Patrick: You will have shown us and have this written out. So those of you who were driving or something listening, don’t worry because we’ll, you don’t have to pull over and take notes. We’ll have something available. So ADKAR

    ADKAR Change Management Model

    Alex: That’s right. And you can, I’m sure you can, you know, get the book and read it yourself. But it’s fairly simple. So the A stands for awareness, which is awareness of the need to change. So actually telling people, we need to make a change here for all these different reasons, which hopefully, if you do it right leads to D which is the desire to make that change. So before you even start making any changes, you’re ensuring that people understand why there is a need to change and that they really want to do it and that they’re on that journey with you.

    The K stands for the knowledge of how to change. So actually, what does this practically mean? And the A stands for the ability to demonstrate the right skills and behavior. So that’s why you’re training people up, you’re arming them with the tools that they need to adapt to new processes, systems or different offers, whatever it might be. And then the R stands for reinforcement. So to make the change stick, you can’t just do this once and then think Oh, it’s done. You know, everyone’s moved in, it’s fine, let’s just crack on with our normal business.

    The R also means that you actually almost have to start right at the beginning again, go back to the A, and reinforce with people why we made the change, what are the results people are seeing and back that up so that people really stick with these new behaviors rather than just thinking back into their old ways. It’s very, you know, everybody knows that humans don’t like change and will naturally go with the easiest route, which is usually an old way of doing things in a change situation.

    And so, what we found is that, if you can follow this methodology, it really means that everybody who’s involved on the leadership side of things in making that change happen is thinking about creating a sort of heartfelt change in behaviors and understanding and all the rest of it rather than just an on the surface, people are doing things differently, but actually, they don’t like it or they don’t believe in it.

    And if you can’t get that emotional buy-in, and that sort of heartfelt support for what you’re trying to achieve, then that’s when I believe you see the attrition. That’s when you see people going back to their old ways, non-compliance with processes or structures. It’s where a lot of these deals seem to fall apart.

    Patrick: Well, it underlines something I’ve said ever since I got into mergers and acquisitions. This isn’t Company A agreeing to merge with Company B. This is a group of people here choosing to work and join forces with a group of people over there and then the two of them coming together. And if it’s successful, the whole is greater than the sum of its parts. I like the way you talk about this where a lot of people, particularly if they’re just hearing about a sudden change and a change in job is foundational.

    I mean, look what people are going through today as we record this. When this change happens, they’re thinking, What’s in it for me? What, how is, how am I impacted? And I like the way that you outline without getting personal, here’s why change needs to happen. Otherwise, there won’t be, your survival could be at risk. So there’s this change, this isn’t being done at the whim of some executive.

    And this is, you know, we all want to go in the direction, I like to desire because you’re getting everybody to go the same direction. And then you give them the tools on how to do it and then you follow through. And reinforcement. I agree, people, sometimes a lot of us need to be reminded over and over again, particularly as you’re going through the adjustment process that, you know, it’s out there. So that’s a great plan because then you can structure the communications and you can pivot from there as issues come up, I imagine.

    Alex: Yeah, absolutely. And when problems come up, you simply start from the top again. So you start, go back to the awareness. When you see problems happening in terms of, you’re not seeing the behavior change you want to see or people aren’t getting with the new systems or whatever it might be, signs that it’s slightly unraveling, it tends to be because they don’t believe in it.

    So you have to go back to the beginning again and remind them of the need to change and try and reinstall that desire for it to work. And so I found it to be very helpful. It works outside of M&A obviously, as well in lots of other, you know, any changes within a business environment and a personal environment actually.

    Patrick: A lot of people need the why. You know, why are we doing this? And once they, whether they accept it or not, at least they understand, you know, the reasons that are supporting the change in environment, whatever. And so they go through that. So and that’s, you’re not just advising other firms about this professionally. You were doing this yourself. So if you’ve exercised these exact steps with your processes.

    Alex: Yeah, absolutely. But also advised, counseled lots of clients that this is something that they need to be doing. If you look at the way that governments are trying to get people to change their behaviors at the moment, you know, it has, people wouldn’t stay in lockdown if they didn’t believe in it. And the moment they stop believing that there’s a good reason to do it, they’ll go out again. So I think, you know, any kind of, if you’re trying to communicate effectively, it has to be to do with the heart more than the mind in many different ways,

    Patrick: Especially for those of us who had to avoid cutting our hair for eight weeks. Well then, as we’ll talk about Clarity’s, what’s an ideal target for you? For our listeners out there, I mean, you’re out there, you’re looking at PR companies, give us ideal target for what you’re looking for.

    More Isn’t Always Better

    Alex: Yeah, it’s kind of, it’s easy in some ways to say and hard in others because we’re very ambitious and we’re a very agile kind of agency. And so while we’re always working on a number of intentional strategic, very well thought through plans and deals and we’re also very open to those kind of serendipitous opportunities that just come up through having the right relationships.

    So there’s a combination of the very targeted and strategic and the opportunistic. I think currently, our focus is really on businesses that help us do probably one of four things that help us expand geographically. So give us a new location that will be useful that broaden the services we can offer that open up new vertical markets to us or that strengthen our existing teams. So there has to be ready, you know, we don’t want to do these deals for the sake of it. They have to add something to our existing business. But we look for, you know, we look for different things in those businesses.

    There’s got to be something special about them. We’re not interested in being an average agency and so we don’t want to acquire average agencies that do, you know, standard boring work. We’re looking for something a little bit special. And so there is an element of gut feel to it as I think most people who do M&A work, you know, there, you can look at a lot of spreadsheets but there has to be something that makes you really excited to do that deal.

    Patrick: More isn’t better, more is just more.

    Alex: Yes, exactly. Very well put. We’re also very conscious of finding deals that are going to be the right size for us. And we’re not a massive agency and we don’t particularly want to be massive for the sake of it. As you say, more is just more we want to so we’re looking for agencies that are going to be a good fit but aren’t going to overwhelm us. You know, that Going to be too big for us to handle or that will change the way we do things to significantly. But I’m also looking for a cultural fit.

    I mean, it’s absolutely crucial. And the work that we do communications is all about the people. So if the people bit isn’t a good match, there’s literally no, you know, you’re not buying anything. All you’re buying is a fantastic team, hopefully, really. And so it’s important to us that the fit is right and that there’s a really good match on that front.

    Patrick: Yeah. Fit’s one of those real difficult elements to identify. It’s one of those intangibles but you’ll know when you see it.

    Alex: Yes, I totally agree. And I think obviously, and then the, you know, the standard stuff, it’s got to be a good business. It’s got to be, have a great team. It’s got to have a, you know, a strong client base. All of those things are important, but I would say usually, the cultural fit almost going to clinch it as to whether we’re going to do the deal or not. Even if it was a great business, if the cultural fit wasn’t there, we probably wouldn’t go for it.

    Patrick: So Alex, as we record this, we’re hopefully in the second half, the downslope of the settle in place COVID process right now. So, understanding that things do change quite a bit from week to week, actually, I don’t want to ask you to go out on a limb there. Give me a prediction, you know, where do you see, you know, transfer M&A, transfer activity, either globally un public relations to communications or for Clarity PR. I mean, what are you seeing? And make it whatever timeline. Six weeks to a year in, what do you see out there?

    Alex: I think from our business perspective, you know, Clarity is in a really lucky position, our business is still growing and fingers crossed, we’re going to remain in a strong position. So we’re still powering ahead with a number of deals that we had in the works prior to this happening and we’re still on the lookout for more deals to be done looking ahead, I think we’re seeing something similar in the market from our clients.

    You know, we work with VCs and PEs and things like that as well, is that deals that were in the pipeline are getting done. And there’s a lot of activity on that front to close out deals that were already in the works. I think what remains to be seen is how many new deals get struck over the next few months, given all the uncertainty around. I think there is a lot of nervousness, obviously, in the market.

    So how this next phase goes, I think, will have a lot of impacts on how much, how many deals happen towards the back end of this year. I think in terms of the work that we do, you know, as a communications consultancy, there’s never been a more important time for people to have a good comp strategy and not just in terms of promoting your brand or whatever it might have been in sort of normal times.

    But as we move into, you know, global downturn, quite possibly, it’s about things like internal comms challenges. It’s about being able to handle a crisis in your supply chain or whatever it might be. It’s about communicating effectively with your customers and your clients. And the brands that get it right at this time, you know, will obviously come out of it much better at the end of this than those that bungle it.

    And I think we would be seeing larger brands suffering because of the way that they’re handling this crisis. So I think it’ll be interesting to see what that does to the shape of things when we come out the other side and who will still be standing because it won’t just be down to sort of the economics of it, demand. I think lots of it will be how businesses have treated their clients, their staff is going to be really important and obviously, commons has a lot to do with that.

    Patrick: Also, you’re gonna want to get that message out. You know, we’re back. We’re open. We’re back to business or we’re back, we may not be ready at full capacity, but be patient.

    Alex: Yes. Absolutely.

    Patrick: Those are the optimists out there. Alex, how can our listeners reach you? How can we find you?

    Alex: You can go to our website. Just And I’m, you can email me directly at Alex, And be, yeah, happy to be, to hear from people.

    Patrick: Well Alex, thank you very much and look forward to speaking with you again soon.

    Alex: Thank you.



  • Christie McFall | Upcoming Trends In M&A Post-Pandemic
    POSTED 6.30.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we speak with Christie McFall, Business Development Director of Great Range Capital. Based in Mission Woods, Kansas, Great Range Capital brings a unique combination of institutional-grade experience and Midwestern values to middle market and lower-middle market firms in the Heartland.

    “Our whole goal is to take a successful business that has a strong management team that is looking for some sort of succession plan, if it’s taking equity out of the business and slowing down, or just growing that business to the next level because they can’t. That’s one of the things that I find appealing from these businesses in the Midwest is you get to find somebody who’s talented, took an idea, and grew a successful company. But when they can say, I just don’t know how to get to the next level, and I need some help, those are the types of relationships we’re looking for,” says Christie.

