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Emily Holdman | How to Grow in 2021: Educating Potential Sellers with Valuable Resources
POSTED 3.23.21 M&A Masters Podcast

On this week’s episode of M&A Masters, we speak with Emily Holdman. Emily is the Managing Director of Permanent Equity, a lower middle market private equity firm based in Columbia, Missouri, that focuses on investments for the very long term. Emily is also named as one of Axial’s thought leaders for the lower middle market.

We chat about growing organically with lead generation, as well as:

  • Entering finance from marketing and what her experience brings to acquisitions
  • Finding differentiation by committing to investment without the intention to sell
  • The intrinsic desire to be heavily involved with operations
  • Reaching sellers with a midwestern approach, by offering resources and information 
  • Evergreen tools and content marketing to educate sellers 
  • And more

Listen Now…

MENTIONED IN THIS EPISODE:

TRANSCRIPT:

Patrick Stroth: Hello there, I’m Patrick Stroth, President of Rubicon M&A Insurance Services. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here. That’s a clean exit for owners, founders and their investors. Today, I’m joined by Emily Holdman, Managing Director of Permanent Equity. Permanent Equity is a lower middle market private equity firm based in Columbia, Missouri, where, as their name suggests, they focus on investments for the very long term. Emily is also named as one of the thought leaders in Axial’s Thought Leaders for the Lower Middle Market. So it’s an absolute pleasure to have you, Emily, welcome to the show.

Emily Holdman: Thanks so much, Patrick. It’s great to be here.

Patrick: Now, Emily, before we get into Permanent Equity, you’ve got a great story there, and your approach is really unique. Let’s start with you. How did you get to this point in your career?

Emily: So I am not a banker by trade, and never took a finance class. I did study economics and journalism in school, and worked in major motion picture publicity straight out of school. That led into a marketing-related career. And so my short story is our firm’s founder, Brent Beshore, had a marketing firm. And about 12 years ago, I joined that marketing firm to lead their digital division. And I sort of grew up through operations as a part of the portfolio and then joined the investing side of things in 2011.

Patrick: Now, unlike other people, we’re having the full business and, and banking and finance entry you came in on the other side, which is marketing/PR. So they’re very different.

Emily: It is. I focus, obviously, on acquisitions, for the most part and support lead generation within our portfolio. So I still stick to marketing and sales. Everything goes full circle, I believe. So, I’ve done different things in my career that, at the time, feel really concentrated, but ultimately build upon themselves to serve our portfolio well over time, I think — I hope. And so as it relates to today in acquisitions, it’s a lot about marketing. And it’s a lot about sales.

And so I still use the same things that I did, while working in the portfolio. But I think having an operator background, for the purposes of the types of acquisitions we do, is a better fit than using spreadsheets. A lot of you know this, I’m sure very well, but to the extent that a lot of it is narratively driven to understand how a company has endured over time, and how they found their product market fit and how they’ve come together as a team. And those oftentimes are more important than what you can find in the spreadsheet. So we stay pretty focused on that.

Patrick: Let’s turn our direction over toward Permanent Equity. And I can assume with the name, there’s a purpose for it. But I like learning about a company’s history and their culture. And it’s usually reflective of how they named their firm unless they name their firm after themselves, which most law firms and insurance firms do. But, you know, why Permanent Equity? How did that come about?

Emily: For a long time, our firm’s name was Adventur.es. We actually just changed the name Permanent Equity at the end of 2019. So the name itself is fairly new. And it is intentional, right? When you think about adventur.es, you know, people were always asking us, what does that mean, you know, what do you stand for? And so branding, right? We were constantly frustrated with ourselves. We had found a cheap domain. It was tied to our roots — “ad,” if you will, and then “ventures,” which made sense to us. And so that was the origination story for that.

But ultimately, we’ve always had the same value proposition which is to invest with no intention of selling. And so if you think about that, it’s tied to durability, it’s tied to making a permanent commitment, a long-term commitment to be partners and within the private equity landscape, that’s somewhat of a differentiated value proposition. And so we wanted to be explicitly clear about that, and endowing the name to do so made a lot of sense. And at a broader level, it’s becoming a common term, right? So it’s our proper name, but the common term of permanent capital, or permanent equity is becoming more well understood. And so, we feel pretty good about getting to own the name.

