M&A experts worldwide are using an insurance policy known as a Representation and Warranty (R&W) to transfer risk from the parties in a transaction to an insurance company. R&W policies are designed to, “step in the shoes” of a seller to pay indemnification claims made by the buyer for inaccuracies of the representations and warranties outlined in the purchase/sale agreement. Due to the low cost of R&W insurance, sellers are driving the demand for these policies rather than accept large, lengthy escrow or withhold terms. Buyers are discovering how R&W insurance can enhance their bid without having to raise their offer.
Limit Capacity – Up to $100M on a single policy. Excess capacity up to an additional $400M available as needed.
Retentions – commonly 1% to 3% of the purchase price. Reduces over time
Premium – 3% to 4.5% of the limits purchased (including taxes and fees). Minimum premium is $300,000
Underwriting Fee – From $25,000 to $35,000 in addition to the premium. Covers the cost of Insurer’s attorney’s fees and due diligence costs to review and manuscript a policy. Non-refundable.
Terms – designed to match the survival period. Post survival extensions available upon request.
In recent years, Representations and Warranty (R&W) insurance has become available to smaller and smaller deals.
The eligible deal size dropped to under $20M… then under $15M. This is already quite a feat when you consider that the average transaction value (TV) for deals with R&W coverage in place is $500M. And to be honest, most insurers won’t go lower than $100M—Underwriters are already backed up on processing policies and insurance companies don’t always want to take the time to work on smaller deals that won’t generate large amounts of fees.
Now, for the first time ever, this unique type of coverage is available for deals with a TV of $250,000 to $10M. This opens up R&W coverage to a whole new universe of deals.
How did this breakthrough come about? As with many business ideas, someone saw a gap in the market and decided to fill it with what is officially called Transaction Liability Private Enterprise (TLPE) insurance.
According to CFC Underwriting, the London-based insurer that innovated this new insurance product, there were 230,000 deals in which the TV was between $250,000 and $10M. They decided to create a product for this vast unserved market and came up with TLPE insurance as the first to market solution.
Here are the basics on this coverage, which is available worldwide:
Covered industries include professional services, technology service and product businesses, transportation and aviation, and insurance brokers. CFC generally declines deals involving businesses in healthcare, financial services, oil and gas, mining, pharmaceuticals and regulated industries (such as telecommunications).
How It Works
Similar to standard R&W insurance, TLPE covers innocent misrepresentations made by the Seller to the Buyer.
This provides the Sellers peace of mind because they know they won’t have to risk some or all of their proceeds from the deal in the event of a breach. On the other side, Buyers enjoy a feeling of confidence because there is a guaranteed source of funds available to cover their loss.
Unlike the vast majority of R&W policies, TLPE is strictly a sell-side product. The policy is “triggered” only by a claim brought by the Buyer against the Seller for a loss caused by a breach of the Seller’s representations in the Purchase and Sale Agreement.
As part of this coverage, the Seller is entitled to have their legal defense to contest the Buyer’s claim paid for by the insurer. Underwriters have full authority on the selection of the Seller’s defense counsel, which enables them to control claims costs. The insurance company will also cover any damages or settlement amounts.
Something not in a standard Buyer-side R&W policy is the exclusion for Seller fraud.
While no insurance policy will cover known fraudulent acts, TLPE will pay the legal fees to defend the Seller against allegations of fraud. However, they will cease providing defense costs if actual fraud is established in court.
Important: if the Buyer sues the Seller for something not related to a breach, the insurer does not provide legal defense.
Quick and Easy
TLPE offers streamlined and cost-effective underwriting:
This quick and easy process is possible because the Underwriters are not viewing the reps. They’re not looking at the due diligence collected. They are simply underwriting the application that the Seller provided.
TLPE in Action
TrenData is a Dallas-based SaaS company that offers various human resources services. A larger human resources technology firm was planning to acquire them. The TV was about $5M.
What held up the deal was the Buyer insisted that in the event of a breach of the intellectual property (IP) rep, that the target company would be responsible for any legal expenses or loss. At the same time, the Buyer would retain the sole authority for selecting their own legal counsel and determining the legal strategy.
As the target company noted, this is like essentially writing a blank check. The Buyer could easily hire high-priced attorneys and/or drag the case on and on. They would not go for it.
Neither side would budge on this issue, and it seemed like the deal was lost.
However, less than a week later, the Seller reached out to my firm, Rubicon Insurance Services. We discussed TLPE coverage and how it could work in this deal. The Seller contacted the Buyer, and once they found out that the Seller would pay for the policy, that legal costs would be covered in the event of a loss, and that the deal could be insured up to the full $5M in TV…the gap between the two sides was bridged and the deal closed within a week.
What to Do If You’re Interested in Coverage
TLPE seems simple enough. However, there are key conditions and limitations with this new product. So it’s essential you have an insurance broker experienced in M&A handle the process of securing this coverage.
Something to keep in mind: TLPE policies can be placed post-closing, so if you were unable to get protection for a previous deal, it can actually be revisited.
If you’re interested in seeing if TLPE coverage could be a fit for an upcoming – or past – deal, you can contact me, Patrick Stroth, at pstroth@rubiconins.com.
Our guest for this week’s episode of M&A Masters is Scott Hendon of BDO. Scott has been with BDO for 20 years and currently serves as the National & Global Practice Leader for Private Equity. A true icon in M&A, he brings a unique perspective as he knows both the investment side and the service side.
Today we sit down with him to talk about the recently released Spring 2021 BDO Private Capital Pulse Survey Report. The survey polled 100 private equity and 100 venture capital middle-market fund managers across the United States.
On the show, Scott talks about the key takeaways from the report and offers his insights into:
Patrick Stroth: Hello there, I’m Patrick Stroth, President of Rubicon M&A Insurance Services, and trusted authority for transactional liability. 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. I’ve got to say just on a personal note, real quick. When you’re doing these interviews, your big dream is to have a monster guest who’s breaking some news out there.
So I no pressure to my guest, Scott here. But this is something I’m very, very excited about today, because we’ve got a true icon in mergers and acquisitions in America right now. Today, I’m joined by Scott Hendon. national and global practice leader for private equity for BDO. BDO is the fifth largest accounting firm in the world that generates over $10 billion in annual revenues, has 191,000 employees working in 167 countries. So it’s a special treat to have Scott here because today we’re going to talk about the newly released BDO private capital pulse survey report, which was just released. Scott it’s a pleasure to have you. Welcome to the podcast.
Scott Hendon: Thank you, Patrick. Maybe just a little bit about myself. Well, as you said, Scott Hendon here and I just to cover a little bit about my background. I’m, originally from Lubbock, Texas, I moved to Dallas, Texas about 35 years ago. Went to Texas Tech University. I got an MS in taxation, I started my career at Arthur Andersen. And I’ve been with BDO for 20 years. I learned early on in my career that I wanted to get into private equity. So it didn’t take a brain surgeon to figure out that there’s a lot of money in motion, a lot of action. So I really wanted to get into the private equity side.
And once again, I realized that there’s a lot of services, and a lot of value that you could add to private equity. So as you said, once again, I’m a partner at BDO and I currently I’m the national and global leader of the private equity practice. I’m also on the board of directors for BDO USA. And I’m also on the board of directors of BDO capital, which is our wholly owned Investment Bank of BDO USA. Besides actively coordinating services and resources for private equity clients globally, I’m also an active investor. So I also invest in private equity and invest in pre spac deals, PIPEs and CRONs so I have a unique perspective. And I know both the service side to the private equity funds, as well as being an investor in there.
Patrick: So you’ve been on both ends of the table, probably, you know, there are four, four sides to a table. You’ve been on all four of them.
Scott: That’s right. And it’s been very good to me on all sides, there, Patrick.
Patrick: Outstanding. So let’s talk about the private capital pulse report. How did this come about? What is it about? And give me some comments before we get into details.
Scott: Sure, so first of all, the we’ve been doing the private equity survey for over a decade, I will say that it used to be a lengthy report that we did every 12 months, and we track year over year, what the trends were. And once again, we interviewed 200 private equity firms, or I’m sorry, funds, 100 private equity and 100 venture capital funds. So that had been working great. And we’ve been doing it for over a decade, we had a big following. It’s covered by the press very well. Then we came into to 2020. And we did back then we’re doing one survey a year. So we did our questions in late February, early March.
And then we published in early April. So as you can imagine, the change that happened between February to April in 2020. The, it was really you know, once again, a lot of the data, a lot of stuff that we’re tracking, and it just wasn’t relevant, right? Because obviously COVID was the thing of the hour. So we pivoted on that and we went to more concise reports. It’s our current pulse survey. And we’re doing that two times a year. So we do a spring and a fall. So we just released our spring, and we’ve done a release for Fall of 2020.
And I think it’s a lot better. It’s more concise. It covers a lot of the major issues out there. But more importantly by doing it every six months, it allows us to have a better beat on fund managers. You know, it’s more frequent. It’s, we can tell what emerging trends are doing, you know, real time sense of what’s going on. So, once again, that’s kind of the history of that and once again, we get a lot of following out there, it’s when we get a lot of coverage globally in regards to what’s coming out of the survey.
Patrick: Well, that’s a good clever name having a private capital pulse. Because if you’re doing this a little bit more, as real time as you can, you are on the pulse of thing. So yeah, you know, kudos to your marketing department to come up with with with that good title there. We can go in a lot directions with this on this because it is a big report. But why don’t we just get get a little macro first? All right. What’s the marketplace like for deals for private equity, you know, specific to mergers and acquisitions?