    We chat more about Christie’s career and Great Range Capital, as well as:

    • Helping already successful businesses in the lower-middle market grow to the next level
    • Rep and warranty insurance
    • Upcoming trends in M&A
    • The importance of acknowledging the emotional aspect of selling a business
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Christine McFall, Business Development Director of Great Range Capital. Based in Mission Woods, Kansas, Great Range Capital brings a unique combination of institutional-grade experience and Midwestern values to middle market and lower-middle market firms in the heartland. Christie, thanks for joining me. Welcome to the program.

    Christie McFall: Hi, thanks for having me. I’m excited to be here.

    Patrick: Well, before we get into Great Range Capital which we’ll short to GRC, why don’t you tell us about you? What got you to this point in your career?

    How Christie Got to This Point in Her Career

    Christie: Yeah, so I’ve always done business development and marketing. And prior to the firm, I was at a company called UBM. It’s based out of London. You won’t find that name anymore because over the last three years it was bought and sold three times. I think it went from UBM to Informa to a company called NJH Associates. My role was when I was hired was to grow the company through M&A.

    And I was able to do that. I bought a couple of data firms and a few media companies to round out my portfolio. But in the process, they were buying and selling my group at the same time. So although I learned a lot and enjoyed the process, I wanted to stop being on the receiving end of the acquisition and be on the buying side. I really enjoy the process and I enjoy, you know, meeting new people.

    And that’s one of the biggest benefits of the role that I have is getting out into the marketplace and meeting business owners and influencers and deal brokers. And I like that a lot. I don’t necessarily love the integration part of being bought and sold, where you’re trying to figure out a new process, procedure, email capabilities, integrating your finances into a new business. So more of the operation side. I like being on the business development side.

    Patrick: Lots of ironing out the wrinkles. GRC has a real pride where they’re strong in the heartland in the region. Briefly, though, for you personally, are you originally from the Kansas area?

    Christie: I’m originally from Iowa, Des Moines, Iowa.

    Patrick: Okay. As a Californian would say, same thing. But

    Christie:  Yeah. Close enough.

    Patrick: So your travels have brought you around now. Now you’re here in Kansas. So tell us about Great Range Capital.

    What is Great Range Capital All About?

    Christie: We’ve been around for 10 years. It was founded by two gentlemen, Ryan Sprott and Paul Maxwell. They grew up in Kansas. They went to KU. They’re brothers in long so they’ve known each other since they were teenagers. And after they graduated, they both went to the east coast to learn the business inside and out.

    Worked for major firms, you know, did the billion-dollar deals. But along the way, they always knew in the back of their mind that they wanted to come back to the Midwest and felt strongly that the Midwest was underserved from a private equity standpoint as well. Yeah, a lot of people fly in, but not a lot of people actually live and work right here with the companies that are based here.

    Patrick: Huge competitive advantage.

    Christie: Very much so. And it’s really where we win. So our thesis is similar to others. We’re looking at lower-middle market companies, three to $15 million in EBITDA. Manufacturing is our sweet spot, but we’ll look at pretty much any company that doesn’t play an oil and gas or has some cyclicality to it. But the difference is we can sit down at a table and have that connection and that chemistry that a lot of folks who fly in for the day cannot have. We are, we drive there. You know, we only really look at businesses in the Midwest.

    So typically, the seven states that touch Kansas. And then we’ll go outside those seven states, but they have to be in the Midwest for the portfolio company. Add-on opportunities we may look outside of that geography, but really tightly looking at the Midwest. We drive there, we’re there in a day, we didn’t fly in our private jets. We are raising our families here. We understand the emotional decision that this is for an owner rather than just a financial.

    Listen, if it’s just a financial decision, meaning I want the highest multiple for my business, we’re probably not the partner. If you are looking, we want owner-operated businesses that are healthy and strong. Those folks usually stay involved at least for a time period and roll some equity in alongside of us to help grow the business. And we understand that that business is important to them. Their families usually work there. Lots of the people in the town or there. It’s a very big employer usually, so we are comfortable having conversations about how to maintain that business.

    We aren’t coming in to put in 10 new executives, sweep out the management team and start anew. That isn’t, our, we aren’t operators. We don’t want to run the business. We want them to run their business. We might bring in somebody who can grow it from a strategic level, either a CFO or CEO, some board members, but we don’t want to run the business. We want them to do what they do best. So it’s a chemistry conversation and it takes years, a long time to earn the people’s trust. But that’s our differentiator, which really are, we understand where they’re coming from. We can speak their language.

    Patrick: You guys have a commitment to the lower-middle market, middle market as a market segment, okay? Is that a choice? Or are you restricted just because that’s all that’s there in the Midwest?

    Christie: Yeah, absolute choice. There are so many businesses, valuable businesses here in the Midwest, we choose to focus on the lower-middle market, middle market range. for a few reasons. Obviously, you know, we like to say that we can drive to your business within a day. We don’t fly in from the east coast.

    We’re here in addition to Ryan and Paul being from KU, everyone else in the firm is from Kansas except for me, so they really went out on a limb hiring an Iowa girl. But we all are from here. We grew up here. We’ve all spent time either in Chicago, Milwaukee, Minnesota or Minneapolis, sorry. And East Coast, I was in LA myself. And we’ve all come back here to raise our families and focus on the businesses. So when we sit across the table from a business owner, you know, when we talk about shared values, we can say that honestly and mean it.

    We’re a firm based in the Midwest, we drove to visit you today. You are listening to and talking to folks that understand the value of your business. We understand the value of the employment here to the town, to the folks that work here. And we understand that this is mostly an emotional decision and not just a financial decision. And we find that that sets us apart. You know, the businesses that we target are, you know, within three to $15 million of EBITA range. We believe, you know, most of these folks are owner-operators that want to stay involved or help the business grow in some way.

    Maybe they just want to slow down and let somebody else come in and help them continue to grow that business. But it’s an emotional decision. And we focus on that size and that type of owner-operated business where we can sit down and have those relationship-driven conversations. That’s where we win and that size seems to be the most effective. We’re also wanting to be a majority owner first in on capital raise and so that seems to be the size where that’s really a typical arrangement.

    Patrick: You said a couple of things that stood out to me. And it’s the power of having focus in a particular market and enjoying that market that you’re in. One of them was that personal aspect that you’re, you’ve got boots on the ground and it supports the philosophy that I share is that mergers and acquisitions are not the combination of Company A buying and Company B, it is one group of people choosing to work and combine forces with another group of people. And when you put those together in an ideal situation, the intent is that the whole is greater than the sum of its parts.

    And so if people get together, cultures mix, interests mixing and align, it all works. And that’s usually the remedy for success. And so there are others out there, and I’m sure you’ve come across this where there are other competitors that are probably offering a lot more money than what you’d be offering but you just don’t have the fitness. One thing that’s just critical and you can’t overlook. I think the other thing is essential is that the lower-middle market is a lot bigger than people think it is.

    And the crying shame out there and the reason why we wanted to talk to you today and introduce GRC out there was that the lower-middle market is large, but it’s really underserved. And I mean underserved in a big way because if you don’t have in house core dev or you haven’t gone through a lot of transactions and you’re a founder, you don’t know where to turn. And by default, they’re going to pick the brand names, large institutions and go in that direction to seek help. And, you know, they’re going to find out that they’re going to be overlooked because of their size.

    They’re going to be underserved. They’re going to probably have somebody who’s condescending to them. And the large institutions, while they’re very large, they don’t have the bandwidth to handle the solutions or deliver an alternative to a smaller client. And so the lower-middle market company ends up getting some prepackaged solution. And so they’re not only overlooked and underserved, they exit poorer, I’ll put it politely, not as rich as they would otherwise if they partnered with a firm like GRC. So give us an example just of one of your deals where you guys added value, where that connection worked.

    Grand Range Capital Offers Honesty and a Personal Connection

    Christie: I mean, it’s hard to pick just one. I’ll highlight two. I, you know, all six of our portfolio companies are based in the Midwest. They were all owner-operated and relationship-driven deals. In Mountain Valley, Spring Water-based and Hot Springs Arkansas was owned by the JB Hunt family. All were relationship-driven.

    Met with them still to this day we, you know, we own, we just sold that company I guess a year and a half ago. still connected to that group, still send them opportunities when we see, you know, add ons for them that might look good. Fair Bank Equipment in Wichita, Kansas is owned by the Rei family. Cody Wright is the President and CEO. He’s been with that business for 20 years plus. He’s the grandson of the founder. And I think he eats Thanksgiving dinner with our two founders as well.

    I mean, these have become family members of ours talking about what we’re looking for from an owner-operator relationship. You know, it takes a few courses, you know, a few of these folks are looking to slow down. Well, they say they’re looking to slow down, they really do. They say they’d like to retire or slow down over the next three years. And the fact is, once we get in there, and the business starts to grow, half the time, they’re reinvigorated in the business and spend more time.

    So apologies to their families who they told that they were finally going to go to that lake house or that beach house in Florida and slow down because that’s rarely the case. Usually, it invigorates them to get back in the game and somehow find the energy to keep going, which is impressive. And that’s the case with most of our businesses. What they’re really looking to do is maybe take that second bite at the apple, and that’s really what we offer, you know, from our perspective. I think you’ve mentioned exiting poorer than when you started or not as rich as when you, as you’d hoped you’d be.

    Our whole goal is to take a successful business that has a great strong management team that is looking for some sort of succession plan, if it’s taking equity out of the business now, slowing down, like I mentioned, or just growing that business to the next level, because they can’t. You know, they’re very honest about that. And that’s one of the things that I find appealing from these businesses in the Midwest is you get, you find somebody who’s certainly talented, took an idea and grew a successful company.

    When they can say, I just don’t know how to get to the next level and I need some help, those are the types of relationships we’re looking for. And that’s really, when we can bring some value, and aside from just the capital, we can bring in a next-level CEO or CFO or strategy person that can grow that business. And then three, four years, five down the line when we sell that business, again, which we have, Mountain Valley, Springwater and Heartland Landscaping we sold again and those owners get another, you know, bite of that apple.