Patrick: Totally. Well, you know, what’s your reason for targeting lower middle market give us a little profile of of that Why?

Emily: Sure. We were all operators by background. So the firm is made up of people who have worked in businesses of varying size well into the hundreds of millions of dollars down to the smallest, you know, kind of $5 million in revenue a year. And, and so for our purposes, we know what that landscape looks like, right? And we primarily look to invest in or partner with companies that are owned by families, right? Because again, when you’re investing for the long term, it’s a certain style of investing. And so we’re looking among founders and entrepreneurs and owners who have operated their businesses the way a family typically does, which means low to no leverage, right? Strong commitment to your team. A commitment to know who you are, and to abide by that and not just to appease shareholders or investors.

And really stick to what matters most in life, right? So your legacy, your reputation, what people are going to know, before and after you’re gone. When we looked at that landscape, really, founders and entrepreneurs have very few answers when they go to sell, right? Or at least you think you do. The most common being a leveraged buyout from traditional private equity is a complete swap out of model, right? You’re swapping what was, a balance sheet that looks very clean for one that’s pretty heavily leveraged, right? And with expectations that are tied to a very different time horizon than you have historically tied things to. And so for us, we think that that answer can work, right? We’re not enemies of traditional private equity by any stretch.

But to the extent that we think it’s probably bluntly applied, we think that there are plenty of opportunities and companies that are best served by a different model.

It used to be that you basically could become an ESOP, and you’re gonna have to carry paper for a long time as a seller, or you could sell to a strategic and lose your legacy. Or you could sell it in an LBO. And so we wanted to do something that we felt like based on our operating backgrounds, served the businesses or the teams and serve the sellers in a differentiated way. And, you know, continue to have fun, right? So, you know, by being operators by background, we like to get our hands dirty. And we don’t want to step on toes. We want people who are leading the businesses to continue to do so if they so choose.

But to the extent that we want to be helpful, we like the problems that are faced by companies in that $10 million to $200 million revenue landscape, right? You’re still trying to prove yourself. You’re oftentimes competing against somebody who’s significantly larger than you. And you’ve still got to manage resources compared to opportunity pretty closely. You’re still facing the challenges of prioritizing who you want to be “when you grow up,” right? Because that’s always, you know, sort of a moving ball.

We found that our backgrounds, our experiences are extremely applicable. The skill sets and relationships that we can use to help those companies through the various obstacles and opportunities that they have, are meaningful. And it’s fun!

We kind of have a saying around hereL life’s too short not to have fun. So to the extent that we enjoy the challenge that we’re in, we like that segment of the market, we think the opportunity is there, that’s where we want to be.

Patrick: Well I think the other thing that happens is when you’re a company, and you’ve got size, and scale and legacy, you’re whether you’re cleanly run or not, you have something to put out in front for other people, you just put numbers or reputation out there. If you’re smaller, you could be a pristine, clean operation. But you know what there’s, you got to separate yourself from others. And in order to do that, you have to have a story, you have to develop a story. And that’s one of the things I like about what you and I discussed earlier is that you look at this, and you’ve got a whole content based approach on on how you do business, and then it all comes down to story. So talk about that approach, because we do that and lead into this other thing that everybody’s gonna want to hear about called your wonderful work. The messy marketplace.

Emily: So yes, so I’m a journalist by background. Brent, our founder is a talented writer. And so early on in our careers, we’re sitting in the middle of Missouri. And we’re saying how do we compete, right? Because nobody’s going to care what we’re up to in the middle of Missouri. And so we really thought about how do we best articulate our experience? And how do we build trust? Because for sellers, in particular, as well as intermediaries and others in the marketplace, the hardest part is just building those relationships. Right? And you want to do business with people you trust, especially in transactions, right?

And so we were trying to figure out how can we do that from Missouri. Obviously we did our fair share of roadshows and ACG meetings and steak dinners and all of that kind of stuff to get to know people and to know the landscape and respect it. But we wanted to talk to people in a different way and more tied to how we have done business in our companies over time. And so starting in 2011, we started writing quite a lot. And so our intent behind the writing was to basically put ourselves out there and say, you may hate our approach to operating, you may find us to be brash, or too focused on one thing or another, but to the extent that we can be only who we are, this is us.