Scott: Sure. So first of all, at a high level, and then I’m going to dig down a little bit into to the survey. But as we sit today, the activity is incredible. So q1 of 2021, it’s one of the best quarters that the BDO private equity practice has ever seen. So that’s kind of where we’re at today. Now, if you roll back to 2020, not to look back, always looking forward. But you roll back to 2020. Yeah, there was two and a half trillion dollars of dry powder sitting there on the sidelines, deals were frothy.
This same from January to March, everything was going great. You know, pricing was good. Then COVID hits in March. And then from March, yeah, exactly. From March to June, the deals basically all got pulled back, everything came to a screeching halt. The banks weren’t loaning the private equity funds, we’re just trying to hunker down and figure out, you know, how to how to thrive and how to be resilient during the COVID crisis. So anyway, so there’s little activity from March to June. And starting in June, I think the private equity funds we’re getting a lot more comfortable and how to do due diligence, how to mitigate the risk.
Patrick: Learn how to work Zoom.
Scott: Absolutely. So anyway, some of the deals started coming back and banks started loaning again. So then you roll forward to the q4 of 2020. And, you know, private equity is very resilient, they figured out how to adapt. And so the deal flow, all the old deals, were coming back on the market that were pulled. A lot of new deals, a lot of people because of pricings good. I think a lot were saying, hey, are we going to have another wave of COVID or some we’re anticipating potential capital gains increases.
So we just had this tremendous amount of deals come out plus SPACs, were really getting the momentum going out, they’d raise a lot of capital. So q4 was really hot. And then we roll into q1. And just like I said, not to be redundant. But you know, it’s been q1 of 2021, has been extremely, extremely hot in a good time for certainly from the deal market and a lot of activity going on there.
Patrick: Is it safe to say, you know, because we’re still in the pandemic, but I’m going to call this post pandemic right now, for purposes. But would you say that activity and financial strength in this period right now, post pandemic has surpassed the pre pandemic levels? Is that safe?
Scott: You know, I would say it’s right there. I will say just the I think one thing that came in is all the deals that got pulled and put back on plus all the deals coming out. So it has, you know, it certainly is right there. The as far as the banks, the lending, you know, everything’s come back with a vengeance. It’s, it is amazing how resilient and resourceful that private equity has been. And I’ll go into maybe a little bit later on some of the things we’re saying the survey, but certain things have changed out there. You know, the what tailwind companies and certainly there’s young, there’s new industries, you know, a lot of digitalization other things, but man, the the market is, is really good. I’d say it’s as good or even better than pre pandemic.
Patrick: I would say, I would want to ask, as you get in just you could take whatever direction you want, but you had a section on there for key competitors. And one of the things I find this very encouraging about mergers and acquisitions, just the American economy, in general is just how it is constantly expanding is constantly evolving. And you just look at the number of private equity firms out there five years ago, you know, there were maybe 1000 private equity firms, or just over 1000 there are 4000 plus private equity firms now, yeah, I think it’s closer to 5000 just in the US. So, you know, let’s draw from that. Let’s talk about competitors in this landscape now.
Scott: You bet. So I’m gonna in that I’m looking at my survey here too Patrick but yeah, so the competition now once again, we did I’m going to do a comparative analysis from the fall survey today so what what’s the we pulling the you know what I’m personally seeing I think it’s consistent what what the fund managers feedback they gave us now, the number one competitor for deals, it’s generally strategics and private equity are kind of one one and two. That’s what we generally see. Of no surprise, strategic buyers came in as what the fund managers thought in the next six months would be the major competitor for deals.
So that came in about 52%. It’s up three and a half percent over the fall survey. One thing that’s really surprising is is that hedge funds and mutual funds. And what the fund managers said in the survey, they said it was it came in the number two spot at 51% said that they would be a major competitor for deals, and that’s up 12 and a half percent since the fall survey. So I was really surprised on that sovereign wealth funds were in at 40.5%, it was up about 4%. And then, PE and VC funds had fallen down usually once again to one or two for what they the fund managers themselves were saying. They said that they thought the most competition, you know, what would be coming out in private equity and VC firms were coming in at the four spot or fifth spot at 35%.
So they dropped eight and a half percent. So a little bit surprised about that. Now, we also just added SPACs, because I think if you look at the the SPAC cycle, you know, if you go back a few years, you know, they were kind of downstream, they were a major player, obviously, today, you know, the major banks, and they’re raising a lot of capital now, they only 23 and a half of them said that they saw the SPACs as a major competitor. So once again, that was a little bit lower than I thought, and we don’t have a comparative analysis. But we’ll we will start tracking that for future service.
Patrick: Yeah, let’s let’s let’s just, you know, focus on the SPACs real quick, because the one thing about the SPAC is, you know, for for us that are in the transaction world, you know, the a and SPAC is acquisition. And so there’s no vehicle that’s more ideally suited for mergers and acquisitions. And for the the insurance in that area, then the SPACs, and while there’s been legislation proposed and rule changes proposed as really cut off the SPAC IPO activity, you still have over 400 SPACs out there looking for an acquisition the next two years. And so, you know, I agree with you, their presence just showed up overnight. And you know, it’s still early in the game. But I mean, what are your feelings of these of these SPACs out there in the marketplace?
Scott: Yeah, so first of all, I think just what we’re seeing on the survey, I think it’s just the the magnitude of the site, you know, there’s so much capital out there. I don’t, I think SPACs, you said that it had slowed down somewhat, you know, SPACs, you’re right, there’s over 430 SPACs, looking for acquisitions, I think maybe 100 have been identified, but they’ve raised a lot of capital, and they’re, they’re coming out with really good prices. And if they don’t get their acquisition within a 24 month period, they have to give the capital back. So certainly, you have SPACs that are out there. And I see this long term too, it’ll continue out there that you’re talking about, the SEC came out with basically just an interpretation of how warrants should be accounted for.
So you had that out there cut, there’s a quite a few restatements that are going to be done. But you know, the SPAC market slowed down quite a bit in the pipes have kind of slowed down as well. But I don’t I don’t see that as a long term effect. I think the main thing is that there’s so many out there looking for deals, I think that, you know, some of the IBs, you know, once again, or slowing it down, maybe some are trying to get some people to pivot IPOs. But they’re a great vehicle an option to go public, as you said, there. You know, there’s a lot of advantages on there. If I were to have enough time on on this podcast to go through, but I like it out there, I think it’ll continue will continue to be a competitor out there.
I just think the 23.5% I think the only reason it’s that low is just because the magnitude of all the other players out there, but I can see SPACs still being, you know, a viable option going public, it’s really, you know, it’s a lot easier to do an acquisition related than roadshow, there’s, you can get 50% your capital back. And anyway, that, you know, there’s a lot it generally it’s faster to market than a typical IPO. So there’s a lot of benefits out there. And I will say even though they’re a competitor to private equity, there also have been a really good exit strategy for private equity.
So a lot of PE backed companies, we’re seeing a lot of the funds that are wanting to ensure that their portfolio companies are ready to to SPAC or get into de SPAC transaction. So they’re definitely, you know, competitor on one side, but a great opportunity on the other. And then we’ve also seen some of the private equity funds do their own SPAC raise for certain verticals out there just because once again, it’s a good vehicle to raise capital and go.
Patrick: And you know, there’s got to be exits for somebody in and as, as these portfolio companies are getting bigger and bigger, you need a bigger fish to eat this whale that you develop, you know, from a guppy and so I think is great for the M&A ecosphere, that there’s another place for these bigger exits to go.
Scott: Absolutely. And I will say one thing, I don’t think it had a huge impact on this. But some of the funds, you know, we had a certain number that were under, you know, 2 billion or, you know, of assets or management. The SPAC market, obviously, is the bigger deals out there, too. So that might have had a little bit of impact. But I think, overall, the reasons it’s at 23 and a half percent is just because the size of you know, yeah, the 2.2 $2.9 trillion of dry powder that’s sitting out there.
Patrick: Exactly. You mentioned the reports and key drivers for M&A. Why don’t we touch on those real quick? That’s more of a macro issue as well.
Scott: Sure. Yeah. So great question, Patrick. Now, what we saw in the survey for the drivers of deal flow, or what the fund managers thought would be driving it over the next six months, first of all, the private company sales and capital raises. So that’s it’s at 50% said that would be the major driver. It’s exactly the same as the the fall survey. So those are exactly the same as what I’d expect to see there. One thing that was a little bit surprising was succession planning.
So I think a lot of them think that some of the the generational companies that typically send it on to the next generation, they’re going ahead to exit out maybe it’s COVID, who knows. But anyway, for whatever reason, they they thought that succession planning would be one of the major drivers of deal flow coming up in the next six months. And it dropped from our fall, it was at 37, it went all the way up to 48%. So there’s big a big jump there, as far as the next one down would have been trades to other financial buyers or strategics. That came in at 46.5%. No surprises there, investing in distressed assets was next.
And that actually, we’ve we’ve been expecting, you know, distress assets to come to the market, right, because you kind of wait for the other shoe to drop. But anyway, there, it actually dropped the anticipation on that 2%. But once again, for whatever reason, the banks have been, you know, trying to work out and in a way we’ve seen, you know, there’s maybe stimulus money and other things. We haven’t seen the distressed assets on the market yet, but that they listed that is number four out there.
Patrick: That was a surprise. Yeah, we were, the industry was preparing for a lot more distressed.