    They get another opportunity to financially benefit from the growth of their company. And that’s truly what it’s all about. We are not, you know, we’re not flying in for the day. We are here. We live here, we drove to visit you, we want to see you successful, we want to see your business grow. We all benefit from that. And it seems to be a win-win all the way around. We are connected to these folks. We deeply understand their business.

    And I would say that over the last, you know, six weeks as we have turned inward as a community and as a business, we have focused solely on keeping that business healthy and the employees that are healthy and how to see everyone through this time. I’m not on the, you know, quote-unquote investment team side. I’m on the business development side. So while they have really turned inward to focus on those companies, I have strengthened my relationships, looking to network and grow our deal flow. And people are hungry for interaction and talking. So it’s been an interesting time on both sides of the coin there.

    Patrick: With the number of deals that are going on with you, I’m curious as to what experience you guys have had with a product called rep and warranty insurance and whether or not that’s impacted you as it has. For those of you who don’t know, rep and warranty is an insurance policy that ensures the seller’s representation.

    So in the event the seller reps are inaccurate or breached, despite the due diligence of the buyer, and the buyer suffers financially rather than the buyer pulling funds from an escrow or trying to carve back money from the seller, instead they have an insurance policy that will pay the buyer their loss. Buyer gets certainty of collection, seller gets A, no escrow or very tiny escrow, and they get a clean exit from the deal. And so I’m just, it’s been a very exciting growing product throughout M&A, largely on the mega-deals. I’m just curious what experience you’ve had.

    Christie: Yeah, absolutely. I had a chance to talk to Ryan and Paul about this as well. And we’ve used it on our last two sales. We feel strongly that it’s great product. The cost is much more reasonable than it has been, you know, 10, maybe 15 years ago. So we expect to use it much more going forward. And we think the usage in general across private equity and M&A is going to just continue to increase. So we’re excited about it. It’s a really good product. Cost-effective and makes a whole lot of sense for us.

    Patrick:  Now, as we record this, we’re getting near the end, hopefully, the beginning of the phase of the reopening of America from COVID-19. Could you give us your best guess as to, or what trends do you see either globally, in the US or with GRC for M&A in the next six months to fall?

    The New Norms of COVID-19

    Christie: Sure. So I think there’s a couple of things. I think the biggest impact I see on it is truly on deal terms, specifically due diligence issues and the time it’s going to take to get a deal done. And what’s, and by no means were these deals ever quick. They take quite a few years, you know, weeks months. But I think that’s going to continue to take quite a bit of time as new modeling has to be done and things that we’ve never considered in the past are taken into consideration.

    So that’s going to have an impact. I think that the way these transactions are developed and negotiated are going to change. This is a business where getting everybody in the room literally has been a big part of the process. And I’ve spoken about it today. The relationship-driven aspect of our business is sitting across the table from somebody and making a connection.

    So that’s, we’re gonna have to do that different. That looks different. It’s technology, it’s how you and I are, are talking today. You know, the Zoom, the WebEx, the virtual meetings that, you know, not shaking hands when we can meet in person. There’s just going to be some changes that people will have to embrace. And so that looks different. From a Great Range perspective, we have a very focused investment thesis that we have followed for 10 years.

    You know, we don’t forget our roots. We don’t forget that thesis, even if something looks really great but it happens to be based in California, it’s just not a part of our investment approach. So we’ve been lucky in deal flow and continuing to see nice deals. We have based all of our time in networking and relationship-driven, not only from a deal perspective on with the owners, but also with influencers and brokers. So we’re still seeing those opportunities because we’re honest and straightforward and we’ll tell you right away, this is for us, this isn’t for us. We won’t beat around the bush.

    So we’ve been lucky to see deal flow continue. You know, and I think that’s because we have a tightly held thesis. You know, we’re only in those seven states. We only invest in the Midwest. We’re only looking at companies that are healthy, owner-operated. The size three to 15 million in EBITA. You know, those things are pretty tight and we’ve held true to that. So we continue to see some deals. So for us, it’s been okay. You know, we’re continuing to look at a few businesses we had under LOI prior to going into COVID-19.

    And we hope to continue with those businesses and close those deals, you know, within the next 90 days. So, I think It depends. I think there’s some larger private equity groups, global groups, where deal flow has come to a halt. People have backed out of some deals that were, you know, newsworthy if you will. But we’re chugging right along in the Midwest and we hope to continue knew to deploy capital. There is money to invest, and we have it and we would like to continue to see those good deals.

    Patrick:  I think that discipline, plan your work, work your plan has served you guys well. And so you’re not immune from the environment out here but you’re definitely protected against that. That would make you just a strong, vigorous, active and a solid partner for owners and founders out there.

    Christie: Absolutely. You know, we didn’t invest in distressed businesses before and that isn’t where we’re headed now. The industries we like to look at are, you know, manufacturing and distribution and business services and healthcare services. Those have been impacted certainly, but hopefully, will you know, rebound and stay strong, typically usually do. So that sets us up for a nice, hopefully, a nice future.

    Patrick: Well, I don’t think there’s gonna be any shrinking in manufacturing in terms of new ventures. And if there’s any place for manufacturers, it can be in the middle of the country, just cost-wise. You know, so I think that bodes very, very well. Christie, how can our listeners find you?

    Christie: Well, they can reach me a number of ways. So they could go to our website, which is or they can email me at And my name is spelled CHRISTIE.mcfall MC F as in Frank, ALL, Or the easiest way is probably my cell phone, which I don’t mind giving out. I’m in new business so I expect phone calls and I answer them even if I don’t know where the number’s coming from, strange. 913-952-3037

    Patrick: So if you can’t find Christie, that is your fault. Christie, thanks very much. I recommend everybody take a look at Great Range Capital. And thank you again.

    Christie: Thank you

  • Ben Mimmack and Andy Waltman | How Founders & Owners Can Benefit From Private Equity Firms
    POSTED 6.2.20 M&A Masters Podcast

    On this week’s episode of M&A Masters, we chat with Ben Mimmack and Andy Waltman, Director of Investor Relations and Director, respectively, of private equity firm Baymark Partners.

    Ben got his start in banking in London before coming to the US to attend SMU in Dallas. After completing business school, he went on to work in finance at American Airways before ultimately being brought on at Baymark Partners. Andy got his start in accounting, earning a CPA before moving into private equity at Energy Spectrum. He also went on to attend SMU, where he earned an MBA before being presented with the opportunity to work with Baymark.

    We chat about private equity and working in the lower middle market, as well as…

    • What a private equity firm can do for an owner-founder
    • How rep and warranty insurance is changing
    • Opportunities for minority investments
    • How Baymark is going about navigating the uncertainty imposed by COVID-19
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today, I’m joined by Ben Mimmack, director of investor relations, and director Andy Waltman of Baymark Partners. Baymark Partners is a Dallas-based growth-oriented private equity firm acquiring growing middle market companies, providing owners with liquidity and resources to accelerate growth. Gentlemen, welcome to the podcast. Thanks for joining me today.

    Andy Waltman: Thanks for having us.

    Patrick: Now, before we get into Baymark Partners, let’s set the table and get a little context for our listeners. We can start with Ben here, but Ben and then Andy, tell us what led you to this point in your career?

    How Ben and Andy Wound Up With Baymark Partners

    Ben Mimmack: Well, Patrick, I grew up in the UK. You may be able to tell from my accent. Although I’ve been in the US for 10 years now. So I feel like it’s starting to disappear, but I did grow up in the UK. I went to university and law school. I was very briefly a practicing attorney. And then I worked in banking in London for several years before I came to the US and went to business school in Dallas at SMU. You’ll find there’s a very strong SMU presence at Baymark Partners. And in fact, when I was at business school, I interned with David and Tony at Baymark Partners in the early days of the life of the firm.

    After business school, I went and worked in finance at American Airlines and spent the last five years of my time at American in the investor relations team there. And then when I was looking to do something a little bit different than big company, public company investor relations, the guys at Baymark called me up and said would you be interested in doing some work for us? And I jumped at the chance and I’ve been in Baymark since November of 2019. So I’m still relatively new to the PE space, but I think it’s fascinating. The kind of work we do is really very interesting. And I’m delighted to be on board.

    Patrick: So it was a safe change from loss of airline miles you were getting to having your feet on the ground.

    Ben: Yes, it’s more like real life, I would say. But given what’s happening with the airlines right now, you could say it was a very lucky escape.

    Patrick: Very good. Andy.

    Andy: Sure, sure. So, I would say I have a not a very typical background for private equity. I started my career, I came out of Trinity University about 11 years ago now. I came out with more of a typical accounting degree. Went down the Big Four path. I started at Price Waterhouse Cooper. Spent two years there in the audit and tax departments. Got my CPA, but I realized that public accounting world was just not for me. I was very fortunate. I got an opportunity early with an oil and gas private equity firm, Energy Spectrum here in Dallas, which was a fantastic firm.

    I was there for five years. That was a smaller, about a billion, about $2 billion of assets under management, smaller firm and employee size. So I think we had about 20 professionals and I was in the financial reporting group there, but because of the size of the firm, I was able to do a lot there. And after a good again, five years there, I decided I kind of wanted to get out and do a little bit more of a wide range of investments rather than just purely midstream oil and gas.

    And so I also went to SMU while I was still at Energy Spectrum. I got my MBA there. And then I went and found the opportunity with Baymark. And I’ve been with Baymark now for just over four years at the director level and I’ve been helping from everything from due diligence, acquiring companies to continue to work with those companies and our kind of portfolio development process.

    Patrick: One of the things that I like to learn about what I’m meeting private equity firms is the founders are a lot more creative than in other industries such as the law or insurance. In those companies, they usually name their firms after the founders. It’s very boring. No creativity whatsoever. You can tell a lot about a firm by how they named itself. So, you know, tell us about Baymark Partners, how did it come up with its name. Give us a quick profile.

    Ben: Sure. Well, Andy and I had to go back to our founders, David Hook and Tony Ludlow and ask them because we weren’t around when the company was named. You know, I think the true process might even be lost to history. They had to think about it for a bit, but I think it’s connected to the fact that David Hook, one of our founders grew up in Bay Village, Ohio.