And so we’ll put it out there and use it as a trust-building mechanism, and hopefully have something to say that can be helpful, right. So I have a belief tied to, you know, kind of the permanence of what we do that most relationships have to nurture themselves over time. And what we found in in transactions in particular is, most sellers want to passively get to know potential buyers for quite a while, right? You can marinate on whether or not you’re going to do it anything a transaction or change of change of control, whatever it may be, for quite a while. And so what we found is the landscape of information available to sellers, while they’re sort of passively trying to get to know the landscape was last lacking, for lack of a better term.

And so we said let’s try and be helpful, while putting ourselves out there, differentiating what we can about who we are, which was primarily tied to our value proposition, and also something fondly known as “the No Assholes Policy.”

Those were things that, it didn’t matter where we were from, they stuck with people and were shared. So ultimately, what we found is that over time, we were able to build our email list. And distribute content, both on our site and through other third party sites in a way that helped to increase our reach and in a different way than through deals that are “actively in the marketplace.”

Owners will read our annual letter or an essay that we have on risk, and they’ll read it, they’ll pass it along to their advisors, they’ll sit on it for a year or two years, and then they’ll reach out, and that’s perfectly fine by us. We have the patience and the ability to do that. And we think that it serves the market in a different way. I think I made the reference to you before, we look at it as putting hooks in the water, right? So you’re fishing, and you’ve got to have the hook sit for a while. And ultimately, you’ll see if you’re fishing in the right spot or not.

But it takes quantity over time, combined with quality, because people aren’t going to share things that they don’t find value in. And so we’ve done our fair amount of experimentation with length of content, type of content. And what we found is we’ve published plenty of things that we wish we could go back and edit down or make longer in some cases, but it’s been a fruitful relationship, and has enabled us to get to know a lot of people who, particularly sitting in the middle of Missouri, we probably would have never otherwise encountered. We’re proud of that. Because even if we never do a transaction with those people, we have goodwill sitting out in the market. And that’s proven to be very helpful to us over time.

Patrick: Well, and particularly now, as a result of pandemic, the whole business development process has been turned on its head and are no longer, you know, dozens and dozens of in face meetings or conferences, things like that, those are all gone away. And the savvy firms were those that have thought about doing something like content, getting materials out there not only about themselves, just in general as kind of what we’ve done to and I don’t know if this has come across for you, but it has happened in our experiences at Rubicon M&A.

Out of the blue, somebody will reach out to us to help them with insuring their M&A transaction. And we will say in response, thanks a lot. Do you need any more information about us? Is there anything about us that you need to know to make you feel better as we go forward? And just know, you know, here are three of your content pieces that we’ve had, and they’re a year old? And they do kind of, you know, they accumulate interest. I would say just like putting putting some money away in a savings account? And

Emily: Oh, yeah, the evergreen nature is super interesting, right? So we do something similar with tools that we have on our site. There’s a whole section of the Permanent Equity site called Resources. And within that we have both the written content, but we also have things like an Instant Appraisal tool. It’s a risk adjusted calculator that calculates a valuation on risk-weighted variables, right? But we have it set up so that it’s open source. You can use the tool and never send it to us. And so just for a personal calculation for a seller and intermediary looking for third party value validation on what they’re trying to value, it gives them a tool that they can use.

What we found, which is super interesting, because we can’t see the inputs, right? Unless they send them to us. But we can see an IP address. And so what we see is IP addresses that use the tool repeatedly, right? Then all of a sudden, that IP address sends us an email. And it’s fascinating, because it’s something that says, again, people sit on things for a while. They think about them, they use them, they use them in conversations with other people. And this is how we interact with so many things. But we don’t think about it in the M&A landscape, because it’s so transactional — at least in structure.

A good judicious owner is going to do their homework. So there’s these opportunities to now find those types of tools. And again, to your point, you use it as a trust transfer, too, if you get enough value out of something that a firm is putting out there, then you kind of feel like you know them, or at least are familiar enough with them that when you have the first conversation, it’s not cold. It’s not so sterile, which just makes a tremendous difference, especially right now, when that first conversation is very likely not in person.

Patrick: I think it’s really important to emphasize this, that you are not downloading any of the visitors information as they go on and utilize your Instant Appraisal tool, because that’s a way that people are going to hesitate. They want to fill out a survey, but stop and think, well, now am I going to get hit up by a salesperson or something? And so that that is a great way to encourage engagement. And again, this is a long processing decision, if you want to sell your business unless you’re in a crisis mode. And it takes a while for people to warm up about it, even if they don’t necessarily get the information or the outcome that they’re expecting when they use the calculator.