Scott: Yeah. And you would expect eventually that’d be the case. But I think that’s what based on what the fund managers are saying or what, you know, anyway, that that was their anticipation of the market. Also on public to private transaction or taking private transactions. They 41% said they felt that would be driving deal activity. So they’re looking for any public companies, even though I would say the public markets have been pretty frothy, as well, anyway, they’re still looking for, you know, key deals out there.
And that was up 2%. Corporate divestitures is, it’s up six and a half percent day. And that’s it proximately 38.5. And with that, in that that makes perfect sense. And because a lot of the company big companies out there trying to shed non strategic businesses lean and mean, lean and mean, get back to their, you know, what they do best and, and jettison out wood and have a clear focus. So whether they’re anticipating to see a lot of investor transactions and a lot of ones that can come out, take, build it, and, yeah, build it out and flip it.
Patrick: Yeah, we’ll see. And the comment I had on is the observation is, is from a conversation you and I had earlier because we’re both old enough to have gone through multiple cycles between whether it’s 9-11. You got the .com implosion, you had the financial crisis. And then now you got the pandemic and in business owners that have gone through that cycle. At some point, I’m sure they’re putting up their hands. And they’re just saying enough. In addition to that, you guys situation is one thing about that didn’t change in the pandemic is time didn’t stop. Everybody’s getting a little bit old.
Scott: Yep. And I think that has a lot to do with where they go back to succession planning, private company sales, for exactly what you said, Patrick, so I agree. 100% on that.
Patrick: One of the other things I found that was that was surprising. This is just one of those being from California. It’s a nice sounding thing. But it’s now in the nomenclature in the boardrooms. And that’s ESG the environmental, social and governance, prerogatives and the issue about that, as its, you know, its ambitious and as aspirational as really good stuff out there. And everybody’s got great intents, but the rules for ESG are still fluid. And if you fall short of those rules that can have catastrophic implications. And you mentioned this, but I didn’t realize this is organizations likeBDO have a solution to that to keep companies abreast of that. Let’s talk about ESG and then what BDO does.
Scott: Absolutely. So first of all, in our survey, Patrick, we added, this is the first time that we added an ESG questions. And what came back on that or survey showed that 94% of the fund managers said that incorporating ESG investment criteria into their investment strategies was a priority to their LPs, and only two and a half percent said it wasn’t important. So I don’t know that I’m surprised about that. But once again, it was a really large number and a very small number that said that it wasn’t important to that to their LPs.
And I think what’s happening out there, no one is going to help out on exits, I think that everybody’s looking at private capital fund managers are feeling the pressure from LPs and other stakeholders to think within sustainable investment framework. So ESG is about your framing decisions to include the consideration of these risk factors. And, you know, they don’t necessarily affect the financial statements directly. But it’s material to the sustainable operation of the company.
And then I know, many are working to incorporate sustainable investment thinking into their business models, or there’s also regulatory issues, metrics that the SEC has gotten, and they’re starting to look at, you know, certainly for public companies, but on the private equity and private capital markets, they’re starting to look at the disclosures that are being made out there. And there’s accountability. And then if you go overseas, certainly the regulators in the EU and some of the other places, you know, they have pretty pretty stringent disclosure requirements they have to do out there. As far as the services that we’re working with the funds to look at how they get system set up to track benchmark and see how they’re doing.
And they’re certain metrics like RPI is or whatever that they track, and they give themselves grades, and then they’re tracking hey, how well are we doing on the various SCG components. And that’s important, both, you know, for them from a business perspective, to report back to the LPS. And I think that there’ll be a premium to the extent you have a company that, you know, following ESG principles that you know, that I think the return on investment will be there as well. And certainly, you know, I think you’ll get a premium on that.
Patrick: Yeah, I think it’s along the book title, you know, the infinite game, you got a long game, a short game, and then the infinite game. And this, you know, dovetails right into that, and it’s just, you know, implementation and, and establishing systems and you know, who better than BDO to come in and monitor and help help firms adjust? So it’s not one rule for everybody, but it’s customized. So I think that’s a, that’s a tremendous value add that you have, right, we can’t have a survey like this without addressing COVID. Okay, and so, and I don’t want to steal your thunder, if you want, you had to send your report has the sentence of this whole event. And and I’ll leave it to you. But talk to me about, you know, how COVID impacted things now going forward?
Scott: You bet. So first of all, it was in our big what you’re referring to, we had that everything’s changed, but nothing’s different.
Patrick: Yeah, everything’s changed, but nothing’s different.
Scott: Let me explain that. First of all, I’m going to go through what the fund’s told us about, you know, how things have long term impacts of COVID-19, especially specifically on deal making. So specifically said digital capabilities of acquisition targets, you know, once again, a key variable in the deals, importance of a robust risk management and acquisition targets. Hire long, long term ongoing valuations for certain industries, clear robust supply chain strategies, because obviously, we saw some of the weaknesses and what can happen when the supply chain breaks down, fewer in person meetings throughout the process, lower long term ongoing valuations for certain industries, and a shorter, shorter due diligence process.
So those are the main points that came out from the survey itself just on long term impacts of COVID. But what do we mean by everything is changed, but nothing’s different. And I’m going to throw out an analogy to you, Patrick. So if you kind of think through think of the forest versus the trees, so if you look at the trees, yeah, there’s new species that pop up, and maybe some grow faster than others. So if you throw that over to what’s going on right now, you know, some industries are faring much better, they actually thrived and grew and grew out of COVID-19.
So you have those, you have certain ways that how we work is changed. So you have a lot of these new industries. And so, you know, from the tree perspective, we’ve got, you know, new species or you know, once again, companies are growing, you know, there’s been a significant change out there. On the flip side, you know, if you look at the forest, I don’t think anything, the overall picture has really changed. So you still need to kick the tires, you still need to connect with leadership, do due diligence, you got to return, get generate return on investment in, you know, the the, the major theses is if you, you know, tend to or properly, you know, build out these portfolio companies, you’ll get superior yields.
And, you know, basically, that’s, you know, the big thing is to find quality deals, basically do smart things do add ons, hopefully you don’t overpay for it. And once again, it’s all about return on investment. I think, fundamentally, that’s what it’s all about. So hence, everything’s changed. And that a lot of the industries and how things are done is change. But nothing’s really different in regards to private equity, and how they invest and what the process is for making their investment.
Patrick: Sound business practices, or sound business practices. And that’s how I got. Okay, so absolutely. Tactics might but not overall strategy.
Scott: Absolutely. Absolutely.
Patrick: Well, now, Scott, this wasn’t in the report. But I do want to ask you just about because you’re with private equity and throughout M&A, what COVID has taught also in recent experience right now is having insurance on M&A transactions, specifically reps and warranties, insurance, and then directors and officers tail insurance and tax policies and so forth. The early returns that we’re getting on all the servers for 2021 rep and warranty is only getting stronger, it’s only getting better, people are buying it more often and bigger policies.
And it’s because the track record has been just outstanding throughout this and private equity, if something doesn’t work, they cut it off immediately. But, you know, don’t take my word for it, you know, as the head, you know, both national and global with, you know, private equity, and they’re in the business of mergers and acquisitions. What’s your perspective on rep and warranty insurance? Good, bad or indifferent?
Scott: Absolutely. Great question, Patrick. And, first of all, the others besides rep and warranty, all all important, but rep and warranty insurance. If you roll back four or five years, you know, wouldn’t it as common and you know, it’s not on some of the bigger deals. I’d say today, almost all the deals about the buy and sell side has rep and warranty insurance. And I think that’s gonna continue and the major reason that they’re getting reps and warranty insurances, you know, first of all from the buyer side. You know, just to start out we’re generally a lot of the you want to negotiate what the major terms of the deals are price and other things.
And usually the indemnification escrow that’s always a non productive negotiation anyway. So we’re you have a seller that’s offering say a 5% indemnity escrow, but the buyer wants, you know, what market is about 10%. So instead of having, you know, negotiations, probably non productive on that, bring in indemnification, or I’m sorry, reps and warranty coverage. And it allows you to basically drop it down, you can drop it down to 1%, which makes the deal the package more attractive to the seller.
And then also, you can negotiate, you know, better better coverage, and you get out of the typical indemnification escrow. Also, it’s generally a longer period where you get a three year coverage period versus a one year so. And then lastly, which I think is really important in you know, a lot of times there’s going to be disputes, right. And it’s a lot better if you have especially a middle market companies, if you have the prior owners that have the sellers are still coming in, they still have some, you know, some rollover equity, but a real important to the business.
The last thing you want to do is being you know, having a pissing match or not sorry for the words, but you know, basically suits or whatever the case is with prior ownership over the indemnity versus if you have the insurance company in there. Once again, it’s not the same same issues, right, you can just negotiate with the insurance company about, you know, settling up on whatever the you know, reps and warranties were. As far as the seller, well, it’s easy, because once again, they just want to get it closed as fast as possible. Reps and warranty insurance allows it to that.
And if you can negotiate a 1% versus a 10%. That means that they get more of the indemnification escrow to them instead of being tied up in a low returning escrow account so they can get more of their money and get it to work. So it’s really a win win. And it’s, it’s, you know, it would be almost uncommon not to see it in most deals these days.