    So that’s probably where the bay came from. And he spent a lot of time in the Bay Area when he was a VC investor in the 80s and 90s. So it’s kind of a reference to those two. And I think, you know, they just wanted to make their mark when they set out. So you know, that’s where Baymark came from.

    Patrick: And then the area that you guys are focusing largely is middle, lower middle market. Tell me about the area that you target there?

    Baymark’s Primary Market Focus

    Ben: Yeah, I mean, I would say we’re a middle market firm. Probably if you want to refine it further, more of the lower middle market side then true middle middle market. But any company that two to $10 million EBITDA ranges is really in our sweet spot. We like margins of north of 10%. And, you know, really in terms of what we’re looking for in industries, we love services companies, we love tech-enabled companies, distribution companies, light manufacturing companies, you know, health care, anything in that kind of region.

    But really, we’ve pretty industry agnostic. I’d say the only things we really want to take a look at our hospitality, restaurants and brick and mortar retail. Everything else we’ll at least take a look at. And I think, you know, certainly, David is very much a deal-focused individual. There’s no company out there that he at least at first glance doesn’t think he can make something interesting or do something interesting with. so we look at a lot of potential transactions, we throw them back and forth to each other and spitball whether we can make something happen.

    And that’s, for a lot of us, probably the most interesting part of what we do. And, you know, we like the lower middle market for a number of reasons. You know, the companies that are populating in the middle market really are the bedrock of the US economy. You know, these companies that just provide 10, to, you know, 20 to 30 jobs in their communities that that do very interesting work to fill, you know, unheralded niches, a lot of times that you don’t even think that companies are required to fulfill. They do this work and in many cases, they’re entrepreneur-owned businesses that are looking to take the next step.

    The people who run these companies, they know that they need to expand and grow and diversify, but they just don’t know how to do it. We love those. We love those kinds of companies because they have a lot of potential. And in many cases, they’re small enough that the inflation, the valuations are not as inflated as they are in other parts of the market. So we feel our knowledge and markets we look at, we can get some very, very interesting and good deals in the segments that we plan.

    Patrick: Well, and there’s also a lot more lower middle market companies and unicorns out there. There are a lot more unicorns that people think.

    Ben: That’s very true.

    Patrick: I sincerely believe, and the reason why I reached out to you specifically is because if you want to make a difference, okay, the place to do it is in the lower middle market. And it’s sizable and it does as you say, it’s filling a lot of needs out there that otherwise wouldn’t be filled. People won’t even know they were there.

    But they play key roles in their communities. They play big contributions for the lives of a lot more people than you realize. And it’s just not fair because if these smaller firms, they hit a ceiling, they don’t know where to go. And what happens often is they’re going to default and pick up the phone or reach out to a brand name or the institutions out there. And that is just a recipe for failure for them.

    And, you know, and I mean that in a big way, because what happens is the larger institutions are scaled up, they’ll have limited solutions for smaller clients, they’re going to overlook them, they’re not going to be responsive. Whatever solutions they do provide may not be a fit because they don’t have the bandwidth to offer multiple solutions that could help fit a smaller firm’s individual needs. On top of all that, they’re going to overcharge them.

    And so they will get less and pay more. And I have a real passion for the entrepreneurs out there and the people that started with nothing and created tremendous value. So anybody that’s out there to help get them to the next level and make them multiples of where they wanted to be, that does nothing but good. And the more that we can go ahead and highlight the presence of organizations like Baymark Partners, all the better. And so we’re both on the same page there. Let’s talk about some of the things that a private equity firm can do for an owner or founder versus what a strategic perspective suitor might bring.

    What Sets Baymark Apart From the Competition

    Andy: Sure, sure. So this is, again, this is Andy. To talk about that, you know, we’re usually, I’ll kind of talk about what Baymark can bring and, you know, each private equity firm is going to be slightly different. And I think where Baymark is unique in relation to other private equity firms is our background. We just have for such a small firm, we have a very eclectic group of different backgrounds. I think we might have mentioned one of our founders, David Hook, had a lot of success out in the venture capital world.

    He spent 25 years investing in companies out there. I think he invested in about 50 startup companies from sometime around the mid-80s to the mid-2000s, the OSS, I guess they’re called. And about 14 of those ended up going IPO and going public. So he has a lot of experience of, you know, those are even earlier than, you know, lower middle market.

    Those are even smaller, you know, startup venture deals. And so he has a lot of experience, you know, growing companies, looking at the big picture saying, Hey, we’re here now, you know, how can we quadruple that in five years? And so, you know, we’ve had, you know, one company that had a great management team in place. We’ve had, you know, some companies that really need some other pieces, but we had one company we bought that had a really great management team in place. We don’t really have to make any tweaks there. The big thing that was missing there is just the vision.

    They just didn’t have the imagination. We bought this company, they were about, you know, 12, 13 million dollars in sales and $2 million of EBITDA. And today they are closer to 60 million in sales and six and a half million of EBITDA. So I wish I could say all of our deals look like that. But that was an instance where they would say, okay, what’s the plan? What’s the vision? And now let’s actually go out and execute that. And while I’ll give David and Baymark credit for helping with the vision, I will say that company had a great team and they executed it very well. So that’s one example.

    Our other founder, Tony Ludlow, he has a very eclectic background he has, he was an attorney for some time. He’s also a CPA. I think what really made him ideal for this world is he has a lot of operational experience. So he knows what it’s like to have a team of people working for him. You know, what it means to, you know, have to fire people whether they deserve it or not, whether it’s just something that has to be done, we have to cut 10% even if they don’t deserve it, you know?

    So he’s had to live through that. He really has had that hands-on experience that a lot of entrepreneurs face on a day to day basis. And so he doesn’t have that just kind of pure spreadsheet mentality of like, Okay, this is what the spreadsheet does, we’re going to do. He knows, he understands that there’s a human element to this. And so I think starting with those two guys, that’s kind of spread through the culture of our firm that we don’t just have a spreadsheet mentality.

    That we really try to understand what these entrepreneurs are trying to do and help them achieve those goals. But back to some more about kind of what the, what we can bring as a private equity firm, I think it depends on the company. We’ve had some companies where, a lot of the companies we work with we see this, where we have an entrepreneur who’s trying to wear every single hat in the business.

    You know, when we want to talk to the accountant, we talk to the owner. When we want to talk to the operations manager, we talk to the owner. When we want to talk to the CEO, it’s the owner. And so, you know, we try to come in and say okay, what are you passionate about? What are you good at? You’re obviously a sales guy. You know how to sell. You love working with customers. And every time I talk to you about the accounting you, I can see you pulling your hair out. So let us help you.

    We’re gonna bring in an accounting person, a CFO, you know, someone that can augment you, help your company, but we’re not looking to replace the entrepreneur. We’re not looking to bring in a whole bunch of people to kind of replace what he’s trying to do. It’s more of a, let’s take some things off that entrepreneur’s plate and really, you know, build out his team so he can focus on what he’s good on and we can have other skilled people in position to help build that company. Some of the things we’ve done with companies, we, you know, we obviously have kind of some of the typical benefits.

    We have, obviously, access to financing, we have good relationships with banking. And Patrick, as you mentioned, you know, while we’re not a big firm at Baymark, we do work with I think, right now we have about nine portfolio companies in total that we work with. You know, we have scale in that regard, right? If we’re trying to negotiate new insurance terms we say Hey, we, you know, we’re looking to make these changes for a lot of our portfolio companies. And so that’s something, you know, we can get better deals because it’s not just a single small company doing it.

    Sometimes it’s a whole portfolio companies who are looking to make a change. Or also act as an outsourced m&a department for our companies. We think the best way to grow a company if the owner thinks that we need to go out and make some acquisitions, we go out, we work with the brokers. Our network of brokers, business intermediary, then try to go find those acquisitions that fit the goals that we’re trying to do with our company. So each company is different, depending on what that company is, we try to help fill that hole, whether it be us or with adding people. So

    Patrick: What I see there is you’re flexible enough where the portfolio company, particularly if they’ve got good management or whatever, if they need some day to day help, you’ve got resources there, or if they just want to be left alone, just get him some capital so they can execute more and then find other targets for growth. You can do that?

    Andy: Yes, yes, while we do have operational experience and we’re comfortable in that role, that’s never what we’re looking to do because we have such a small firm, you know, our goal is to kind of set the plan and, and have the management teams execute that plan. But we do have the comfort to go in and be more hands-on if that’s what’s required. But again, it’s usually the ideal if we can, you know, help with the vision, help with the strategy, get the right people in place and then we try not to micromanage and let the companies execute the plan.

    Patrick: Describe your ideal target. What are you looking for either, you know, as a portfolio company or for, you know, a partner to exit one of your portfolio companies? Either way.

    Ben: Yeah, I mean, I can take this one and I think I addressed it earlier a little bit when I said, you know, we like the services, tech-enabled, distribution, manufacturing part of the world. You know, I can kind of go into a little more depth on that, but we like what everyone else likes. We’d like established and recurring revenue streams, we like to diversified customer base and higher retention rates and a competitive advantage, a nice moat, company based in part of the world that’s easy to get to. So all the usual requirements that everyone wants, but certainly I think we are willing to look past perhaps some issues that other firms may not be.

    We certainly, as David is certainly more than once, we like companies with a little bit of hair on them for a couple of reasons. One, I think, as Andy mentioned, we have the expertise in our firm, I think to deal with issues that maybe other firms aren’t comfortable dealing with. And second, you know, you can often buy a good company for a very reasonable price if there is some issues that, you know, other people have been a little bit scared of. So, you know, and we’ll look at any of those companies that we think we can do something interesting with.

    And I think one of the things that Baymark does a little bit differently than other companies and one of the other reasons we play in the lower middle spaces, if you can buy a company with a good multiple, then you don’t have to load it up with a huge amount of debt and then spend your whole time trying to pay the debt off before you exit the investment. We like to grow our companies. And it’s a lot easier to grow a company if you bought it for a more reasonable multiple and haven’t had to load it up with debt. So we’re certainly always looking for companies we can grow.