Emily: Absolutely confidential. We only see a valuation is someone sends it to us. But you know, it’s funny, we’ve heard from people who have ultimately contacted us that they input the information as it is in reality, and then they changed some inputs to try and understand, okay, if I work on this, how does it change the calculation? And it’s great, because it can help people to prioritize changes. It’s a useful tool in that sense.

Patrick: Let’s talk about the approach you have or or how you guys are transacting? Because I mean, let’s not forget the name, the new name, now Permanent Equity. Okay, talk about your hold period. It is not indefinite, but it’s got a specific timeline.  We’ll get into that, why? And again, how that feeds into how you’re going to enhance a company’s existence when they partner with you.

Emily: Sure. So to the extent that we’ve always been oriented, like I said before, with investing with no intention of selling. And for the first nine years or so of the firm’s existence, we were able to do that naturally because we were structured as a family office. All of the capital was coming from one source, and that source was comfortable with basically an indefinite hold — undefined. And that transitioned in 2017, when we had a group of investors that came to us and said, under what conditions would you all take outside capital and run under a fund model.

And for us, we needed the incentives to be aligned in a way that didn’t feel like we were changing our identity. And so standing back with what we knew to be true as operators, and then what we had grown to understand as investors, there were certain things that were critically important to us. And one of them was we never wanted to be forced to do a deal. And so if you think about from a performance standpoint, tied to management fees, it’s very difficult not to do a deal when everyone is paying you to go do deals.

And then from the standpoint of how how things interact and how you prioritize post close, we’ve never made an investment, trying to think about exactly what the exit looks like, right? That’s not why we’re making the investment. We wanted something where we felt like when we made the investment, we were never going to then be a forced seller. So many private equity firms are, based on their fund’s structure with the term length itself.

So those were two of several key elements that were really important to us to sort of break down and reconstruct it in a fashion that felt authentic to us.

What we ended up building is a model where we have a 27-year term, and that term is then potentially extended beyond that period, by a vote of the LPs. And so, comparative to a traditional 7- to 10-year fund model, we are very close to triple that amount, right? And then we have 10 years to invest the capital.

We’re on our second fund now. So that fund has 10 years to invest the capital. So again, it takes time to get to know sellers. We have time to get to know opportunities. And we don’t feel like we have to move within the first year and deplete down our fund in order to be considered a success for the LPs.

Patrick: I’m sorry, not to interrupt. I’m sorry but this just sticks out, okay. 27 years, is divided by nine three times, I can see that. But why not 26, why not 28? Why was that was that somebody number in high school or something?

Emily: No, it was a lawyer’s number. One of the largest investors in the first fund — the original number was 50 years. We’ve always thought about it as being a true generation of capital. The attorney came back and said, you know, I’ve never seen that, and I’m not signing my name to anything that has that kind of duration. And so we said, okay, what’s the longest you’ve ever seen? That’s where 27 comes from, so it’s somewhat arbitrary. But to the extent that we have the options for renewal past that period, it’s really again, trying to make sure that it’s in the best interest of the companies and in the best interest of the investors to continue to hold the companies. We are never going to be a forced seller, and we really valued that proposition.

But on the other side, we don’t take management fees. We’re self sustaining based on the portfolio that pre-existed the fund structures. That gave us the ability to make that transition without feeling it at a fund level, or at firm level, which was… we feel very fortunate to have had that position. And so we were able to just focus on finding the right opportunities.

So the first fund was essentially a thesis fund. That was $50 million. We made four primary investments out of that fund, and then raised $300 million in our second fund, which closed at the end of 2019.

It was an interesting process. Our capital base is mostly from family offices, individual investors, and in the second fund, institutions that have been incredibly, incredibly supportive and gracious in understanding our model. And getting comfortable with the value proposition as it differentiates itself from traditional private equity, particularly at the institutional level. You can imagine, they’re used to a very specific structure that has worked for a lot of people for a long time. And so, being able to think outside the box, we were really fortunate to find the right partners for that.

