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

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

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

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

    Listen to discover:

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

    And much more



    Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in executive and transactional liability and president of Rubicon M&A Insurance Services. Now a proud member of the Liberty Company Insurance Broker Network. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here. That’s a clean exit for owners, founders and their investors. Today I’m joined by Renny Sie, Vice President for Business Development for Boyne Capital. Boyne Capital was established in 2006 in Miami, Florida, with a focus on investing in lower middle market companies. Boyne has a unique approach to investing. It’s an approach to forges lasting and collaborative relationships with companies whose founders and families are still deeply involved with growing their business. It’s a term they call a value cultivator approach. Renny is a pleasure to have you. Thanks for joining me today.

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

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

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

    Patrick: Yes. 

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

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

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

    Patrick: Focus, yes.

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

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

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

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

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

    Patrick: Yeah, that second bite of the apple.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Trouble Areas to Look Out For

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

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

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

    There are four leading types of material contract breaches.

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

    2.  Target in breach of a material contract.

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

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

    Due Diligence Questions You Can Use

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

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

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

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

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

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

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

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

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

    9.  Any other concerns related to material contracts?

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

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

    You can contact me Patrick Stroth, at

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

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

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

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

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

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

    Things have changed.

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

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

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

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

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

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

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

    In this case, that means:

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

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

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

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

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

    More on that in a future article.

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

    You can contact me Patrick Stroth, at

  • The Reluctant Strategic Acquirer
    POSTED 1.11.22 M&A

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

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

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

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

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

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

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

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

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

    Then, things changed…

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

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

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

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

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

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

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

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

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

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

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

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

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

    Where to Go From Here

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

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

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

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

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

  • Limited Bandwidth for R&W Insurance in 2021
    POSTED 9.7.21 M&A

    We’re well into the second half of 2021 now…and Representations and Warranty insurance is more popular than ever. Given the protection it provides both Buyers and Sellers in an M&A deal that should be a good thing.

    However, that popularity, based on the trust both sides of the table have placed on this coverage, has also brought about an unintended consequence that has resulted in PE firms and Strategic Buyers scrambling to get their deals covered.

    Here’s the deal: insurance companies are declining to cover otherwise great risks due to bandwidth. In other words, they don’t have the teams of Underwriters they need to research and understand the deals and then determine coverage and terms for all those parties wanting coverage.

    As a result, if your deal is under $400M in transaction value (TV), you can’t go to one of the major nationwide insurance brokers. They’re just stretched thin and are concentrating on the deals that will bring in the most substantial fees. They’re no longer looking at $100M or even $200M deals.

    So, at this point, if you come under that threshold and are interested in R&W insurance, you must find a boutique firm to secure your coverage.

    Why is this happening… and why now?

    There are a few factors:

    • Everybody wants R&W insurance now – overall volume is increasing. People understand its benefits, that claims are paid promptly, and that it can speed up a deal to closing and smooth out negotiations. So many users of RW are so satisfied with the coverage that they are using it on all their deals – and telling the others how effective it is. As a result it is on the verge of becoming ubiquitous.
    • M&A activity overall is ramping up. In fact, it increased by 48% in Q1 2021 compared to the same period in 2020, according to a report from GlobalData, which also noted that momentum from the last half of 2020 continued into this year. The cause: low interest rates, Buyers with cash to spend, surging stock market, and flood of deals postponed by the pandemic now moving forward. And with valuations only going up for target companies, there is an urgency to get through a merger or acquisition quickly. The attitude is to get it done now.

    More M&A activity = more demand for R&W insurance.

    • The number of “mega deals,” those $1B+, in particular is going up – and they get priority from insurers because they’ll make more money in fees than on smaller deals.
    • Companies can’t add Underwriters fast enough to meet demand. This is partly due to COVID but it’s also because upstart new insurance companies are poaching entire underwriting teams from established companies—further hamstringing their work. In fact. One leading R&W insurer recently had a very significant number of their Underwriters recruited away by a competitor, who wanted an experienced workforce right away.

    Who Is Behind This Trend?