Patrick: Yeah, I would if it’s if it’s done properly for the buyer, if you present the terms to the seller where you either go uninsured with a big escrow and you’re at risk for a major clawback or we’re gonna get this policy for you and your escrow goes from five or 10% transaction value down to 1%. And you can keep the rest of the money because we’re not gonna claw it back. 99 times out of 100, that seller, not only will go that direction, but they’ll happily pay all the cost. So if you’re a buyer, okay, you’ve got all the benefits, you take all the tension out of the room, you get rid of that uncomfortable post closing conversation saying, yeah, that escrow you want to get, we have to, you know, we lost it, sorry, that’s all gone.
Combined that that is free, because the cell is going to pay for virtually bad faith on the buyers part not to bring this up at least be open to bring it up. What’s great is rep and warranty is now available for the add ons where you’re looking at sub $50 million transactions. And those you just pump those out. I mean, and we really appreciate it just in our industry, because the the claims history, and the satisfaction rate on this product has never been higher. And I’m comparing that to any other insurance product out there. So we’re very, very proud of it is great to hear that. Yeah, it’s been embraced by private equity, which does not like spending a lot of money on insurance.
Scott: Yeah, but once again, for all the benefits that you just relayed. And what I did, once again, it just makes sense. It gets deals done. And also it’s just a better way to get it done and get good deals done, get money back to the seller and in also have proper coverage.
Patrick: I’m curious Scott, I know, we didn’t cover this earlier. But was there anything in the report that surprised you?
Scott: Some of the things that I guess that surprised me the most. Well it was just I think we’ve already covered it. But you know, when you had the the mutual funds and hedge funds jumping so far, that I was really surprised about that? I don’t know exactly, you know, we don’t go back and separately interview the 200 poll participants, but that was one I just wasn’t expecting. I know that they do, you know, go out and do direct deals and some of the VC deals, but for them to be in the number two spot, that was really surprising for me.
Patrick: Now, again, you go, the purposes of this is not only to take a quick snapshot back, but then using that data, you know, looking forward, what are some of the trends based on this? And we can find what are the trends you see going forward? You know, at macro micro, whichever you like?
Scott: You bet. So some of the key takeaways from there, we already talked about ESG. So obviously, I think ESG is going to continue to be more important, what we asked the funds on what they thought about asset prices, and 91% expected asset prices to rise in the next six months. So almost virtually everybody thought it would raise and there was about 50%. 50% expected to raise between 10 and 24%.
Patrick: Wow.
Scott: And then you had five and a half that that actually started would rise more than 25%. And we’re talking about a six month period. So what that was, anyway, so I think the key takeaway there, the way things are going, you know, with all the dry powder, the spax out there, prices are gonna continue to go up. So it’s key to kick a lot of tires and make sure you do quality deals.
Patrick: Just like real estate in California. My goodness.
Scott: Hopefully, yeah. So what what happens in the, you know, in 2022, I guess yeah, we’ll see on that. But anyway, that was one of the big things out there. Also, the on taxation of digital services of product. So it actually came in higher than the concern about the rise in capital, capital gains rates.
Patrick: Could you clarify that taxation on digital services? So you are paying tax on Saas kind of services?
Scott: That’s correct. So it’s digital products and services. And I think the reason it’s going to be rising, probably twofold. That one, there’s a lot of, obviously a lot of stimulus money, a lot of expenses that both foreign governments as well as state governments are going to have to cover. And also I think there’s concerns with all the digitalization of products and services that, you know, how do you keep from losing your tax base, because a lot of it, you know, has been hit typically on you know, you have people or you have a physical presence and location.
So there anyway, there’s a lot of activity going out there. From the foreign side, there’s there’s an oecds, kind of a, they’re looking at a framework of how to tax digital services and products, they should have something coming out in the summer. That’ll give some guidance out there. Once again, all this a lot of the states are changing their policies on how to tax digital services and products. And then lastly, I’ll just mention Mexico is another key example.
They just implemented a 16% VAT on digital, electronic or digital services for b2b and b2c. So I think it’s a real it’s a big issue. Once again, I think the countries and states are gonna have to continue to, you know, figure out how they get their tax revenue and how they cover some of the costs. And just with the big changes in a digital environment, you know, it’s real important for to understand what kind of impact that will have on the business, especially in technology businesses.
Patrick: The innovation doesn’t stop at the at the tax level, that’s for sure. So they’re gonna, they’re gonna keep that going. We mentioned Scott that there are now 5000 plus private equity firms out there, they can’t all be BDO clients. So, you know, for our members, the audience out there if they wanted to get you know, not only copy the report, which we will have in our show notes to link up to but how can our audience members find you and get access to the BDO private equity services?
Scott: Well, first of all, Patrick, I would like to thank you for having me on your podcast, but anybody everybody’s free to contact me directly. My email address is Shendon@BDO.com or s h e n d o n@BDO.com. Or you can go to our website at www.bdo.com. Click on our industry, private equity. And there you’ll find contact information. We also there we do have copies of the current as well as prior surveys. We have thought leadership’s and we also have podcasts out there. You can also sign up for to be notified of future surveys, thought leadership or podcasts that are coming out as well.
Patrick: Well, Scott Hendon from BDO, your private equity capital pulse report for 2021. Thank you so much. It’s been a real pleasure having you here.
Scott: My pleasure. Thanks a lot, Patrick.
On this week’s episode of M&A Masters, we are joined by Ryan Milligan, Partner of ParkerGale. Guided by their principle – “products that matter, cultures that last” – ParkerGale is a small private equity firm that focuses on profitable, lower middle market technology companies and the convergence of private equity and software.
“Let’s just be transparent, and let’s just give everyone the answers to the test,” Ryan says of the empathy he has learned in the market – take the competitive advantage off the table and make it about the people.
We chat with Ryan about his journey to building a successful company and culture in ParkerGale, as well as:
Listen now…
Patrick Stroth: Hello there. I’m Patrick Stroth, President of Rubicon M&A Insurance Service. 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 Ryan Milligan, partner of ParkerGale. ParkerGale, is a Chicago based private equity firm that focuses on lower middle market technology companies, and is guided by their principal: products that matter, cultures that last. And on a personal level, I’m especially pleased to have Ryan here today because it was ParkerGale’s podcast, which is entitled The Private Equity Funcast that opened the entire private equity world to me four and a half, five years ago. And I’m eternally grateful for that. So Ryan, welcome to the show.
Ryan Milligan: Thank you so much, saying thank you so much for having me. It’s always fun to hear. Hear that. And we get in the history of that a little bit. But no, this is a treat. So thank you for having us.
Patrick: Now, we’ll get we’ll get into the funcast and ParkerGale, and just a lot of groundbreaking things that you started doing years ago ahead ahead of other private equity firms on a lot of levels. So I’m really looking forward to it. But before we do that, let’s talk about you. What brought you to this point your career?
Ryan: Yeah, good question. Um, yeah, a lot, a lot of a lot of things along the way. But no, I mean, I’ve always I had always, you know, for us for kind of software, or things are software and private equity, you know, in the in the convergence of those things. And, and then, you know with ParkerGale became more and more is becoming more and more the convergence of how do you run, having a perspective on how you run a small software company as well. So, you know, kind of the convergence of those things, I always had an interest in software and tech, I mean, back to, I went to Boston College, and I worked at the help desk. So my job and my job and in college, just to pay for, you know, for meals, I guess I’d call it was cleaning out antiviral and anti spyware and all that stuff from you know, unknowing, fellow students’ computers and things like that.
But then, I was a finance degree and went into went into investment banking blindly, you know, not really understanding what that was, and that was drinking from the firehose, but, you know, kind of horrible at the same time, so that had that cocktail for a couple couple years. But then I joined it, you know, a group that became the software team at, at a larger private equity firm, and we were having fun together, over really, for me eight years, was kind of my tenure at that spot. And that’s really when we decided that, you know, we like this thing, we’re doing these small software businesses and how you run them and, and having a perspective on that, and how you how you build a company, how you build a culture, you find people you want to work with, and live with for five, six years, and hopefully do good things.
And that manifested itself in forming ParkerGale, and then those are the things that you know, he referenced the funcast, but that’s those are the types of things that we spend every day talking about in our walls outside our walls publicly, privately. And now we feel like we’ve got something going on at ParkerGale, that we’re just trying to do things a little differently every day and be really good at the types of things that we’re looking for. So that’s that’s what led me to this in a nutshell.
Patrick: Well, what really is striking is your first introduction with software is working on a help desk. So a lot of the goal of companies and folks both in and outside of technology, if you’re trying to help customers, you’re trying to solve problems. And you were at the granule granular level, then of solving people’s problems. And you’re, you know, a technologist dealing with non tech people. So that must have been real impressionable for you.
Ryan: Yeah, I get you know, we talk a lot about empathy. So, yeah, it definitely helped me build empathy for for people’s problems. And then also the people trying to solve those problems and things like that. So for sure.
Patrick: Well, let’s transition over at ParkerGale, and I always ask my guests, you know, to get a feel about culture of a firm and so for this kind of come up, find out why they came up with the name they came up with because unlike law firms and insurance firms that name their firm after their founder, there was no Parker and there has been no Gale at ParkerGale.
Ryan: Yep, that’s correct. No, it’s funny, and I appreciate you asking us because it’s actually been it’s probably been three years since since we kind of told this. I’ve told this story. So takes us back. So a nice little trip down memory memory lane. But yeah, we did have a few rules. You kind of already went there. You know, we said no bodies of water, no ski, ski hills, no cross streets, you know, things like that. And we actually, you know, we had a lot of internal discussions. There’s, so story a little bit, but one of my partners so Jim Milberry, who you know, well, was the godfather of the PE funcast and and then Devin, he pulled Devin in and they kind of got that whole thing started. But Jim is a boxer.