Patrick: I would think also as a target partner company for Permanent Equity. And this is just a personal bias of mine. Is your approach on how are you going to improve the company, you bring them in, you’re going to grow them, you’re gonna get them bigger, but there’s one direction you go, which, which is, again, I say, near and dear to my heart. But why don’t you talk about because your growth is not on minimizing costs, or minimizing expenses or getting efficiencies, you focus on sales. Talk about that.

Emily: Yeah, if you think about it, how is the company going to be here in 10 or 20 years? You’re not going to cost cut your way to that. And you can’t really focus exclusively on just putting a bunch of disparate companies together, making a mutation, and turning it into a corporate behemoth that then has an EBITDA number that’s much larger so you can get a multiple expansion. I get how it works. But for the purposes of longevity, you’ve then got to work through the mess of what you just put together. Right? And so for us, we focus a lot more on the systemic health of the organizations.

We’re primarily looking for it through growing the opportunity side of the organization. And that can be done in a lot of different ways. In construction that can be tied to bonding capacity. In a lot of companies, especially those that are B2C focused, that can be improvement upon the lead generation funnel, and creating, obviously, line extensions and other ways that they can continue to meet market need. But we really look for that side of the table, and to continue to improve both the teams and the incentives that are aligned with seeing us continue to grow in a systemically healthy way. And we’ve seen that bear fruit for us.

So, we’re really fortunate in the companies that we’ve been involved in now for close to a decade. It’s kind of the tortoise and the hare situation. “Slow and steady wins the race” is our bet. We could have very quickly added on various things to some of the companies, but where they are today has been primarily fueled by organic growth. We’ve done some small things to make acquisitions and whatnot, but we have really driven operators, and where the firm can be really helpful is focusing on very specific ways of improving lead generation or improving the cost structure around that. Not in a way that’s focused on cutting costs, to your point, but more in a sense of trying to make sure that as much opportunity as exists in the marketplace, we have sort of the arsenal of tactics to go and try and go after it.

Patrick: Okay, let’s get into one thing. And this is from a prior conversation you had with me with regard to specifically lead generation. And that was one of your companies that was stable, things were good. And then COVID hit. And because you’ve done the work ahead of time to improve lead generation, they were on the precipice of just a boom. Swimming pools.

Emily: Swimming pools, yeah, we’re talking about swimming pools. So we’re fortunate to be partners in Presidential Pools and Spas, which is based in Arizona, and they’re the largest residential swimming pool builder by volume in the country. And so they build a tremendous amount of pools every year, and they’ve been around for over 30 years at this point. So they have just a great reputation within Arizona. But when we got involved, they primarily had most of their leads come from home shows, from walking into the building, or from calling. They had a website, but… and we invested in 2015. So this is, you know, kind of five years back, right?

It was really a question of how are we going to improve their online presence, but also create tracking mechanisms to make sure that when someone contacted them, we can understand what they ultimately ended up deciding to do, as far as you know, improving their backyard. That’s all tied to addresses in the pool market. So you’re able to kind of see how that happens over time. So we built a lead scoring system, built a new approach for them in terms of how they spent money in the marketing funnel, and within a couple of years, we had dramatically changed the lead funnel as a whole. Now leads were predominantly coming from online. That was kind of a flip flop. For them, it had historically been a very small amount of their lead volume, and now became the dominant source, which has fringe benefits just around being able to track the information. Somebody who walks around your showroom, it’s harder to collect all the information than somebody who submitted through a form, and then you can keep track of them from there.

But as the company has continued to grow based on a variety of different factors, lead generation not being the only one, but where we stood in 2020 is the company was significantly larger, but still has some critical mass issues. Capacity constraints around production are very real, especially in construction markets right now with labor constraints. You can only build so many pools physically at a time. And as the pandemic hit last year, it became capacity constrained, frankly, on both sides of the house. So both in the sales team, and for production, it became a metering system. We had to figure out how do you safely have conversations about what you want your backyard to look like. It was an issue, right, because it’s not something that you can do in kind of a remote capacity. A yard has to be measured. And you’ve really got to make sure that you understand the soil composition, and all of those things. So it’s technical enough that it can’t be done… it can be done socially distanced, but you can’t do it completely remotely in most cases.

And then from a production standpoint, you can only build so many pools. So we ended up having to gate the lead system. We were fortunate enough to have advanced the lead funnel system to a point where we had the mechanisms in place to be able to continue to make potential customers feel like we cared that they had contacted us, but that they were in somewhat of a waiting room until a salesperson was going to be available to talk with them, and help them to design their pool. And then from there, they have to get in line for production.