    M&A activity is at record levels right now, across the board. Driving demand are:

    • PE firms that are sitting on a ton of dry powder.
    • Strategic Buyers that have sat on the sidelines and are now getting back in the game.
    • SPACs – There are 400 out there actively looking for targets. These special purpose acquisition companies are created solely to acquire an existing private company in a process that is a much easier, quicker, and cheaper way to go public than a traditional IPO. SPACs must make an acquisition within two years of being formed…and the deadline for many of them is looming.

    3 Steps to Take Now in Light of This Trend

    Despite these trends, all hope is not lost to secure R&W coverage this year, even if you’re deal is under $400M in TV. But you do have act quickly and put in some extra effort to make an insured deal happen. (And you should still prepare yourself for waiting until 2022.)

    Here’s what you should do now:

    1.  Line up all your diligence experts right now, e.g. lawyers and accountants.

    R&W policies right now are being placed on $400M TV deals and up. If your deal is smaller than that, look for boutique broker. Go to solid, experienced regional boutique firms in law, accounting, and insurance to get response you need. If you need a Quality of Earnings report, the big 5 nationwide accounting firms won’t touch you at this point.

    Contact these smaller firms and get on their calendar now.

    2.  Engage with an experienced, boutique regional R&W insurance broker now. The sooner you get your engagement lined up, the better, even if you are at the Letter of Intent stage.

    In both cases you want to avoid the backlog at bigger, national/international players.

    3.  Expect and plan for increases in diligence costs, insurance costs, and R&W premiums. The sooner you act, the better as costs continue to rise. It’s simple supply and demand.

    To give you an idea, the total cost for a $5M Limit R&W policy was under $200,000, now it’s running $225,000 to $240,000.

    But also remember that the protection and peace of mind these policies offer is well worth even the increased costs… and all things considered this coverage is cheap.

    As you can see, there is real urgency here.

    If you’ve got a deal in the pipeline and are thinking of using R&W insurance to cover it, we should talk now so I can help guide you through the process.

    You can contact me Patrick Stroth, at

  • Moore’s Law Comes to R&W Insurance
    POSTED 10.27.20 Insurance

    While attending a recent M&A conference, I was surprised to hear so many of the participants – including PE firms, M&A attorneys, and bankers – still hold the mistaken belief that Representations and Warranty (R&W) insurance is too expensive.

    In fact, the floor for R&W coverage has actually come down drastically in the past year to the point that a $5M policy can easily be found and it will cost less than $200K, including underwriting fees and taxes. (This figure doesn’t include broker fees, which the big firms are adding to maintain income levels. More on that below.)

    Why the disconnect? These folks haven’t checked in on R&W insurance for a while, and people assume what was true a couple of years ago is still valid. They tend to get their information and updates from conferences. I was happy to spread the good news while I was there, and I got positive response. These folks did not see value in a policy if the cost was $225K, $350K. But if they could get a policy for under $200K, they were interested.

    This significant drop in costs reminds me of Moore’s law. Quite appropriate considering how many M&A deals are done in the tech space. This maxim holds that every 18 months we can expect the speed and capability of our computers to double, while we pay less.

    There are several reasons why the cost of R&W coverage has dropped:

    • The number of insurers offering R&W insurance has more than doubled.
    • Rates have fallen from the 2.5% to 4% range to the 2% to 2.9% range.
    • Eligibility thresholds have decreased from deals at $75M in transaction value to $10M in transaction value.
    • Falling costs have given rise to more policies being placed.

    I expect this trend to hold steady as the increase in R&W policies written has not yet translated into a corresponding increase in paid losses by Underwriters. Due to the simple fact that more policies are out there, reported losses are up. However, most of these cases fall within the policy retentions, so insurers are not having to write many R&W checks to cover damages. Plus, just because they’re writing smaller deals doesn’t mean Underwriters are getting sloppy and accepting just anything. They expect the same due diligence, making the smaller deals just as safe for them as bigger deals.

    It should be noted that unlike other discounted insurance products, these low-priced R&W policies provide coverage just as comprehensive as the higher priced alternatives (depending on the complexity of the deal and diligence completed, of course). You’re not getting lower quality coverage or added restrictions just because it’s cheaper.

    How Low-Priced R&W Insurance Changes the Game

    A sub-$200K priced R&W policy is good for M&A for the following reasons:

    1. Lower costs make the value proposition on smaller deals more “palatable” – especially for Sellers where $1M or $2M less in escrow makes a material difference. These folks can’t take a $1M to $2M hit if there is a breach. R&W coverage is a lifesaver for them.