    That’s how we like to make money is to increase revenues, increase profitability of our portfolio of companies. And then, you know, we like to send out companies on the way into the world, in better shape than we bought them. We’re not interested in buying a company that someone has spent years and years building up and then, you know, taking all profit and leaving it in a bad state. We want to buy a company, improve it, grow it and then sell it. And if we can make money doing that, then we’re very happy and if the company is better for having been owned by us, then that’s great.

    Patrick: One of the big trends that’s out there nowadays is deals are now being, the rest is being transferred out through the use of rep and warranty insurance. I’m just curious because now the eligibility requirements for rep and warranty have come down from middle market down to lower middle market deals are now eligible. Tell me good, bad or indifferent, what kind of experience has Baymark Partners have with rep and warranty on any of their deals?

    Where Rep and Warranty Can Be Beneficial

    Ben: So we’ve used it on one occasion with a deal that we did actually quite early in the life of Baymark. And the reason we used it is because there was a kind of an asymmetric risk profile between the sellers, one of the sellers was going to take a lot more risk with the representations and warranties. And he wasn’t comfortable kind of being point man for some of these reps. And so we use the insurance as a way to kind of even the playing field amongst all the sellers.

    So, you know, in those circumstances where you have a kind of asymmetric risk profile, then it works out very well. One of the other reasons we like it is, you know, it removes the escrow requirement. So that can be a way of getting a deal done that can be something that stands in the way otherwise. So, yeah, absolutely. We think there’s a place for it, where appropriately, we absolutely will use it. And certainly, you know, have had positive experiences with it in the past.

    Patrick: Now, that was my second deal I ever did. That’s the exact scenario we had. We had a tech company that was being acquired by a publicly-traded company. And the tech company, you had one investor that had the lion’s share of the risk and you had 10 other investors, but their shares were so much smaller that that one lead investor, he was the deep pockets.

    And so he was directing that. And fortunately for us, we had a very affable working buyer that agreed to go forward with rep and warranty to help out the seller because they wanted to make them happy. And, you know, it was simple. The seller paid for the premium, was happy to do it, the buyer was happy to not have to cover that expense but had a very happy acquisition target and the team came over. And it went very well.

    So we can see that was been fortunate. The development that we’ve seen come through is not only is rep and warranty available for the sizeable deals but now it’s gotten to the price point where it’s not a bad idea for add ons. And so now as more frequent transactions are happening with add ons, if there’s that tool for an add on and that brings, you know, some cost benefits there’s another usage for it. So we like to trend as it’s going and we expect to see it become about as common as title insurance in real estate.

    So as we record this today, we’re hopefully on the downside of the COVID-19, settle in place. You’re based in Texas and you’re on the verge of opening up. We’re in California. We hope to open up sometime next year, the way things are going. So give us your thoughts in the next 60 to 90 days and next quarter, what do you see is M&A trends either for Baymark partners or you guys, you know, getting yourself all geared up to get, you know, hit the race, or get out and start unboxing sprint or wait and see. What are you seeing out there?

    Navigating Uncertainty

    Andy: Oh, that’s a good question. Right that, we’ve heard that question a lot. And we’ve been asking ourselves. We kind of talk about it weekly. And I would say it’s still early. We’ve actually had we’ve had to had kind of some deals in all parts of the pipeline that have been affected by this. And so we’ve had a couple that we were pretty far along in the process and we’re still trying to complete those deals, even with some of the uncertainty, we’ve been trying to monitor the company’s performance in this time and just trying to get an understanding of the core business and what, and how it’s, you know, how it’s navigating these times.

    And so I would say right now, a lot of the lenders have been slow to react, or have been kind of, I guess, getting a little tense and a little tighter, which is understandable and something we would expect to see in this market. But we are working with some lenders who are still doing deals.

    And another thing that slowed down some of the lenders we work with is obviously some of the banks we work with have been kind of underwater, trying to process some of these cares, PPP loans. So a lot of factors that have been, I would definitely say slowed the process down. But we still have, I would say pretty good visibility on a couple opportunities that we think will close over the next few months. You know, as far as new opportunities that we’re looking at, we do see some sellers who are still very interested in selling. They’re very confident in our business.

    And I think the private equity firms that are going to do the best are going to have the ability to get a little creative, you know, build relationships in this time. I think, starting a deal from today and trying to buy it, it’s going to take a little more time than it normally would, but it’s important. You know, we’re really trying to build relationships with the companies, with the owners, try to keep expectations in line and do what we can to, if the company does go off and has a blip because of this, because of the Coronavirus, we try to do what we can to say, okay, we’re going to give it some time, see if it comes back.

    Or, you know, develop some kind of creative structure where, you know, the seller’s still getting kind of what they wanted for their business even if they’re being slightly affected by what’s going on. So, you know, I think for now, it’s going to be a little bit of a slower process, but we’ve definitely been talking with again, other firms, other lenders. And deals are still going through, deals are still happening, just a little bit of a slower pace.

    Patrick: With the result of this pandemic, it wasn’t a situation where we had a structural fiscal problem or something with the banking and the financial infrastructure here as opposed to 2008, 2009. So I think that even though you’ve got this headwind of all this activity for lenders right now, I think eventually they’re going to get back to what they usually do. They’ve got the resources to do it. I think that the one thing that’s been said about private equity for the last four years is they’ve got their stack of dry powder and it hasn’t gotten any smaller.

    So I think as target prices start coming down and valuations come down a little bit, there could be some opportunities to move quickly if organizations are clear in their thing and what they want, and they’ve got a willing partner on the other side of the deal. I think we could see an uptick in activity. Maybe not immediately. However, I think as things start coming back to normal, there are some that are going to lead the trend and lead the activities and then others are going to be needing to catch up. And so that kind of activity can kind of build upon itself and get us a little momentum. So that’s an optimistic side from my perspective.

    Ben: I know for one Baymark is very, very keen to continue doing deals. So, you know, we certainly see, you know, an opportunity in the next few months.

    Patrick: Well, there are people out there that maybe wanting to reach out you to have that kind of conversation. Ben, Andy, how can our listeners find you?

    Ben: So we’re on the web at and we’re very easy to contact by email. I’m Andy is So, you know, we are always available to chat, to have an email exchange if you are interested in what we do and want to learn more. We’re happy to talk.

    Patrick: Gentlemen, thank you very much. Absolute pleasure meeting you. And ladies and gentlemen, please look out for Baymark partners.

    Ben: Thank you.

    Andy: Thanks a lot, Patrick.


  • Drew Caylor | Making a Difference in Private Equity
    POSTED 5.26.20 M&A Masters Podcast

    Drew Caylor, managing director, and the rest of the team at private equity firm WILsquare Capital have a passion for helping lower middle market companies grow bigger and better.

    He says it’s all about the leaders at these companies and their commitment to making a difference to their people and the communities they’re in.

    At WILsquare, they help create value through hands-on work with carefully selected businesses. It’s a level of service you won’t get at “brand-name” PE firms.

    We take a deep dive into that topic, the post-pandemic M&A scene, and…

    • The first place they look for future investment in a business
    • 3+ questions they ask about every company they work with
    • Why they view Representations and Warranty insurance as imperative
    • Their management philosophy and how it differs from other PE firms
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today I’m joined by Drew Caylor, managing director of the private equity firm WILsquare Capital. Based in St. Louis, WILsquare was established by private equity and operational executives dedicated to provide financial capital and operating experience to lower middle market companies in the Midwest and South. Drew, thanks for joining me. Welcome to the show.

    Drew Caylor: Yeah, thanks a lot, Patrick. Appreciate you having me too.

    Patrick: Before we get into WILsquare, let’s start with you. Just give our audience a little bit of a context. How did you get to this point in your career at Wilsquare?

    How Drew Ended Up With WILsquare Capital

    Drew: Great question. So my path to a career in private equity is not one that I think many in the industry would consider typical. You know, I think a lot of people begin their careers and fields like ibanking or public accounting and make their way to private equity. Instead, I started my career in football. My first job out of college was playing for the Pittsburgh Steelers.

    And after a short stint in the NFL, I ended up moving to St. Louis and working for a wealthy family that was making direct investments in lower middle market companies. Along the way, was asked to be president of one of their portfolio companies. And at the age of 28, I suddenly had 65 employees and had no idea what to do. At that point in my life, I was really better prepared to read defensive friends that I was to manage people.

    But after six years of operating the company, we lucky enough to sell the business to a strategic acquire and all things had a happy ending. So, you know, that experience of operating that business has provided a really nice foundation for me when I think about my career in mergers and acquisitions. Following the sale of that business, I resumed my career making direct investments in lower middle market companies. And in 2019, I was lucky enough to join the talented team at Wilsquare.

    Patrick: Well, let’s go on to WILsquare. By the way, as we record this, we just completed the draft for the NFL and I can’t let this go without asking you. So you were drafted by the Steelers. Where were you drafted?

    Drew: So I was drafted in the sixth round. And I always like to tell people that I was selected a few picks before Tom Brady. He was drafted in a different year, but I was drafted slightly higher in the NFL Draft. So that’s something I suppose,

    Patrick: Well, there, that’s something a lot more of us cannot say, so good for you. Tell me about a WILsquare Capital. Before we get into that, I always like to learn a little bit about a firm by how it’s named. Because if you’re in the legal community or insurance, you’re boring. You just name your firm after yourself or the names of the founders. Tell me about WILsquare and, you know, its focus and so forth.

    How WILsquare Stands Apart From Other Private Equity Firms

    Drew: Yeah, so, you know, WILsquare’s name isn’t that innovative, but it’s really the first syllable in the two founders’ last names, Wilhite and Wilson, hence the name WILsquare. But, you know, more important than the shared syllables of the name is really, I think the values and the commitment to the lower middle market that I think everyone on our team shares. You know, we just really love this space and we do for a number of reasons.

    You know, for me, I had the opportunity to operate a lower middle market business. And that gave me a profound appreciation for the challenges that leaders of businesses in this space face. It also taught me that, you know, value creation isn’t really achieved through simply buying low and selling high. It’s really more about rolling up your sleeves and doing the things that are necessary in order to build bigger and better businesses.