In March, we’re questioning whether there is going to be any demand at all. And by April, it was very clear that we were going to need all of those mechanisms in place. And to be quite frank, those mechanisms are still in place to varying degrees, just depending on what our capacity can hold on to. And we think it’ll be another strong year for that team this year as they continue to work through the backlog of people who now recognize that their home is more important than it’s ever been.

Patrick: It’s just a great story. It’s very, very memorable. How does this track with your profile? Share with me what’s the ideal profile of a target company that Permanent Equity is looking for? It’s not purely just construction.

Emily: No, no. We we look at a couple of different things. factors. We are not industry focused for a variety of reasons. But we focus on the durability of the value proposition. So if you look within any given market, what we’re focused on are things that, if you’re if you’re going to like measure durability versus growth, we’re far more interested in durability. Growth matters. We love growth, but to the extent that the prioritization is always going to be in durability, which necessitates then what we lovingly describe as more boring companies, right? You do what you do. You know what you do. It’s well defined, and you’ve probably been doing it for a while. Profitably.

And that’s sort of the baseline of what we look for. And then a large part of it for us is around team. So we want to understand again, what are the priorities of the sellers? Do they want to stay involved in the organization? We have a very different value proposition for people who are looking for a majority recap and a partner, compared to an LBO. Under our model, you would still benefit from distributions because there’s no leverage on the company. So that’s a very different value proposition for them. So we feel like we have a compelling proposition in situations like dissolutions of partnerships, as well as everyone continuing through a recap.

And then from a legacy perspective, for those that are looking for retirement, and haven’t been satisfied with more traditional options, there’s very compelling conversations to be had. My favorite story to that end is two aerospace companies, sister companies that we purchased in 2019, from a 95-year-old seller. And this individual had been approached for years by traditional private equity. But she had a team that had been incredibly loyal to the organization. Some of them working there in excess of 40 years. So it was very important to her that the organization continue to maintain its autonomy and identity, and that those people would have the jobs that they had been so loyal to, through that transition period, and for as long as they so choose to stay.

We found an incredible match in that and felt like it was mutually just an incredible fit. Because that’s a legacy that we intend to honor long term. And again, because of our actual financial structure of the deal as well, that company had no debt. So it was able to work through a decline last year, especially in the first half of the year, without having to make major restructuring changes to the organization. And that’s just a really fortunate position to be in.

Patrick: So what you can’t overlook, if you’re listening to this is that you cannot take the human element out of this, you know, for M&A. People are not in M&A every day, they look at it as news headlines, Company A buys Company B and they move on.

Emily: And they’re just assets to switch around, right? It’s not complicated. No! It’s made up of human beings.

Patrick: Exactly. So you’ve got a group of people choosing to partner with another group of people with the outcome, the the ideal outcome is one plus one equals five or more. And, and having the the nice and being able to sell the fears of the people involved is very, very important. And I bring that up just to, you know, as we think about fear in there is the amount of risk that’s there, this deals aren’t done in a vacuum at all, when and what sellers come to find out very painfully, sometimes in those surprises that they are personally liable to their buyer partner financially, in the event, something post closing blows up that they didn’t anticipate, and it’s built in within the contract.

And that can bring some friction, particularly for somebody who’s owned a business for a while and all of a sudden, they’re not used to selling and now they’re going to be personally liable for something that could be out of their control. And that creates a little bit of tension. And what we’re very proud of it in the insurance industry is that there’s an insurance policy that can insure deals. Now is available for lower middle market deals as low as $15 million in transaction value, where the policy takes the indemnity obligation of the seller, transfers it away to the insurance company, so that rather than the seller being liable to the buyer for financial losses, the buyer suffers post closing that were not accounted for in the rest of the seller reps.

If that happens is still the buyer coming after the seller, buyer goes to the insurance company. And we like that because buyer gives peace of mind knowing that if something bad happens, they’re hedged on potential losses. Seller gets a clean exit. In most cases, the insurance policy replaces some or all of any withhold or escrow so there’s even a great financial benefit in a component. And to take away the fear for sellers, I would say in our experience, nine times out of 10, the seller will pay for that insurance policy, some or all of it on behalf of the buyer. So it’s taken care of. And the type of product I’m talking about is called Reps and Warranties insurance. And I’m just curious, Emily, good, bad or indifferent. You’re doing these M&A deals a lot. What experiences have you had with rep and warranty?