So you know, we were, Jim is I was a professional boxer, I boxed on the amateur level. But you know, we were thrown around things like Dempsey Capital for Jack Dempsey, and lots of different names. But what actually exists in our bones is, you know, we do these personality tests, and actually a lot of us like in aesthetics, of all things, if you can believe that. And Devin, actually, my partner kind of came up with this idea, but it was based in Chicago, and Frank Lloyd Wright, the architect has Chicago roots. And he had a career that was going well, but he kind of saw what he was doing. He wanted to do more of it and do it independently. So he kind of branched off and started his own thing.
And we were looking at ways to kind of play off of that. And in Chicago, in the Chicagoland area, there’s a couple houses still even two are ones called the Parker House. And then there’s one called the Gale House. And those names kind of jelled off each other well enough, and ParkerGale.com was available. That’s always important to check before you solidify your name. But we kind of made that our thing. And it was it was a little bit of the attitude, a little bit of the aesthetics, a little bit of the Chicago roots. And all that kind of came together that said, this was something we came up with together, not on the backs of just one name, or one idea and things like that. And it’s kind of stuck with us ever since. So that’s that’s where we came in. That’s how ParkerGale was born.
Patrick: You know, I think is a great iconic reference because is homage, to your area of Chicago. And also, I mean, I would tell you coming from California here that is the most trendy style of architecture now by state of California in the last maybe seven, eight years. So you went from, you know, the mission style to the Mediterranean style, you know, and and now it’s a Frank Lloyd Wright, which which is there and I would say that the little history note nugget for you on Frank Lloyd Wright is he designed the city hall for the city of San Rafael people outside of California called San Rafael but it’s San Rafael. So it was highlighted in the movie Gatica. So I know you guys like doing a lot of movie references in your thing. So that’s mine, to Jim Milberry is getting that good.
Ryan: No it’s great. It actually and it paid off. So I’ll expand on the story a little bit. It’s already it’s already paid off. You know, you talk about karma and stuff like that. So I grew up in Iowa. I grew up in Des Moines, Iowa. I was born in Chicago grew up in Iowa, though, and we were looking at we own a company called DealerBuilt now. DealerBuilt is based based in Mason City, Iowa. Like 10s of 1000s of people not very small town. Okay. My dad had a lake house in Clear Lake which is attached to Mason City. So I’ve been to Mason City. Nobody’s, been amazing city. Well, so I go to visit DealerBuilt, Jim and I drive to DeakerBuilt offices. Turns out the only hotel in town is the last Frank Lloyd Wright standing hotel in the country. So we’re meeting with the founder and the CEO. We breakfast in the restaurant at the last standing Frank Frank Lloyd Wright Hotel in the country. So that was like, we’re just everybody sitting there. Both sides like huh, okay, like this, this is probably supposed to happen. So anyway, it’s fun when things like that come together.
Patrick: It is really nice how they circle around. Give me a little bit more background with regard to ParkerGale. You’ve got the passion and in capability and skills, and the appetite for technology, you can get a hardware software. Why the lower middle market avenue because you’ve been around for a few years, you haven’t ramped up, tell me about your commitment to the lower middle market and your targets there.
Ryan: Yeah, it’s just yeah, we like again, it comes back to the convergence of software, which we like and we think that’s a trend that is just a good one, it’s a good space to be involved in. Obviously, the last 12 months has pushed the world to a place where we’re relying more and more on software every day, to do the work that we’re all trying to do. So that existed, you know, we do like getting involved in these, you know, it’s for us, it’s either a founder own situation where there’s a transition, or corporate carve outs, or maybe a consolidation and bringing things together. But for all of those there’s a certain level of business building and scaling and kind of work that needs to be done where there’s products you know, it’s products that matter cultures that last we’re kind of adding process sticks to that as well because we’ve been expanding our our ops team.
But we just like that work that we you know, we like we like the space we like companies that are doing well but need resource. And that’s what we bring to the table resource in a perspective. For companies that are succeeding, but to continue to succeed, there’s a certain either level of resource and some perspective that they need to continue on. And we’re looking for the convergence of those things. So we think we’ve built a firm that knows how to find those, how to engage in those conversations the right way, in a way that is received while on the other end. And people feel like, we care. And this is all we do. And this is what we’re looking for, that we have credibility, to get that deal done, we have credibility to make that transition the right way. And that gets into how you do it in the culture that you’re building and how you take care of people and things like that.
But then also, like harder skills, perspective about products and how products are built and what customers are looking for, and how you learn from your customers and build that back into the product and all those feedback loops. So we do come into this with an operational bend that we think is fun to engage in and and help and and bring all those things to the table. So and then for us, yeah, we it’s hard to do all that stuff. If you get too big, because there’s, you know, private equity firms, private equity, by its nature is kind of their the incentive is to get bigger and bigger and bigger, because there’s fees and things like that. So there’s kind of a gravitational pull out of this space. And we, because I think we’d a lot of conversations about it in the formation of our firm, are we ever religion to stay where we’re at, within reason, and keep doing just more of this thing better? That makes sense. So yeah, that’s kind of where we’re at why we operate where we do?
Patrick: Well I appreciate how you fight that temptation to scale up as things get bigger. And I also appreciate the commitment you have to the lower middle market, because quite frankly, if you’re an owner and founder, you’re not doing this, I’m gonna we’ll talk about this over and over again. But they’re not experienced in doing M&A they’re experiencing experience in doing what they do. And when they come to some inflection point, they don’t know where to turn. And unfortunately, what will happen is, if they’re uninformed, they don’t know where to look, then they’re going to default to either a strategic that may not have their best interests at heart, or they’re going to look at an institution, and it’s just brand name, I heard about them, let’s go there.
And they will, you know, be underserved. They’ll get overlooked. And I think they’ll get overcharged. And the more that we can highlight organizations like yours, that it not only, you know, know what you’re doing, you can deliver on execution. But you’ve got the passion, you really want to do this. And you’ve had the experience, because I’ve heard this on your podcast, where you’ll have recommendations, you’re dealing with owner owners and founders that built something from nothing, but they did it their way. And that’s that whole learning curve and new experience they have as they bring in outsiders to come and get them to that next level. And you’re so experienced in that.
Ryan: Yeah, I think and and that is yes, that’s and it’s finding that balance of understanding what got them there. And then Brent, how you how you bring your perspective to the table in that way. But even before that point, I mean, that is a good that you kind of just described why the funcast exists. And if you look at our website, we try to be we try to do a lot of writing. And when it really comes down to is transparency. So yeah, we do think our strategy, our approach to all that was, you know, I think private equity was getting to a point where it was trading, you said it, they haven’t done this before, they don’t understand what it is they don’t understand what they’re getting into, necessarily, because they haven’t been through it before.
And some private equity folks, I do think treat that information gap as a competitive advantage. Well, we kind of said, let’s just be transparent. And let’s give everybody the answers to the test. Like just put it out there. The lemons problem, the fact that you understand more than the person you’re selling to and all that like that, just put it out there, explain to them what it means explain to them what it how it’s going to be have, you know, forecast what a tough conversation looks like. Forecast what you’re trying to accomplish, and why. You know, the more people have heard exactly what the deal is, before a decision is made, the faster you can go because there’s no surprises and people know what they’re getting into.
So it’s kind of do that lead with our lead with our implied you know, competitive advantage. Just take that off the table. Talk about what we’re going to do and and then you got to be able to back it up and then do that do those things over five or six years and then you know, we’re now you know, we’ve been doing this for a while so then we can refer back to the people that heard it at the beginning. They’ve now been through a full cycle and a success story and say they call them. So that’s that’s kind of been our approach.
Patrick: All now since you’ve opened ParkerGale. I learned about private equity and mergers and acquisitions. Well, I mean, the number of PE firms has just exploded. We’re we’re an account of north of 4000, private equity firms in the US. Majority of them are targeting middle and lower middle market. And so they’re as, as more competitors come into this space, what I like about a space filling up as it becomes sustainable, because you have to have innovation, and services, quality wise go up, costs go down, things get more efficient, a lot of good benefits come out, you know, for competitive advantage. And ParkerGale is unique in this and that you have made some innovations in focusing years ahead of the competition. I’d like you to talk about this, because in this modern era, now, people are talking about the importance of culture.
And they’ve been paying lip service to culture, you know, the last 10 years, but there’s a competitive advantage to it. And so now, people are talking about it more, but it’s still more art than science. And your organization, you’ve spoken about this. I invite you to go and take a look at private equity funcast episodes with you’re actively working to measure culture, and not only identify it, or define it, but measure it. And so why don’t you talk about that, because that’s something that you bring to the table that, you know, everybody’s all into closing a deal. But it’s it’s the it’s the post acquisition, you know, that’s where real magic needs to happen. And so talk about the efforts you have done in the strides you you’ve taken.
Ryan: Sure, yeah, I think it for us, yeah, it comes down to yeah, it’s taking care of your people, which are really the assets of the company. And, you know, and we’ve we’ve invested in that we, you know, I talked about the the taglines that we come up with, you know, we have, you know, two full time resources basically just focused on the talent practices of our companies and bringing more of those talent practices into our companies. But, yeah, culture is kind of a stew that’s created from a whole list of things that we’re doing that wouldn’t you know, what it comes down to is, you know, within companies communication, you know, consistency, feedback, alignment, you know, all these different things.