    And so, you know, I really got to experience firsthand the responsibility that I think leaders of lower middle market companies have for their people and the importance that stewardship, when it comes to selecting the right partner for your business has. And so, you know, I just decided early in my career, this is where I wanted to spend my time. These are the businesses where I think there’s talented people and all kinds of opportunity. And I think everyone at our firm has a story like mine for why they fell in love with the lower middle market and the people in this industry.

    Patrick: Well, I’m not a millennial, but there’s no doubt the belief of a lot of millennials is rather than just going out and finding a career and contributing, they want to make a difference. That’s a big focus for them. And when I think about that, if you really want to make a difference out there in American business, I think you’ll look to the lower middle market because there’s a vast number of these organizations out here. They are the biggest employers in terms of overall aggregate number of employees.

    They are oftentimes the soul of a community that, where they serve. And it’s a shame because if you’re in the lower middle market, you’re not involved with mergers and acquisitions on a daily basis. You don’t have in house court dev facilities and resources. So when the off tuning comes or the idea comes to think about an acquisition, and everybody thinks about acquisitions either to be acquired or to acquire. They default to the brand names and the institutions out there.

    They don’t know any better because they haven’t been around. And so unfortunately, when they turn to the larger institutions, what ends up happening is they’ll go to an institution who will overlook them. So they won’t be as responsive. The institution’s nothing wrong with them, but they don’t have the bandwidth to order, deliver a variety of different solutions that fit those little lower middle market companies.

    And they may not be able to just roll up their sleeves and get in on a day to day basis and so forth. So they’re not going to be served there. But on the contrast side, also, the lower middle market company is going to end up either losing money or spending a lot more going to the institutions. And I think where they really get the true value is going to be with organizations like WILsquare, where you’re focused on that.

    That is your passion and it’s where the best fit is. You have the resources available. The more the companies are aware of the great access to solutions that are provided by you that they didn’t even know existed, I think they’re better served. So any way that we can go ahead to promote and highlight organizations like WILsquare Capital that serve this community, I think is a win-win. So I really do appreciate that. Drew, tell us a couple of things on how WILsquare provides solutions on that lower middle market. What can a lower middle market company get from you that they couldn’t get elsewhere?

    Drew: Great question, Patrick. You know, I think what they get from WILsquare is really a diverse set of perspectives. You know, our team is comprised of, you know, not only finance experts, but, you know, also people with operating backgrounds like myself. And I think there is a collective willingness to roll up our sleeves to actually add value to these businesses. We’re not financial engineers. Most importantly, I think cost is not our focus. You know, we look for opportunities to play offense and opportunities to invest in these businesses. We just think philosophically, a focus on costs is not an enduring strategy.

    You can only cut so much cost. What is an enduring strategy is focusing on growth and that’s what we do. Sales and marketing is the first place we look for future investment in a business that we buy. We think about what new products, what new capabilities should this company have? How can it access new markets? And then, you know, we are lucky enough to have a pool of capital to put to work and so we also contemplate, you know, what acquisitions for a particular company could make sense?

    And is there a value-creating combination that can be formed? And, you know, I think the other thing that’s important is a lot of operators of lower middle market businesses like to operate their business. And they don’t want to do it with someone looking over their shoulder. And I think that’s not what we’re about. I think we’re really about being a resource for these operators. And, quite frankly, we think if something makes sense to do in a business, we just ought to do it. There shouldn’t be a lot of bureaucracy. If it’s for the benefit of the business, we just ought to do it.

    So when you think about private equity firms, I think there’s really a spectrum of firm involvement. There are some that are heavily involved in the operations of a company. There are some that are not involved at all. You only hear from them, you know, once a year. And then there are those who are somewhere in between. You know, I think we’re probably in that middle portion. We’re somewhere in between, who we think it’s important to invest in the management teams and ultimately let them run the business that they are the experts in. Truly, we simply aspire to be a resource for these management teams going forward,

    Patrick: So you’re not fund it and forget it and you’re not micromanaging. So two extremes. You’re in the middle. And I’m sure it just varies from company to company, right?

    Drew: Yeah, I think that’s right. I mean, I think we would never buy a business without having some sense for what we can bring to the table. So I think our swim lanes are generally well defined going in and we try and communicate that well with the management teams that we seek to partner with.

    Patrick: Tell us what’s your ideal profile for a target company?

    WILsquare’s Target Company Profile

    Drew: Sure. So as a firm, we focus on businesses generating between three and 10 million of EBITDA. And we like businesses that are situated in markets that are less cyclical and in industries that are growing, I would say we’re simply not a turnaround shop. You know, we’re not out there looking for bargains. We’re truly looking for healthy businesses that are growing and businesses that we can help continue to grow.

    One of the variables we think is truly important is human capital. You know, it’s just a key variable in unlocking the value in any company. And so chemistry really matters to us. We found really great companies that are run by people where there just wasn’t a chemical fit and we opted to move on. But we just think it’s important that we all be able to row the boat in the same direction with the management team. And so we call ourselves a firm with Midwestern values because that’s the truth.

    We don’t view ourselves as very fancy people. We really probably rather eat in a sports bar than a steak house. And I think we really feel a shared responsibility for others and humility to know what we don’t know. And to us, that’s just a simple way of characterizing people in the Midwest. And so that’s how we market ourselves. That’s how we think about ourselves. Are folks that care about others and have a humble sense about them along the way.

    Patrick: That personifies the view I’ve always had had when I first came into M&A on my front was that it’s not Company A buying Company B, it is a group of people over here choosing to work and combine forces with a group of people over here. And to the degree that they can successfully integrate, get along, get their culture moving and handle those human skills, they’re going to successfully move forward. And the ideal is one plus one equals three. The whole is greater than the sum of its parts.

    So it always comes down to people. And I think that anybody that overlooks that aspect and just focuses on either the financial or the technology is really missing something. Drew, tell us what experience have you had one of the tools that we use out here for mergers and acquisitions from the insurance world is a product called rep and warranty insurance. That has gained quite a bit of traction in the last couple of years, driven largely by private equity. And so I’m curious as your thoughts, good, bad or indifferent. Your thoughts on rep and warranty for deals.

    Drew’s Take on Rep and Warranty

    Drew: You know, it really only takes one experience to make you a believer in rep and warranty insurance. And I was lucky enough or perhaps unlucky enough to have that experience quite early in my career. There was a breach wrapped in a small deal I was involved in where it led to a costly legal battle that distracted the management team and cost the business all kinds of opportunities.

    Yeah, I think it’s pretty easy for a lot of people to view rep and warranty insurance as expensive. It is relative to very small deal sizes. But even if you aren’t a believer in the value that these policies can bring, more and more I think providers are being pretty innovative and generating products and policies that are a lot more affordable and tailored to the lower middle market. So, as a firm we view rep and warranty insurance as imperative.

    Patrick: Now as we record this, we’re hopefully on the tail end of the Coronavirus pandemic sell in place process. We’re now beginning to start seeing states not only begin to open but having long-range plans for so. Hopefully, this will be over. But in light of how this is literally touched all the lives of people across the country here, give us your perspective on either for you or WILsquare Capital on deals you’re looking at or where you see the M&A environment going forward. Choose short-term long-term. Give us your thoughts.

    Post-Pandemic M&A Scene

    Drew: Yeah, sure thing. First, I have to acknowledge I don’t have a crystal ball, so I’m not sure I have a ton of insight into what the world will look like. But I can tell you the way that we’re thinking about it is we think that the health of an industry is critical to look at. And we’re focused not only on how long will it take these industries to recover. I think we’re focused on a more important question, which is, how will these industries change?

    What will be different? And that is where I think there is a ton of opportunity. It’s not about, you know, how long will it take people to get on planes again? It’s what will they be doing instead? Every industry has a has a different answer to that question. But that’s the question we’re focused on as we review new opportunities.

    Patrick: I agree that it’s just going to be different. I think the other thing that people are really accepting is that things can change from week to week and you got to be okay with that. And if you’re okay with that, then you’re less encumbered in looking at opportunities out there. And I sincerely believe there are going to be quite a few of them. There is going to be a much more buyer-friendly market going forward.

    And private equity firms have the dry powder. It never went away, to my knowledge. And there are firms like yours that have been most likely taking very, very good care of their portfolio companies and handling their concerns through this process. And the next step is going to be, you know, have an abundance mentality and look for opportunities out there. I think that there’s just quite a bit and just like you said, it won’t be the same, but it won’t be bad.

    So hopefully, all of us optimists will be proven right. Of course, I also projected a month ago that Disneyland would be open the first week of May, so I might have been, yeah, I might have been a little optimistic there. But, you know, we’ll see about some other times though. Drew, how can our audience reach you?

    Drew: Your listeners can find me at our website which is That’s Or you can reach me by email at That’s

    Patrick: Drew, it’s been fantastic. Thanks again. It was just a lot of fun talking to you and I really deeply encourage folks to look for WILsquare Capital. They are a firm out there in the Midwest, but they’re not stuck there. They’re looking at a lot of stuff and couldn’t be happier to have you with us today.

    Drew: Thanks a lot, Patrick. Appreciate it.


  • Trevor Crow | M&A Tips for Family Businesses
    POSTED 5.19.20 M&A Masters Podcast

    Trevor Crow works in the M&A space, specializing in what he calls an “underserved” area: lower middle market companies. He says bigger firms chase bigger deals because of high overheads and other internal costs.

    But as a boutique firm, he’s able to work closely with owners and founders of what are often family-owned businesses.

    Trevor says Buyers and Sellers at this level are savvy and smart – a pleasure to work with.

    He talks about the biggest benefits a small firm like his can offer companies, including quick response times. Tune in to get all the details on that, as well as…

    • The last person you should hire to shepherd the sale of your business
    • Strategies for balancing risk and the cost of appropriate insurance
    • One of the most “dangerous” potential liabilities for companies today
    • The biggest obstacle to closing a deal – and how to overcome it
    • And more

    Listen now…

    Mentioned in this episode:


    Patrick Stroth: Hello there. I’m Patrick. Welcome to M&A Masters, where I speak with the leading experts in mergers and acquisitions. We’re all about one thing here. That’s a clean exit for owners, founders, and their investors.