    2. Lower priced policies more easily enable Buyers and Sellers to share the costs.

    Many Buyers are saying that Sellers want R&W coverage on the deal but don’t want to pay for it. And Buyers are chagrined by that. But if costs are split and it’s under $100K for each side, it’s more favorable, and both sides benefit from having the policy in place.

    As you know, this specialized insurance makes negotiations smoother, lets the Seller keep more cash at closing, and ensures that the Buyer doesn’t have to take legal action against the Seller if there is a breach, which is awkward if the Seller’s management team is on board with the new entity.

    3. The lower price point makes R&W an affordable tool for add-ons, which are expected to increase as PE firms and Strategics look to enhance the value of their portfolio companies.

    With PE firms in particular, thanks to lower cost policy and premium, they won’t just reserve R&W coverage for deals above $100M in transaction value. This lower price justifies using R&W on deals at $30M, which they are doing more of because it’s a lot easier to spend $30M to $50M than $100M. PE firms will transact two to three times more add-ons per year than one big acquisition.

    I saw this first-hand recently with a policy I provided here in Silicon Valley. The company brought in a $90M add-on to an existing portfolio company. The $5M limit R&W policy cost just $175K (including underwriting fees and taxes).

    Overall, with the lower price for an R&W policy, cost is no longer an objection for either party to consider a policy.

    What’s Ahead

    If R&W continues its stellar performance, expect to see even fewer exclusions and possibly lower retention levels.

    But how much lower can the price go? Not much further if R&W insurance is to be sustainable. If the product gets too cheap insurers will not be able to collect enough in premiums to pay claims.

    We’d caution prospective users to be wary of policies coming in under $100K.

    One observation from this drop in premium rates is that the major insurance brokers offering R&W coverage have reacted to this price drop (which they’ve had to go along with to stay competitive) by adding broker fees of as much as $25K. These big firms have big overheads and want to protect their profit margin.

    That’s where a boutique firm like Rubicon Insurance Services shines. In this segment of small market M&A deals, we take a back seat to nobody. We can broker policies more cost effectively and more efficiently because we don’t have the overhead. We won’t charge those broker fees.

    I’m happy to provide you with more information on R&W insurance and provide you with a quote. Please contact me, Patrick Stroth, at

  • Impact on R&W Policies From COVID-19 
    POSTED 6.16.20 Insurance, M&A

    The COVID-19 pandemic has changed trade, commerce, and business in so many ways already… with more changes to come. The world of M&A has reacted as well. But as I noted in my previous piece, No Significant Drop in M&A Activity During This Recession, we won’t see the slowdown happening.

    Instead, we’ll see a shift to a Buyer-friendly market. Also, watch for PE firms with plenty of cash to look for opportunities – and bargains… struggling companies they can turnaround.

    The pandemic will impact a key part of M&A activity: the due diligence process and the use of Representations and Warranty (R&W) insurance to cover breaches of reps in the Purchase and Sale Agreement.

    Just as with any insurance product, COVID-19 must be addressed with R&W policies. And expect pandemic-related questions from Underwriters in the due diligence process.

    Not every company, of course, has been affected by COVID-19 in the same way. For example, a software company that already had a largely remote workforce is in much better shape than a retailer forced to close brick-and-mortar locations.

    But overall, insurers are closely monitoring the impact of COVID-19 on operations of any acquisition target. This is how I expect it to impact R&W coverage moving forward:

    1. Expect all R&W policies to have some form of COVID-19-related exclusions.

    As a worldwide pandemic affecting billions, nobody can claim that COVID-19 is an “unknown” prior to a deal being signed. And R&W policies only cover breaches that were unknown, “historical,” or related to issues that were not disclosed by the Seller.

    The impact of the virus on the workforce, including layoffs and supply chain disruptions will be the focus on enhanced due diligence in particular, and not considered breaches. Claims related to a drop in revenue are right out the window. These will be excluded, but perhaps covered in another M&A related policy, such as business interruption insurance.

    That being said, you can limit exclusions for specific things related to the pandemic, not just anything COVID-19 – that exclusion would be too broad. Despite its seriousness, the pandemic can’t touch every rep. So expect very careful language.