Emily: Yeah, so we are still pretty old school on our reps and warranties. We still go through and draft drafted the entire section. And we don’t use insurance. We can understand where it can be applicable in the marketplace. For us, our diligence process is differentiated enough. We use diligence as a way to get to know the sellers. We talk through both the fundamental reps, obviously, but also through risk factors that are embedded in the business, and making sure we’re of mutual understanding as we move forward. That is really critically important to us. We still go by it in an old school fashion. But you know, the market, I think we’ll continue to see plenty of people using that type of product, particularly those that are focused on very quick closings.

Patrick: Well, now as we’re coming in, we’re just at the beginning of 2021, I do have to underline again, that you were named as one of the top 20 thought leaders for 2020 by Axial for lower middle market M&A. So let’s let’s lean on you as the thought leader, what do you see going forward? Or what trends do you expect to see in 2021? Either macro or lower middle market M&A, or at Permanent Equity in particular?

Emily: I’m not sure that it’s as much about leadership as it is just a willingness to be opinionated and vocal about it. But to some extent, I’ll take the the compliment either way.

I think where we’re sitting now, 2020 was slow from a deal opportunity standpoint, and we knew it was going to be. We anticipated that from the spring onward. I will say that it was a very fruitful time for us to just work on building relationships, and just being there for people who are going through stressful times. That time of uncertain uncertainty is some of the most stressful and particularly when you’re in the driver’s seat of a company, that is a tough position to be in. So we just tried to be there for people, if that makes sense.

As we move forward, we’re seeing some people who, for a variety of reasons, whether demanded by time and age, or just, kind of thinking through what they want to do next are coming back to market. We’re starting to see a return of deal flow, which is positive, and we’re excited about that. But we are continuing to see people who are sort of trying to figure out how much of their 2020 outcomes are sustainable long term. And so the narrative built around that I think is going to be something that we’re going to continue to unpack and understand, probably for the next two to five years. Patrick, I’m sure you remember — I got heavily involved in 2011 in looking at M&A transactions, and so it was kind of on the back end of 2008 to 2009. It was two years later. And by that point, you would start to see the narrative story for each organization.

It’s like, never waste a crisis. There’s so many things that we’re going to learn over the next couple of years. And from an operator’s perspective, it’s a really good time just to think about the fundamentals of how your business is structured. And recognize what you’ve done well through this period of uncertainty, and I think that for the market at large, and particularly for transactions, it’s been a nice reset.

In 2019, I remember being pretty frustrated by the hubris of both sellers and other private equity professionals. Leverage is abundantly available and there’s nothing that’s going to derail this economy and just sort of all the things that were kind of steamrolling and snowballing in a positive direction, and then, we all got a humble pie.

Right? And us included. But to the extent that I think people having a reminder on why leverage needs to be judiciously thought through. It can be helpful in certain situations, but to the extent that it’s not an obvious answer for everything, at least from our perspective, we think that that has been reset to some extent.

And then we think that there’s going to be plenty of opportunities for people coming out of this to see economic expansion and we’re ultimately, I’m very bullish on the future of the American economy, North America as a whole. And we think that for sellers and buyers alike, that landscape is going to be pretty strong.

Patrick: Emily Holdman, how can our audience find you?

Emily: I’m fairly easy to get ahold of. My email in particular is all over our website, but it’s e@permanentequity.com. And I also tweet quite a bit so you can find me on Twitter as well. And don’t be a stranger is what I would say. I’m pretty quick to respond and happy to talk through things, even if they’re sort of in infancy in terms of deal structure or an opportunity.

Patrick: No, you’re not hard to find, if I could make a recommendation to my audience, go check out permanentequity.com, click on the About tab, and you’ll scroll down to Our Home. And then you can click on that and you see all the nice intimate elements of the firm. The house that they use as their office, and all kinds of interesting factoids, real estate prices, top restaurants in and around.

Emily: We’ve got to increase the profile of Columbia, Missouri. It’s a great place to live. I think it’s supposed to be one degree this weekend, so maybe don’t come visit us this week. But it’s usually pretty good.

Patrick: Emily. Pleasure having you. Thanks again for joining me today.

Emily: Thanks so much, Patrick.