    Today I’m joined by Trevor Crow, founder of Crow Legal, a Denver-based law firm specializing in the purchase and sale of businesses, private securities offerings, tax, and other transactions for the lower middle market. Trevor, welcome to the podcast. Thanks for joining me today.

    Trevor Crow: Thanks, Patrick. Looking forward to it.

    Patrick: Before we get into your practice, and you’re focused on the lower middle market, let’s get a little context for our audience here. Tell us what got you to this point in your career.

    Trevor: Okay, yeah, so I grew up in Denver, for the most part, and bounced around a little bit on the East Coast when I was really young but grew up in Denver and went to the University of Colorado at Boulder for undergrad with a degree in finance. And after that, I worked for three years before going to law school doing several different jobs.

    But most notably, I worked at an auditing firm doing the consulting side of an auditing firm. And then I went to the University of Denver law school. Which it was, if those of you who remember 2009, it was not a great year to be graduating law school or really coming out of school anywhere.

    It was right at the downturn. And so the firm that I was at, or I had clerked at, at that point, you know, I was doing just transactional work, getting a lot of great experience, but a lot of transactions died in 2009. And so the firm I was supposed to go to kind of said, “Well, you know, we don’t really have transactions going on, but if you want to do litigation, we’ll bring you on.”

    And so, you know, my start in my career was actually in litigation, commercial litigation, which was an interesting place to start and, you know, good experience as well, I think, because I was able to see how contracts blow up. And prove with arguments that people can make in court on what a contractual provision says when it seemed clearly written the other way, in my mind, but so that was one experience.

    We found out pretty quickly I didn’t want to do litigation and, you know, I kept working towards doing more deal work at the firm I was at. Leaving there, I went to a couple other firms doing just transactional work, M&A work. These were all mid-sized firms in Denver. So most of our deals were lower middle market deals.

    And so that’s kind of where I cut my teeth and kind of grew to love that area. I started this firm in February of 2018, after I had made partner at another firm in town, another mid-sized firm. And, you know, I just wanted to strike out on my own and develop more of my corporate practice. The firm that I was at did a lot of real estate work and so I was kind of the corporate guy to the real estate firm.

    And it was harder to develop the M&A business. And so I started my firm in 2018. And now we have a couple of attorneys working here as well. And just been kind of doing mid-market M&A deals, lower middle market M&A deals, private securities offerings, and that sort of work. So we’re kind of a boutique transactional firm.

    The M&A Mistake the Lower Middle Market Makes

    Patrick: Well, tell me why you focused on the lower middle market as opposed to other segments. What is it about the lower middle market you like?

    Trevor: The lower middle market is a unique area in my mind because, for one, I think it is underserved. There’s not a lot of… Big shops don’t chase those deals, they’re chasing the bigger deals because they have high overhead and a lot of other things that they need to cover so they want to chase the bigger fees. And so this lower middle market is underserved.

    I also like it because you get to deal with sophisticated buyers and sellers. Really smart people who build businesses, a lot of family-owned businesses. So you get to hear, you know, the interesting stories on how they’ve been built up. There’s a lot of smart people that you’re working with, but they’re also the type that are gonna roll up their sleeves and get involved.

    It seems like a lot more than these, you know, higher ticket deals. And so I like that. There’s usually less ego and each deal is unique. And so those are sort of the, what’s kind of attracted me to this market.

    Patrick: I agree with you that the lower middle market is underserved. I mean, there are thousands and thousands of these companies out there. And because they don’t deal in M&A transactions on a daily basis, they don’t have in-house corporate debt. They’re not used to the services that are available out there.

    So what they usually do is they default to going to a brand company or Big Four accounting firm or the major top 10 law firms. Nothing wrong with them. It’s just you’re not going to get the value with those organizations. They may have tons of resources. But those resources are built and designed for major-size deals.

    And you know, the lower middle market members, they’re going to get shortchanged. Not only are they going to get less response time and get overlooked, they’re going to pay a premium, and they’re not going to get solutions that are really fit for them.

    The larger firms don’t have the bandwidth to have multiple solutions, whether it’s on a quality of earnings, whether it’s on some legal diligence or other services out there. They don’t have a lot of solutions or a wide enough variety of solutions out there. So you end up paying more and getting less.

    And I don’t think that’s fair for a lot of these owners and founders who, you know, took it upon themselves to create something where nothing existed and just build tremendous value. It’s just not as large as Walmart. Okay, so that’s where I passionately feel about wanting to serve that community.

    Now, Trevor, explain what a boutique firm like yours can do for the lower middle market. What are the types of things that they’re looking for that you deliver that possibly the other larger firms aren’t going to be able to satisfy?

    Trevor: Yeah, so I think you kind of hit on a couple of them there with response time. I mean, when you’re a small fish in a big pond at some of these larger service providers, they don’t provide you the time and attention, typically, that you need in an M&A transaction. As anybody who’s involved with M&A knows, time kills deals, and so you want to be efficient, and you need to turn around, be able to turn around, documents from a lawyer side.

    That’s what we can do is turn around documents quickly, we answer the phone, you know, so when somebody calls, whoever our client is called, somebody’s going to answer, and we’re going to be able to schedule a time to talk, and we’re going to prioritize, you know, those deals that we have in our shop and that we’re trying to get through.

    So I think response time is big. One of the, you know, my pet peeve is seeing people not hire the right team. And that happens, not at any fault of the people that are the buyers or sellers. So a lot of times it’s usually just because they don’t know, and so they either end up hiring people that are not specialists in this area, or they’re going to the big shops and not getting treated well.

    And so that’s kind of a pet peeve of mine and I, you know, it just breaks my heart to see when these companies have built a lot of value. You can see deals die because of it, either because it’s a, you know, a family-owned shop or family-owned business that has grown up with an attorney when they were nothing that was kind of a general practitioner, and they helped them with some commercial contracts, maybe some employment issues and that sort of thing.

    And then that’s just who they know and so they try to use them for an M&A deal and it can lead to a train wreck, and sometimes it can kill the deal honestly, and I’ve seen deals die because of the counsel, and that’s a problem. You know, you can also hire those big shops and then they can totally over-lawyer, you know, a $5 million deal.

    And we’ve dealt with that plenty of times on the sell side representing sellers to, you know, private equity companies and things like that. And so that, I just hate to see that. And so we strive to be, you know, the firm that we come in, we don’t have an ego on the documents, you know, we take a practical approach to it.

    These are M&A contracts or an allocation of risk, right? Which you know very well, Patrick, and how that works. And so these, with allocating risks back and forth, you’re not going to get an agreement that takes all your risk away. And so you gotta, at some point, I think a good attorney who’s experienced in this area is going to be able to come to their clients and say, “Hey, here’s where we’re at. Here’s the risk of going this way. Here’s the risk of going that way.”

    And there are certain things that I would consider are more legal, but there’s… Ultimately, a lot of it becomes business decisions, and it’s navigating the client through those. “Alright, here’s the risk of this way, here’s the risk of that way. You know, what do you think? How do you feel as far as taking those risks?” And helping them guide to that as well as, you know, telling them what kind of market is out there, what do you see in typical deals.

    And I think we’re uniquely positioned to provide that sort of counsel to clients. We have, you know, I’ve worked on at larger firms, I’ve worked on $200 million deals, you know, I’ve been on these larger deals, and it’s, so I have the experience and, you know, the other attorneys here now have developed that experience as well to deal with these M&A transactions. And I think we’ve just kind of been laser-focused on it, which has allowed us to do them efficiently and help deals actually get closed.

    Balancing Risk & Cost

    Patrick: With what you’re doing there, as you were talking about this, a thought struck me because the parallel I would have is with insurance. When you see startups, startups need insurance, a variety of policies, but the thing is, you can bankrupt a fledgling company by over-insuring them, getting every possible line of coverage out there where you have to go ahead and balance and there’s an exposure here, we’re not going to insure it today, such as Directors and Officers Liability.

    Let’s wait until you get funding. Okay, when you get some outside funding, when you get some outside person that’s going to sit on your board, then we will think about a D&O policy, but you’re privately held, let’s get you up and running first, you just, you’re not that big a target, so why lump you up with it?

    So I see where you try to find that balance, where you don’t want to under-represent them, but, you know, they’re not going to be taken to the Supreme Court for, you know, a nine-figure, you know, penalty.

    Trevor: Right.

    Patrick: Yeah. And so–

    Trevor: You’re absolutely right. You gotta fit the market and the deal, and again, I think, you know, there’s just not, there’s not a riskless transaction, so at some point, there’s some risks allocated to you in that contract, and you just gotta take it with your eyes wide open. And that’s what our job is, I feel like, is to educate the clients on here’s the risk you’re taking. And if there’s a business risk you’re going to do or that you’re willing to take, then let’s move forward.

    Patrick: Yeah, and you’re not going without a net here, there’s going to be some stuff that they’re going to need and just the expert weighing all… prioritizing the exposures out there and then addressing those, I can imagine that you also have a network of other resources. They’re not in-house, but if they need a quality of earnings report, or they need some other diligence documents, you’re not directing them to the Big Four accounting firm, you can find things that make sense.

    Trevor: That’s right. Yeah, we have a set of resources, you know, a network of resources that we can direct clients to, whether they need to queue up, you know, they need valuation experts to come in, they need a regulatory expert. You know, we’ve done deals where patent portfolios have been an asset.

    And so we’ve had to bring in, we don’t have any patent lawyers in-house, but we know them. We know patent lawyers that can come in and evaluate those patents and whether they have value or if they’re defensible, that sort of thing. Or if there’s other regulatory issues, like, you know, we did a healthcare deal where there were certain Medicaid issues that we needed to have looked into.