    Since R&W policies are largely written for each individual transaction, a broker has the ability to identify the right Underwriters and products and make the exclusionary language in a policy as favorable/narrow as possible for the policyholder.

    Take the Fraud Exclusion for example. Fraud is absolutely excluded in virtually every insurance policy because it’s a moral hazard. However, savvy Brokers and Underwriters can create wording in a policy to provide legal defense of a policyholder accused of fraud until the alleged fraudulent behavior is proven. If there is no proof of fraud, the exclusion cannot be triggered, therefore, a policyholder benefits from the protection provided by the policy. Depending on the rep in question and the amount of diligence shown to Underwriters, a Broker can negotiate wording that can lessen the scope of a COVID-19 related exclusion.

    2. A close watch on lengthy interim periods.

    With some M&A transactions, there can be a long period between signing the Purchase and Sale Agreement and actually closing the deal, especially with large and complex deals. For example, it took months for Amazon’s acquisition of Whole Foods to win regulatory approval and close.

    Imagine if a deal like this had been done recently, and COVID-19 swooped in during that interim period. Remember, to be considered a breach, the issue must be unknown and/or result from failure to disclose a harmful issue by the Seller.

    But a change in the overall economic environment or the industry such as this pandemic, can’t be considered an “unknown” and therefore would not be covered.

    Thankfully, this is not much of an issue with lower middle market companies because interim periods between signing and closing are rare, and if there is an interim, it is likely measured in days, not months.

    3. Pricing and retention levels.

    One last thing to watch out for. For now, R&W coverage pricing and deductibles haven’t changed. They should be increasing as more claims are coming in in this time of crisis.

    The previous trend had been for consistently falling prices and its use in ever-smaller deal sizes – down to $15 million, which was one of the factors in its growing use by middle market companies. It’s something to watch out for.

    To discuss the impact of COVID-19 on R&W and other M&A-related insurance, I invite you to contact me, Patrick Stroth, at

  • How R&W Insurance Has Changed the M&A Landscape Part 2 
    POSTED 2.18.20 M&A

    In the last few years, there’s been a game-changer slowly but surely transforming the M&A world.

    The use of Representations and Warranty insurance is increasing across the board as Buyers and Sellers, PE firms, VC funds, and strategic buyers all recognize that this coverage makes negotiations less contentious and more cost-effective. Because the indemnity risk is transferred to a third-party, this insurance also gives a sense of security.

    R&W insurance is changing how deals are structured.

    We covered why – and some of the foundational details in the first part of this article, which you should read here first.

    Now, we’re to going to get into the weeds, so to speak. Taking a look at some of the specific ways deal terms are being rethought when R&W coverage is part of the deal.

    Materiality Scrape

    If there is a breach of a Representation or Warranty in a Purchase and Sale Agreement, Sellers seeking to limit their exposure, prefer wording in the agreement that requires breaches to be “material” in order for the Buyer to be able to claim the breach for indemnification purposes. Depending on the deal size, “material” generally being more than $100,000 to $250,000.

    Naturally, a Buyer will want to remove this qualifier by applying a Materiality Scrape (i.e. to literally scrape “material” as a determinant for breaches), giving them the ability to determine a breach and thus reduce their risk.

    If R&W insurance is in place, most Sellers will agree to Materiality Scrapes because the policy coverage will mirror the Materiality Scrapes in the agreement, eliminating risk on both sides of the table. According to SRS Acquiom, 2/3 of deals with R&W include even Double Materiality Scrapes (where Buyers determine both the breach and the calculation of resulting damages).

    Pro-Sandbagging Provisions

    Buyers like having pro-sandbagging language in Purchase and Sale Agreements.

    Say a Buyer is performing their diligence and they find a problem. They see that a Seller’s representation has been breached… but the Seller hasn’t recognized the issue.

    Without R&W coverage, what happens next is…

    The Buyer is under no obligation to tell the Seller what they found. They can go through the deal and then bring up the breach post-closing. That blindsides the Seller, who is left wondering why the Buyer didn’t inform them sooner to avoid having to pay damages. Making a claim against the Seller like this is referred to as “sandbagging.”