But yeah, culture specifically, you know, the combination of communication and the consistency and then listening to your organization, I mean, that just comes down to a process that you put in place that goes out into the company on a regular basis, we use a tool called culture IQ, that full disclosure is a portfolio company of ours. So that’s fortuitous, you know, creating this listening organization, that you create a baseline, it basically comes through a survey process, that you go out into the company, and you invite them to respond to a bunch of different attributes and react perspectives and things like that about the company. And that ends up in scores that are baseline metrics for the company and how you’re doing on different parameters.
So that might be alignment, that might be communication, that might be innovation, you know, things like that. And you can look at it by team and by a group or manager and things like that direct reports. So if you open up that conversation, and you measure it, you’re listening, and then you look at it, and then usually the best practice for companies is to then look at where you’re strong look at where you want to be stronger. And then they basically commit, create committees to address those things. And a lot of times, we would recommend that the executive team, you know, not even make it it’s not like the CEO is the chair of each committee, you kind of push some of the control of those decisions further down in the organization. You got committees to give some of your star people some authority to work on how do we improve this thing? And what are the actionable insights that would come out of this to increase those scores?
And then you do follow up, you know, pulse, checks, from time to time, and you measure it. And our CEOs, actually, it’s kind of fun. Sometimes we’ll put, you know, line graphs of how they’re doing on different attributes, and you show them how they’re doing versus the other leaders of the companies and things like that. And it just turns out that turns out the CEOs tend to be a little competitive. And that’ll get their attention. But then you can ask yourself, Well, why is this one doing this? Why is this one doing this? And you can start to you know, apply pain medicine or things like that to, to each company situation. But yeah, that’s that’s, that is kind of like an overall management, or just measuring tool of the ether that exists in a company, I think.
Of all the things that we bring to the table, whether it’s leader, you know, org design or leadership development or manager training, or how you hire, you know, how you onboard all those things are in support of culture as much as the analytical side of measuring culture, I think. So that’s been something that and we’ve been doing this long enough where eventually, you know, I think, through time, then we can actually start to look at some harder data because we haven’t really gone through the exercise yet, but we will have, you look at a p&l and try to Is there any correlation between these improvements and how that performs or this margin or a top line or and things like that. So overall, that’s just kind of been our approach. And the nice thing about that is the intangible that I think is a tangible benefit.
But the intangible is that if you are focused on that, you’re actually making those companies a better place to work for the people that are in. So if that’s not, you know, if, as a backdrop, the rest of your career, if all these things that you’re doing to try to generate better returns for your investors, I also happen to make the 40, 60 hours a week that everybody takes away from their family to go spend it a company more enjoyable and better and more fulfilling. Then, you know, I don’t know what’s better than that. If we can kind of converge those two things. So that is a fun and nice thing that we kind of have in the back of our mind. And try to live to is we’re as we’re doing this work in private equity.
Patrick: And I think with most of the target companies, you’re dealing with owners and founders, how, what percentage maybe, are just looking for an exit? And what percentage are rolling over and saying, hey, I want to I want to see this story play out. So I’m staying I’d like to stay what’s what’s the ratio?
Ryan: Yes, it’s it’s across the board, it’s probably seven, I’m going from gut 70. Like 75% are maintaining some participation, and to go forward. Oftentimes, an ongoing advisory board type role. In some instances, there’s either a family situation or just something going on where they want a clean break, and there’s a transition usually do an heir apparent that type of thing. But yeah, when we can, we try to at least maintain relationship and contact in contact with the founder. And that’s probably the split.
Patrick: I think it’s just another value add that you’re you’re delivering, as it look, owner and founder you’re rolling over, we’re not changing your company, you know, ground wise, we’re gonna sit there and we’re going to watch as the culture, we’re going to maintain it, protect the good stuff, and just see how it evolves. And that’s gotta give them peace of mind. Gives you an advantage over other organizations that may be sitting there saying, oh, we’re the best we’re gonna get you big, you’re gonna make this kind of returning, you know, come on with us because we’re bigger, faster, wider, all that other stuff.
Ryan: Yeah, we can’t we kind of, we relieve the burden of we caught. Somebody came up with this phrase, the chief worry officer. So there’s a point where you build a business and you’ve kind of done it, you lead the way you lead by example, you’re doing a couple different jobs, you’re now making 10, 15 million in revenue, and it’s profitable. And it’s a good thing, and you feel like you made it you did. But there’s a point where then you start every opportunity you chase feels like a risk to you, you know, every new hire giving up some control, and you start feeling like every of every, then every risk in your mind that you take is yours.
Like I’m taking this risk. So that’s the chief worry officer. And we come in and we say, well, let’s, what if you just took that, what if we took that burden on we’ll call it opportunity not risk. And, you know, companies at a point need a hand at their backs and keep going, keep going got to progress. Got to make that hire, make the wrong one, we’ll do it again. You know, that’s, yeah, try to push that train forward. Because if not, there’s somebody else hungry. That was where they were 10 years ago, they’re gonna try to get you know, get back to where you are. And if you’re not pushing that train forward, then then something’s gonna happen.
So, so yeah, that’s, that is a dynamic that we kind of sell into and say, hey, you want you wanna just go off into the sunset, we will, you will convince you that you’ve left it in good hands. If you want to maintain involvement. You can put the bag of worries down and ride along and do the stuff you enjoy doing, and have some fun with and not feel like every incremental investment we make is from your pocketbook, you know, that type of thing. So yeah, that’s that is a dynamic that we we often see. And then I think we built our firm well to work with.
Patrick: I think, I think that that post integration focus that you have here is a real competitive advantage for. Profile wise, give me give me the profile of what your ideal target company is. What are you looking for?
Ryan: Yeah, I mean, there’s, it’s, it’s kind of, you know, I mean, so software, right, so that’s tons of those that are out there. We’re control investors. So that just means we buy majority only. So that can be 51% in a buy out. Buying out a founder that’s a partial buy can be 80%, it could be 100%. So that’s kind of a buyout. The smaller ones are more but you know, it can be kind of a recap. We can do carve outs from you know, sometimes businesses get embedded in in lost in larger companies. We’ve done carve outs as well. But that’s kind of what we’re looking for. Size wise, you know, 10 to 30 million in revenue, you know, you reference the amount of private equity firms out there.
So we’ve started to think through more, hey, should we work with an executive and put a couple things together out of the gate, you know, starting to play play more in that regard and try to create a formidable companies, that might be a couple smaller ones, before they come together. And we’ve kind of built our ops team to be able to support that type of initiative. But anyway, those are the overall parameters for our business they are, they’re probably number in a lot of cash, or at least profitable, they can be loosely profitable. But we don’t want to have a big burn position. They’re nice products that are standing on their own. And there’s a situation where there’s some sort of transition needed transition from a fall founder transition to a CEO, passing it down to an heir apparent.
Transition, where somebody wants to step out and somebody else needs to come in. Transition to a carve out that needs a company stood up and needs a lot of resources brought to the table to then have that kind of operating on its own without constraints and doing its own thing. So at the end of the day, that’s what we’re looking for. And then we kind of do our thing with it. And, you know, hopefully have a fun next five or six years.
Patrick: So and yeah, you’re based in Chicago, but you’re looking at things, opportunities all over the country.
Ryan: Yeah, really North American. Our headquarters are all currently based in the US. But we do have a lot of satellite offices in either Canada or Europe today. And some effort, you know, there’ll be satellite things that could be overseas and things like that. But yes, really domestically focused for us.
Patrick: Well, I want to circle around to something you’ve mentioned, where and what’s crazy, we’re talking about the transparency, which is really important to me, because for the longest time, private equity was a members only type of sector and the financial, institutional sections, because if you didn’t know about it, it was really hard to learn if you weren’t in the club, I mean, forget about learning, you couldn’t even reach out to people. And you could, you could demonstrate that by looking at websites and private equity firms where the old days, you couldn’t get any information about team members or anything. Now at least you’ve got not only pictures, but the contact information and stuff like that, which, you know, is a nice development out there.
But you also talk about transparency when you’re in negotiations with, you know, these inexperienced M&A counterparts. Yeah, you know, I, I believe that I mean, they’re not, they’re not naive, and, and just not experienced in doing deals, particularly when it’s their own, you know, their own firm, and you can’t remove the human element from M&A is not in a vacuum, there are risks out there. And, you know, you’ve got to lay those out. And there are a lot of times, if you can understand you’re dealing with an inexperienced owner and founder who’s just gone through a very rigorous due diligence process, we will call a thorough, but you know, they go through that process, and then they’re there through that. And then their attorney sits down with them, they have to talk about the indemnification provision, and not everybody explains to them upfront what that is and how it works.
But essentially, it’s in to be very simplistic is where the buyer tells the seller, I’ll tell you what, I know, we’ve done this due diligence, but in case we missed anything, and it costs us money, you got to pay that tip. And the response from you know, the very understandable responses. Well, wait a minute, I’m selling the company, you did the diligence, you can’t hold me responsible for something I didn’t know about, particularly years after this happens. And then the experienced buyer is going to have an immediate response is just going to say, yeah, well, I’m betting 10s of millions of dollars, that your memory is perfect. And you’ve told me everything, just not going to do that. And immediately that collaborative environment is at risk of becoming, you know, adversarial and worst case scenario. And the tragedy about that, is that all that can be avoided.