    And so we brought in another attorney who was a Medicaid expert who could help with transferring those licenses over. And so yeah, we just, you know, part of the problem with M&A is that there’s so many issues that can come up, and so from an attorney’s perspective, you really can’t be…

    Your M&A attorney needs to be like a quarterback in some senses from the legal side to say, “We need to talk to this person here. You need to talk to this person there. Or we need to bring in an expert on this piece.” Because there’s just so many things that can come up in a business or in an M&A transaction that may require an expert in another area. And that’s why the, you know, the team is so important, I think, in an M&A deal.

    Patrick: Well, let’s provide some context here because we’re talking about lower middle market or almost micro middle market. In terms of transaction value, what’s your range of your typical client?

    Trevor: So our typical clients, most of our deals are, you know, in the 3 million to 15 million range, I would say. And so that’s, you know, it depends how you define it, but I thought people would define that as the micro middle market or even just, you know, lower market.

    And it’s, you know, it’s not quite mainstream deals, like, you know, selling hair salons and things like that, but we’re, you know, we’re doing businesses that are 3 million and you know, the big shops really don’t want to touch those sometimes. And we get referrals, actually, from larger law firms that say, “Hey, you know, this one, this is probably a good deal for your firm, but we would charge too much on fees to handle this one. So we’ll refer it over to you.”

    But yeah, that’s the market. I would say if a $25 million deal or a $30 million deal came in, we would probably take it and be able to handle it very well, depending on, you know, the industry and what other needs that the client may need for that transaction. But I would say the bulk of our deals are in that 3 to 15 million range.

    Patrick: Well, now, our focus on the insurance side for M&A is using rep and warranty insurance. And even though rep and warranty insurance eligibility thresholds have come down, so now you can have deals that are as low as $10 million transaction value, where it can be insurable for $2 to $5 million in the full $10 million transaction value when the fundamental reps can be there.

    Rep and warranty isn’t always a fit for everybody. There are other things that can be done where, like you said, you can’t cover all the exposures. Well, let’s value which ones are there. So there are rep and warranty light type products out there that are available. What kind of insurance problems do they run into?

    Trevor: A lot of them. D&O insurance is a big one, a lot of them just don’t have it. And so we have to talk to them about that and getting D&O insurance because we also do private securities work where we’re helping companies raise money and then, you know, a lot of times that’s when it pops up is, you know, where you got either large angels who want to come in and they want a seat on the board or sometimes VC funds are coming in and they want a seat on the board and they’re gonna require it.

    And so, you know, a lot of times we’re talking to clients about the D&O insurance so that’s a big one. Rep and warranty insurance is something that we’ve looked into and, you know, you and I have talked about it a bit.

    And so that’s, you know, I’m glad to see that those prices are coming down and can be a fit for some of these transactions that we’re working on now because it’s a huge [inaudible] attorney standpoint in that it makes negotiating the reps and warranties provisions a lot easier and that’s the heart, you know, that’s the biggest negotiated section of a purchase agreement is typically the reps and warranties and indemnification. And so, you know, to the extent we can make that simpler and get us to that closing table quicker, that’s huge.

    Patrick: Anything with cyber, is that becoming an issue with what you’re saying?

    Trevor: Cyber insurance, you know, we recently had a client asking about cyber insurance, and, you know, we had trouble finding it honestly. And maybe I needed to talk to you about it. But that was about, gosh, a year ago when we were looking into that, and we were having trouble finding it, at least one that fit.

    And so, yeah, that’s, I mean, data privacy and protection is becoming a huge issue right now. It’s, you know, all the continuing legal education providers out there are doing events on this, there’s no specialist in this area, because, you know, GDPR, you got California, just, you know, passed new laws on it.

    And it’s kind of a, given how the internet works and how it goes, you know, across state lines easily, you kind of got to comply with the most stringent requirements. And so this is becoming a big issue and more and more it’s something that, yeah, more and more clients are asking about. So we’ve run into it. And you know, now I’m glad we have a connection with you that they could talk more about that.

    Patrick: Yeah, that’s one of the things with the lower middle market is you’re allocating resources because everybody’s got finite resources. And so you’re not necessarily going to be buying a multitude of insurance policies.

    Whenever you start getting and realizing new exposures, it’s usually not until you get to, you know, a transaction, and then all of a sudden, you have to start taking inventory. And so now you’ve got these new developments. And there are a lot of policies out there that suddenly you now need to just check the box.

    And you don’t want to spend a ton of money on that. But at the same time, you want something that is viable, that, post-closing, is going to respond to a claim, and you’re not going to get a call in the middle of the night saying, “Yeah, that policy bought for a thousand dollars.” Yeah, that’s not valid for what you have, I mean, you need something that’s gonna be there.

    But it’s very important, particularly for the smaller organizations out there where, again, you don’t want to bankrupt them with buying too many policies for every exposure, but then when they need coverage, you’ve got to get itemized specific things.

    There are some real laser, finite, purposeful documents and products out there that can provide the coverage and at a good value, I mean, less than what having a policy for ten years would cost. So there are things out there, and it’s important that everybody is aware of that.

    Trevor: Let me ask you this, Patrick, if you don’t mind. I don’t mean to turn the tables on you here but they, you know, in any M&A deal nowadays, there’s going to be a rep and warranty about data privacy and that you’ve got laws and, you know, any buyer is going to push for that in there and obviously, you know, from my standpoint, if we’re representing a seller, we’re trying to push back on those and make carve-outs to the extent we need to, but how does that work with say, you know, you have a seller who doesn’t have cyber insurance, they have that rep and warranty in there, but they want to get rep and warranty insurance. Will that cover that or is that carved out?

    Patrick: Yeah, a lot of times, the rep and warranty policies are now trying to carve out the cyber, what they will prefer doing is encourage the seller to go purchase a standalone cyber policy, liability policy. Those usually are anywhere from $3500 in premium to $10,000 in premium depending on the size of the company and how your records look.

    Okay, that’s purchased. Then what if that is in place and the seller has to have cyber policies and procedures just for protecting data, they have to have, you know, basic firewalls? They have to have policies and procedures among their team, that, you know, that information is weak.

    And there’s a protocol so they have to have some things in place similar to employment issues where you’ve got to have an employee handbook if you got fifty employees, okay, you can’t just, “I have an insurance policy, but we have no handbook.” Okay, so you have to have some common-sense policies and procedures in place.

    If you do, and you have a cyber policy, a rep and warranty policy will just literally sit on top of that cyber policy. If the rep is breached, and this does happen quite a bit, is post-closing, you don’t know about a breach until months after it happened. And you have no knowledge of it at all until something erupts six to twelve months later, and then you’ve got people coming after you.

    Well, if you’ve got a cyber policy in place, they will respond to those claims. The rep warranty policy will then just sit as an excess policy right above it. So those damages usually can be contained within the rep and warranty policy, within the cyber policy primary, and then the rep and warranty.

    Keep in mind, rep and warranty insurance policies usually have a deductible that’s 1% to 2% of the transaction value, so you could have a minimum retention of $150,000 on your rep and warranty policy. Cyber policy might only have a $10,000 retention. So you want that early attachment point at that, you know, three to seven thousand dollar premium item, then you’re gonna have the rep and warranty supplement. So that’s how they’re addressing those.

    Trevor: Well, that’s good. That’s a good point on the deductible piece, you know, to have that and a good reason to have that cyber policy.

    How COVID-19 Will Impact M&A

    Patrick: Yeah. Now, as we’re sitting here right now, as we’re recording this, we’re midway through the COVID-19 settle-in-place. At least I hope we’re on the latter half of it now. And I usually ask my guests what they see trend-wise for M&A or their particular specialty.

    I’m just curious from your perspective on the lower middle market. Let’s say we get back and up and running, we start opening up in late June, early July. I mean, we’re from California. So we may be shut down until August. But for the rest of the country, probably getting out May into June. What do you see trend-wise for you? How fast or slow? Do you think activity is going to pick up for you on the transaction side?

    Trevor: I’m hopeful that things are picked up and going like they were in June. I think that’s hopeful. But I don’t know if that’s going to be the case. And I think, you know, it’s tough to predict now, how it’s going to go, but I know that we had a bunch of deals that were in the process in early March, and those deals have been put on hold.

    Actually, one did go through and closed. But the other, you know, four deals are either on hold or they may be dead, I’m not sure. As of now, I think that my hope is that there is a quick recovery. I think it’s gonna affect different industries differently. In other words, there’s a lot of talk about, you know, is this going to be a U recovery, is it going to be a V, is it gonna be a W, you know, a lot of letters thrown out there.

    And recently I heard somebody say, maybe it’s gonna be a Y. And I think that’s kind of what I’m thinking it might be, whereas there’s going to be an uptake, I think, hopefully, a quick uptake on certain industries, whereas other industries are probably going to stay down for a while, you know, retail, restaurants, things like that.

    I think we’re gonna have a tough time managing this shutdown and coming back, you know, there could be others, but there’s other industries that I think are going to pop back in, you know, start doing deals again.

    And so I’m hopeful that that’s how it, you know, at least as part of the economy starts coming back, certain industries come back and deals start going again, I think that, you know, there’s obviously a lot of private equity money out there, and there’s, you know, reports of a ton of private equity money out there ready to buy and so, you know, there could be some, a lot, of shoppers out there looking to get good deals right now, you know, they can push on valuations and hopefully pick up some good deals.

    And so that could help get the M&A market back, I think, quicker as well. So, hard to say, hard to have a crystal ball here. But my hope is that by June, certain industries are going again and M&A is picked up.

    Patrick: Trevor, how can our audience find you?

    Trevor: Find us on our website: Or you can email me directly, it’s just and so there’s no “dot com” it’s just a “dot legal.” And you can catch me there or, you know, call me directly (720) 230-7123.

    I’m happy to talk to anybody who’s out there in this market–service providers, buyers, sellers, anybody. We love doing deals here, and I think that we provide a lot of value to the lower middle market. So if you need anything from me, please send me an email or give me a call.

    Patrick: Fantastic. Trevor, I appreciate it. Great talking today, and we’re going to talk again real soon.

    Trevor: Sounds good. Thanks, Patrick.