    An R&W policy will have a warranty statement – a pro-sandbagging provision – that says the Buyer certifies they have no knowledge of any breaches. If it turns out they do have knowledge and don’t inform the Seller before the deal closes, that breach will be excluded.

    As you can imagine, this is great motivation for the Buyer to be forthcoming if any issues show up in their due diligence efforts. They will tell the Seller as soon as possible because otherwise they won’t get the benefit of the insurance later.

    This also enables the parties to address “known” issues before closing rather than the having a future “surprise” sprung on an unsuspecting Seller.

    Disappearing Escrows

    Before R&W Insurance emerged, the prevailing belief of Buyers was that large escrow accounts provided both security and a more “honest” Seller. As R&W began replacing escrows, Buyers and their advisors argued that having cash on hand was safer than hoping an insurance company would pay claims.

    After a successful period where R&W policies have incurred and promptly paid claims, confidence in R&W has only increased, while escrow amounts have decreased. So much so, that according to SRS Acquiom, the average escrow amount has fallen from 10% of transaction value on uninsured deals to 1% of transaction value on insured deals.

    Catch-All Reps

    There are certain Buyer-friendly “catch-all” reps out there, officially known as 10b-5 representations, or full-disclosure representations. Among all the other specific representations in a Purchase and Sale Agreement, this catch-all states that the Seller doesn’t know of any potential breaches or other issues. Therefore, any future unexpected event could potentially trigger these reps, greatly exposing Sellers.

    These open-ended reps can’t be underwritten, so they are routinely excluded by R&W policies.

    In response to the insurers’ position, Buyers and Sellers have agreed to remove these 10b-5 reps entirely so the corresponding exclusion is eliminated. SRS Acquiom reports that some 90% of deals with R&W no longer contain 10b-5 reps as compared with 62% in uninsured deals.

    Non-Reliance Provisions

    In a recent report on M&A trends from SRS Acquiom, the company noted that they are seeing more non-reliance provisions, which are very Seller-favorable, in Purchase and Sale Agreements.

    With this provision, the Seller is telling the Buyer that the Buyer cannot rely on information provided by the Seller, like a tax report or financial statements. The Buyer must perform their own diligence and use those findings to make any determinations.

    This protects the Seller if the Buyer claims that they were provided inaccurate financial statements or similar diligence reports. This shifts risk in the direction of the Buyer. But if R&W insurance is in place, the Buyer is not worried because the coverage would cover and pay the claim for any breach.


    In the event of loss, there are deductibles due before a claim is paid. In the past, there was a tipping basket. For example, if there was a deductible of $500,000, the Buyer had to eat the first $250,000. However, the minute it goes over $500,000, the Seller is responsible for the entire deductible.

    With R&W coverage in place, the two sides are now agreeing to split the deductible 50/50, simplifying the deductible issue.

    On a side note, it’s amazing how many claims of breaches are reported at least one year post-closing. Most policies have a deductible dropdown. If after one year there have been no claims, the deductible goes from 1% of transaction value to ½%.

    Next Steps

    It’s clear that Representations and Warranty insurance is taking the M&A world by storm. I see it becoming standard in the next few years. You can get ahead of the curve by learning about this specialized type of insurance and how it could change the terms of your next M&A deal – whether Buyer or Seller. Just contact me, Patrick Stroth, at for all the details.

  • Case Study: Small Software Company Funded by PE Firm and R&W Insurance Got the Deal Done
    POSTED 11.19.19 Insurance

    Steven Epstein, founder of RedCAT Systems, and his partners and management team had slowly but surely built their company in a highly specialized niche serving top clients, including those in the Fortune 500. They were ready to sell to take the company to the next level.

    But this small, Colorado-based software company involved in HR and compensation solutions for clients like LinkedIn, Uber, NYSE, and many more wasn’t interested in being acquired by just anybody.

    They were looking for a partner who wouldn’t accelerate growth too fast or take on too many new clients too quickly because they wanted to ensure a slow growth strategy that would keep current clients happy and give the new ones the same high level of customized service they’re known for. In their specialization of executive compensation, which has a lot of moving parts, this counts for a lot.

    After a time, they found their match – a company that understood their business culture – and were recently funded by PE firm Broadtree Partners.