And the way you can avoid it is if there’s some risk out there, why don’t we put an insurance policy, the insurance industry came up with a product called reps and warranties insurance, which essentially looks at the diligence the buyer performed over the sellers reps. And for a couple bucks, the insurance company says I’ll tell you what, buyer, if you have if there’s a breach and you lose any money because of the breach, come to us we’ll give you a check. So the buyer has certainty that they can collect seller, two major benefits. Okay, first of all, the policy comes in and is going to replace it some if not all of an escrow. Those are the money that was going to be held back at purchase time, you know, and held for 12 to 18 months. Well now that’s released because you got an insurance policy there. So seller gets more cash at closing. Even better though, they get the peace of mind knowing that they get to keep all their cash because there’s no risk or variable Little risk of a clawback because if something bad happens, buyer goes to the insurance company, not to the seller, and that’s what we call a clean exit.
And I would tell you that if it’s done, right, this costs zero to a buyer, because the buyer simply offers this up, you know, this process rather than an escrow or reduced escrow. And the seller 99 times out of 100, in our experience, 99 times out of 100, they’ll go with it, and they’ll embrace it. And that speeds, you know, the process and negotiations, it lowers the temperature in the room, and you will avoid, you know, they may forgive the process, but they’ll never forget that feeling. And you can avoid all that, you know, but I you don’t take my my word for this. Ryan, good, bad or indifferent? What’s been your experience with rep and warranty on your deals?
Ryan: Yeah, it’s been, you know, it’s a tool, it’s kind of part of the, you know, it’s it’s just part of the process at this point for us, honestly. And I would say overall, in a good way, for sure. It’s, I mean, you described it, well, I’ll kind of just take it from the top and give my perspective on it. Because yeah, I think, so much of the time, and attention and angst, in a negotiation does come through these reps and warranties. And my experience has always, they seem like a big deal. In the negotiation, you know, once you’re in the legal docs, and have spent 60, 70% of your time on them, and money, and worry. And just thinking through hypotheticals, and honestly, in our experience, outside of like, you know, certain taxes or things like that, that come up, they’re not ever really touched again, or used to, like, but at the time, it seemed like a really big deal. very stressful, and just gets a lot of time and attention and all that.
So yeah, I do think, you know, I was probably a little skeptical at the start when it came up, because I was a little worried about, you know, seller then not feeling like they have skin in the game or, you know, for what they’re saying or doing and that type of thing. But you know, it’s been around for five, six years now, pretty ubiquitous. And I’ve never had an issue. It’s not, I mean, it’s not something I think a lot about, you know, once the deal’s done, it’s part of our process and things like that, and it does exactly what I think you do. You’re talking about you want to if you want to have a tough conversation, let’s have it be about what’s your role is going to be what’s your compensation going to be? What’s this going to be? What’s that going to be?
How are we going to work together going forward, you know, tell us a lot of political capital on a knowledge rep for some mundane, you know, employment law, or exhaustive diligence around that this thing that I didn’t even know what it was until the lawyer explained it to me, and why this three page paragraph, you know, needs to be adhere to having that the risk of that spread across kind of every deal, which gets the cost of these things down pretty meaningfully and take all of that stickiness out of what is the deal, which is a lot of work and angsty and a big, emotional moment for a seller and a big commitment on a buyers part.
Yeah, yeah, removing all that, from the conversation, I think has been, you know, a nice enabler for M&A transactions in particular, in my sector of the market, for people that are learning about these things for the first time.
So anything you can, you know, it’s kind of like a big release valve on the pressure on a seller for sure. For all that type of thing. So now we have good experience, we use them pretty much pretty much in every deal. And and yeah, why would why should somebody have to let millions of dollars sit still for 12 or 18 months when, you know, is when when you look at I think the history of reps being paid out on the the actual risk is quite low. So that’s, that’s just kind of my general perspective on it’s been positive.
Patrick: Yeah, I think the great development in why you’re really trying to speak about this from the rooftops is that rep and warranty was not available for deals under $100 million 18 to 20 months ago. And there are so many of these lower middle market deals, I mean, as low as $13 million, $12 million that are now eligible for rep and warranty and that’s a real big deal if you can save somebody a million dollars on a $15, $16 million deal and and the only way the word gets out about that is through the these kinds of conversations. And so I appreciate what you have there. And that’s the next you know, foray for us is not only just getting on the checklist for acquisitions, but for add ons and now it makes sense when not only you’re doing the big you know, platform but then you get the add ons and so that it you know, people don’t know about unless we put it out there.
So you know, I appreciate your perspective on this. Now Ryan, as we’re, you know, talking about now we’re getting I mean, we’re blinking it, we’re going to be in the mid part of 2021 where Clearly, I think at the beginning of the end of the pandemic, I probably won’t be eligible for a shot for another four months, the way things are going California, but, you know, give me a perspective on what trends do you see out there for the rest of the year? And this is technology, ParkerGale, what do you see?
Ryan: Yeah, I think so I’ll start with just kind of the software side of things. Yeah, I think software has been a good place to be. You know, it’s more important than ever, for everybody to do their jobs, you know, at the end of the day, so. So that’s a good thing. And that’s gonna sustain. Now with that, there’s gonna be more competition, more capital, more firms and all that. So it’s a good time to be a seller of a software business, you know, as well. So that’s something that we need to get navigated. But underneath all that, just talking about what, what I think, is interesting, you know, people want data at their fingertips.
And that’s kind of right data at the right time. So I think there’s been more, we invest a lot in b2b enterprise software, those are a lot of there’s a lot of data and systems of record, and you have to go find it, things like that. But I do think just thinking about right data, right place, right time, and the efficiency and getting to that whatever it is, you need, you know, even in your even you can tell Microsoft even as Apple, you know, people use email and phone every day, when you see autofills and it guessing about things and stuff like that, like that, that all gets and that’s not easy stuff that’s going into long histories of databases and things like that, kind of bring it into the surface. So that’s that really is kind of an analytic trend.
Patrick: Real helpful for passwords, though.
Ryan: No passwords, that’s a whole other topic. Well, I’m gonna stop talking about passwords. Everybody needs to, yes, security is a big thing. Um, but um, that gets also into automation. So, machine learning, and AI is an overused term. But it is becoming much more practically important. I do think and necessary. So loosely speaking, automation, automating tasks, having things just happen in the background, things that happen again, and again, taking the human element out of it, and having a machine do something for you learn and then do it again. Building that into your technology, I think can really help a user and that’ll be all finished up with kind of my lap. But that that theme of a user is a big theme, I think for software as well. Dashboarding. So that’s another way of just saying like bringing to the surface.
So having one place to go to just see the things that you care about. That’s something that we’re trying to embed a lot into, into a lot of our software solutions, and things like that. So I think dashboarding is is a big topic around how you present data in an eloquent way. But really what all these things are, there’s a theme here, what it kind of comes down to, I think, is UI and UX. So you know, user interface, user experience, how it looks and feels, and the front end of that is just more and more important. And then so late, that’s where the pandemic really comes in. So, quick aside, my dad’s in his 60s, and he was one of those holdouts that he probably didn’t have his email on his phone until about two years ago, okay, like he fought it tooth and nail.
He had a flip phone, all that stuff. Well, he uses zoom now. Okay. So he’s familiar, and usability and that interface. And so it basically did a couple things. One that is becoming more and more important every year as people that are used to phones and how how easy that is to use, get graduated and, you know, leadership positions. At the same time, we just forced people that were less comfortable with technology to get comfortable. So I think there’s like this big convergence of people who care, we’re going to use more technology and care more about usability. So I’m less focused on like new uses of software, but more of the execution of the software that I bring into market and how users experience that software, if that makes sense.
Patrick: So you’re going there going from can we do it to? How do we make the experience better?
Ryan: Yeah, how do you do it? And we do like that, because that’s an that gets into an exit. So we don’t need to like recreate the world, or do sciency stuff, we can bring some science elements into it, but it’s really about understanding how that is how they want. It’s not creating new technology. It’s it’s changing the way people interact with it, which is less revolutionary, but it is, I think it is making people’s experience and their lives better and how they interact with that. So those bringing that into older spaces, or more tired spaces are ones that weren’t given attention. Because it’s kind of boring and stuff like that, I think is an interesting trend.
For us to go re examine and think about how the companies we own even that’s a big topic is how do we listen to our customers, learn from our customers, not guess what they want, or just let them figure it out? How do we create that feedback loop, filter that into our product owners and our developers and then give that back to them in a better way. I think that’ll be important. So those overall, those are the big trends. We like to space overall. You know, I wish there were less people like me looking at it. But we like where we are. And that’s how we’re kind of playing.
Patrick: Well, there’s no shortage of opportunities out there, because there’s a lot out there. And there’s, you know, everything is easier. I mean, you see is the website and they were tracking that when you did, you know, ecommerce, and purchasing online and so forth. So yeah, that’s gonna keep evolving. So you know, very, very well done. Ryan Milligan of ParkerGale, our audience members find you.
Ryan: Yeah, we try to be easy to find. Yeah, I mean, anybody can send me an email to ryan@ParkerGale.com. Our website is ParkerGale.com. We do have blogs, and we publish on our LinkedIn, you know, our perspectives and thoughts and things like that. So we try to be open to receive people however they want to reach out. Don’t be a stranger. We tried it, we say, you know, karma, like we try to just be I’ll take any conversation, we try to be as helpful as we can to as many people as we can. Because we all view ourselves as having at least 20-30 year careers left and something I do today, might pay off in 15 years. So if we can be helpful down the road, even if it’s not, you, we’ll get introduced to somebody that helps us get introduced to somebody and that’ll be cool for us too. So happy to help, happy to listen, happy to engage and reach out anytime.
Patrick: If anybody wanted to go in an anonymous low profile insight to really get a feel for this organization, its members, its culture and everything. Highly recommend Private Equity Funcast and is everywhere that the podcasts are available, but highly recommended great stuff. There’s no shortage.
Ryan: Yeah, it’s on Apple, and Google Play and you know, all that stuff. And yeah, there’s a fun one going on right now. It’s that date this but the there’s a March Madness, business books edition, where our ops team are all debating the best business books and people can engage with that. So yeah, check us out. We try not to take ourselves too seriously and have some fun from time to time as well.
Patrick: Fantastic. Well, Ryan, thanks again for joining us and best of luck to you guys the rest of the year.
Ryan: Thank you. You know, I appreciate you being a listener and engaging with us. So best of luck to you.
As vaccines roll out and COVID-related restrictions are lifted across the country, it’s time to look at the impact the pandemic has had on the use of Representations & Warranty (R&W) insurance to cover M&A deals… and what to expect in the near term.
R&W insurance, of course, transfers all the indemnity risk to a third-party – the insurer. If there are any breaches of reps and warranties post-closing, the policyholder, usually the Buyer, simply files a claim and gets paid damages.
The use of this specialized type of coverage had been steadily growing and becoming more widespread pre-pandemic. Even lower middle market deals were being covered.
Just as M&A deal-making contracted, there was a reduction in the number of R&W policies being written in the first three quarters of 2020. But by the fourth quarter, it had rebounded and even surpassed 2019 levels. That trend continued into the first quarter of 2021.
In fact, according to the BMS Group’s Private Equity, M&A and Tax 2021 Report:
“As the initial challenges of operating amidst a lockdown were managed, deal volume rebounded strongly in Q3 and Q4 was the busiest quarter ever in the M&A insurance market. As we go to press, early indications are that M&A activity has levelled up somewhat but nonetheless we expect 2021 to be a record year for M&A insurance.”
Thanks to a rush to get back to deal-making, as well as the previous pre-pandemic growth, I expect a rising trend to continue as more dealmakers – both Buyers and Sellers – realize the value of this coverage. I forecast that this rebound will continue into 2022.
That doesn’t mean there won’t be key changes.
First thing to mention – especially if you have been hesitant to use R&W insurance – you should know that it’s well established and popular.
The BMS Group report highlighted that:
Key Trends in R&W Insurance to Watch
The pandemic is going to impact how R&W policies are written, cost, and other factors. But some of this would have happened anyway – without COVID – simply due to the increasing popularity of this coverage.
The COVID Impact Is Limited
While it’s still early to make a final judgement, it appears COVID hasn’t had a catastrophic impact on the R&W market.
As it states in the BMS Group report: “Despite the increase in claims frequency and severity, premium pricing has remained relatively low whereas it has hardened across other lines of insurance.”
Going forward, COVID will have zero impact because it’s “known.” R&W insurance covers the unknown. Underwriters won’t necessarily issue blanket exclusions for COVID-related issues, but they will take it into consideration.
Limits on the Rise
Another trend to watch for: Expect buyers of R&W insurance policies to buy more limits. In the last couple of years, Buyers have been securing policies at 5% to 10% of transaction value, which is largely to just cover the escrow. Problem is if you have a $100M deal and a $10M policy, what happens if you have an $18M loss?
The eight million over the R&W policy is uninsured.
As a result, Buyers are seeking to transfer more risk. So, look for them to buy more Policy limits, or select “hybrid” Excess Policy Limits only or Fundamental Reps (the cost of which are a fraction of the R&W pricing). Because there’s no remedy for anything uninsured, as the Seller is off the hook.
In the event there is a breach, and the amount of loss is significantly higher than the amount covered by R&W insurance, Buyers are beginning to make claims of fraud or misrepresentation against the Seller… because they know the Seller has a D&O policy.
If there is a loss that exceeds the R&W policy, Buyers are looking to recoup some costs through the Seller’s D&O policy. So it’s no surprise there has been an increase in fraud lawsuits.
D&O policies don’t pay for fraud. However, that exclusion only happens if fraud has been proven in court. The defendant has to admit they knew of fraud in court, or there must be a final judicial finding that fraud existed.
Up until then, the insurance company pays defense costs. If they settle, which is often the most cost-effective option, the insurance company pays the settlement. As part of the settlement, Sellers don’t have to admit fraud was committed.
This is why Sellers are being required to secure a D&O tail policy (if they don’t already have D&O in place) – Buyers should insist on it – and why they also need a R&W policy.
Costs Are Going Up
As more R&W policies are purchased, the cost will go up.
The rate will go from high 2% to mid 3%. And it’s already beginning to happen. On a minimum premium deal like I do, it’s already at 3%. A $5M policy is $150,000 to $175,000. But on a $20M limit policy it’s going to be at $600,000 whereas last year it was closer to $500,000.
PE Firms
There was a serious contraction of M&A activity in 2020 and the early part of 2021 – no surprise there. PE firms were holding back – not willing to commit their money. Plus, it’s a natural result of meetings moving online, workplaces going virtual, and the like. Many industries slowed down over the last year and lost productivity.
But now, PE firms, who’ve been sitting on all this cash for a year or more, are ready to start deal-making again. They – and their investors – are looking to start adding value to their portfolios again and rebuilding their balance sheets.
Since PE firms are so committed to R&W insurance, there was a natural dip in policies being written that mirrored the drop in M&A activity. But R&W has returned.
SPACs
Special purpose acquisition companies (SPACs) will also have a hand in this growth in R&W policies being written in the next year or more. There are more than 400 SPACs that must complete an acquisition by 2023 – at the farthest out. That’s deadline pressure.
SPACs mostly target middle market companies – those $100M or more. As these so-called “blank check companies” start doing deals again, expect to see a spike in R&W policies written.
The one purpose of a SPAC is to acquire or merge with an existing company – it makes going public easier, quicker, and cheaper than a traditional IPO. And R&W coverage is perfect for these deals because even in the best of times, SPAC founders face tremendous pressure to get deals done within a two-year window. Because R&W insurance hedges risk for both Buyer and Seller it facilitates fast mergers and acquisitions.
Insurers Scramble for Qualified Underwriters
A natural side effect of the increasing use of R&W insurance over the last few years is that insurers are seriously understaffed with experienced Underwriters compared to demand for their services.
There are only so many Underwriters out there with the “know how” to underwrite M&A transactions. And as more insurance companies have entered the growing market, we’ve actually seen them “poach” underwriting teams from other insurers.
Pressure on Underwriters
R&W insurance is a complex line of coverage. Even if Underwriters outsource due diligence to an outside law firm, they are seriously stretched for time due to the sheer volume of policies being requested.
Many policies are being delayed – even declined – due to an insurer’s lack of bandwidth.
What does this mean for Buyers and Sellers?
You can’t expect Underwriters to turnaround a policy to cover your deal in a week or even a couple of weeks. Insurtech has not reached the R&W world yet. Although it was possible in the past, waiting until the week before closing to begin the R&W process is as prudent as waiting until April 14th to call your CPA for tax assistance.
If you’re interested in having this coverage for your deal, you need to start the Underwriting process at least four weeks out so there are no surprises. Don’t come in last minute and expect miracles. Underwriters are people too.
You can’t push them to the brink without losing relationships. A good Underwriter wants to be your partner; they want to do it right and be as timely as possible. So, start the process sooner rather than later.
A note of caution: Some insurers advertise faster processing, but they are prone to delays. Best case scenario – you’ll find an insurer to cover your deal on schedule but at exorbitant costs (2-3X the normal underwriting fee) that result in extra expense.
What Underwriters Are Watching For
The ideal situation for an Underwriter is to put as few limitations as possible on deal. Their objective is to have as few exclusions as possible because exclusions create friction. But they still need a sustainable product. They must protect the insurance company they work for.
As a result, we’ll see Underwriters exercising more caution on wide open worded Reps. For example, if there is a Rep with the following wording “will continue to be” or “will continue” – which means post-closing – the Underwriter will read that out as if the wording doesn’t exist.
In this market dynamic, Underwriters are also watching out for the definition of “damages”. They don’t want to explicitly cover multiplied or consequential damages, which are very problematic.
But they have been known to strike a balance with policyholders. If, in the agreement the definition of damages is “silent” with regard to multiplied or consequential damages, the proposed policy will match the agreement with the intent that while the policy is not specifically covering consequential or multiplied damages, such damages are not specifically excluded either. This enables the parties to consider such damages in the event of a claim.
It’s essential for the insurance broker to make clear with the Underwriter that silent doesn’t mean excluded. In other words, if it’s not there it doesn’t mean it’s excluded, it means it’s agreed.
Where to Go From Here
As with many things, COVID has had an impact on M&A and the specialized type of insurance that covers these deals: Representations and Warranty. Yet, I expect the true value of this coverage to shine through, and for its popularity and widespread use to not just continue, but to grow and expand.
Here’s how they put it in the BMS Group report:
“We remain optimistic about the outlook for M&A insurance and expect it to continue to play a vital role in M&A, especially given how ingrained it has become in the deal process and the part it plays in unlocking both capital and negotiations which have reached an impasse on M&A transactions.”
In light of these trends, I wanted to offer you a free download of some best practices to consider going forward when it comes to incorporating Representations and Warranty insurance in your next M&A transaction.
If you have a deal coming up or one closing between now and the end of the year, and are open to having a conversation on how R&W can work for your particular deal, you can contact me Patrick Stroth, at pstroth@rubiconins.com.