    “We wanted to make sure that our clients were treated well. It’s a very high-level service. There’s really nothing that we would be asked that we weren’t able to fulfill on time, on budget, and pretty much the experience was exceptional. That’s why we were able to get the type of work that we do. And we wanted someone who would share that philosophy and maintain that while at the same time doing measured growth,” says Steven, of RedCAT.

    As with any M&A transaction, there were some hiccups along the way… as well as one major obstacle that could’ve derailed the whole deal, and probably would have, if this transaction was being negotiated prior to 2019.

    This is an in-depth examination of this real-world M&A transaction. We first got the story from the Buyer’s perspective – you can check out that article here. Now, we’re hearing from the Seller as we explore how the deal went down so that both sides were happy. Additionally, Steven was featured on my podcast, M&A Masters. You can listen to his episode here.

    The Anatomy of a Deal

    Once Broadtree and RedCAT had a signed a Letter of Intent, it took roughly nine months to close the deal.

    One of the things that stalled the deal moving forward was due diligence. Broadtree was more used to dealing with larger companies that had more in-depth and detailed financial records that could be combed through. It took a while for RedCAT management to get all the required information together.

    “As a company, if that was your plan [to be acquired], I would just keep much more meticulous track of every single document,” says Steven. “Every little bit of every single dollar that was ever spent took a lot of effort to come up with… and then thousands of pages of contracts we had already signed. Looking at and reviewing every single thing took quite a while.”

    Tech due diligence – which involved making sure no code or other IP could be claimed by another party – also took some time to get through.

    But what was the major sticking point?

    One of RedCAT’s partners, who had been burned in business deals in the past, wanted some protection. Specifically, he wanted to use Representations and Warranty insurance so that less money (including his) would be held in escrow and there wouldn’t be any threat of clawback.

    With R&W insurance, if there are any breaches in the Seller’s reps, it’s the insurance company – not the Seller – who reimburses the Buyer and pays the financial damages. Those claims do get paid, and this coverage is reasonably priced.

    Often the Seller pays for the insurance because of these benefits. But there are plenty of reasons for a Buyer to get on board, too. For one, in case of a breach, they don’t have to go after their new team members (the Sellers) who’ve joined the company after the acquisition for damages – that’s very awkward. Also, there is no need for costly or time-consuming legal action. The claim gets paid, and everybody goes about their business.

    “[R&W insurance] allayed our partner’s fears, basically of the deal and the liability,” says Steven. “If something did come up, I think it would be tremendously beneficial to have it. Let’s say we didn’t have R&W, and we put in $1.5, $2 million in escrow. And then some kind of obscure thing comes out, and we disagreed with it. That would cause a serious breach. Not only of, say it’s a million or two dollars, but then we probably wouldn’t want to stay on. And the effect is most likely the failure of the new business.”

    The Status of R&W Coverage Today

    Just a short time ago, this wouldn’t have been possible because insurers were only offering R&W coverage for larger deals. But recently, we’ve seen an increase in Underwriters crafting policies for transaction sizes under $20M, which opens up this insurance to a whole other section of the M&A world, including lower middle market companies like RedCAT.

    For Steven, the R&W coverage offered more than financial protection.

    “The peace of mind can be priceless. Just the feeling that I don’t have to worry about this. We’re covered. It’s not a thing that will A) damage the relationship and B) just consume life energy where you’re fighting about something that is likely frivolous.”

    That’s a ringing endorsement for Representations and Warranty coverage. If this case study has interested you in this specialized type of insurance, tailor-made for M&A transactions, and now available for deal sizes under $20M, contact me, Patrick Stroth, at

  • Rob Joyce | Financial Buyer Talks R&W Insurance
    POSTED 11.11.19 M&A Masters Podcast

    This is Part 2 in a two-part series about a recent M&A deal in which PE firm Broadtree Partners purchased SAAS company, RedCAT Systems, which provides specialized HR services for major corporations like Uber, NYSE, and LinkedIn. 

    This time we’ll be covering the Buyer’s side of the transaction with Rob Joyce from Broadtree. (Be sure to check out my conversation with Steven Epstein of RedCAT here.)

    Importantly, Representations and Warranty insurance was a crucial part of this deal. Broadtree wasn’t too thrilled about having this coverage in place at first, but, as Rob notes in our conversation, they did eventually come on board. 

    We talk about the initial reluctance to get R&W insurance… what changed their mind… and how this coverage changed the dynamics of the deal dramatically, as well as… 

    • How the due diligence process was delayed because of two key factors (this is something unique to this size of company and industry)
    • The total cost of Rep and Warranty coverage – how it breaks down and who pays for it
    • Why they saw RedCAT as a worthwhile acquisition (great clues for startups here) 
    • The sticking points that delayed the deal along the way – and how they could have been avoided
    • And more

    Listen now…

    Mentioned in this episode:


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

    Today is the second of a two-part series where we’re looking at a case where an m&a deal was insured by record warranty. This time from the buyer’s perspective. Broad tree partners are a financial buyer which purchased a Colorado, Colorado-based SAAS company by the name of red cap systems. In this I’ll have Rob joys of broad tree partners, discuss his perspective and you’re going to note that, at first he was not too thrilled about going after rep a warranty but to accommodate the seller, he agreed to move forward with us And he went through a transition going from being aware of record warranty as a concept to becoming a tool that he is going to use on a go-forward basis quite a bit like an experience that we have all too often here at Rubicon where a majority of our clients are first time users even though they may have heard of record warranty. They had yet to use it and their experience changed their opinion dramatically. The other issue I want to highlight here and be aware of is that this is a lower middle market company with a transaction value under 30 million that did not have audited financials, which would have made it ineligible in 2018 to get record warranty. However, now with the market, the way it is in 2019, not only was a solution available, it came in at the right price and also provided all the same benefits. That billion-dollar transaction gets to enjoy so now have a listen and enjoy Rob Joyce.

    Welcome. I’m here with Rob Joyce, who’s a director over at Broadtree Partners. Rob, thanks for joining me today. Now tell us about brought three partners. And then we’ll get into the context of how you came to this point in your career, but give us a profile on Broadtree.

    Who Is Rob Joyce, and What Is Broadtree?

    Rob Joyce: Yeah, so Broadtree Partners is a lower middle-market private equity fund, and maybe a good way to think about them is they are what I refer to as a search fund incubator. And what that means is as opposed to necessarily looking and acting like a search fund, they act as a private equity fund in almost all aspects with kind of one unique focus, which is at Broadtree.

    Many of the executives are operating partners. And the intention is for these operating partners, to be deployed in the businesses after the acquisition and what means as broad trees focus is not only deploying dollars into new businesses make acquisitions, but also deploying people. And we view that as part of the way that that will help growth inside the acquired portfolio companies.

    Patrick Stroth: I think that’s a really important differentiator from other investors out there who are blind, you know, contributing capital, and maybe a little advice here and there. But you’ve got operating partners that have seen businesses through the entire lifecycle, from established growth into the next transition and beyond. And I think that kind of knowledge and experience is sorely lacking, particularly from owners and founders who have only had one life cycle they’re dealing with, and that’s just the one they have.

    So that’s a great additional feature you guys are bringing. 

    Rob Joyce: I think it’s something that is a real value add in the lower middle market, is I think one of the things that companies need to grow here, not just as capital, but oftentimes from a resource. constraint in terms of personnel, these companies are resource-constrained. And it is difficult and expensive to hire executives that can make a difference in your team. And for a lot of people, especially they haven’t done it, this can be something that’s a pretty scary thing to do. And I think this is a great way to make a large impact in these businesses is not only to deploy capital but to deploy resources as well and full time dedicated resources, whose objective is to grow the business.

    Patrick: Give us some context on you. How did you come to Broadtree, how did you get to this point in your career? 

    Rob: Yeah, so a little bit of background on myself is for a number of years. I did M&A mainly focused on doing integrations with a little bit of carve out work. I did that for about eight years. And then after that, I transitioned and I, you know, went back to business school, and had some experience with private equity and venture capital. And what led me to read cat was I knew I wanted to stick in primary investing. And one of the things to me that was important was as opposed to just deploying dollars, which is, you know, what we talked about a second ago when I was really looking to do was also individually to be able to build something and to be someone who is helping to actually dictate the change and create the change and create growth as opposed to just deploying and stewarding dollars are and you know, investments. And Redcat, sorry, and Broadtree, you know, offered me that ability.

    Patrick: And were you and I came in, came into the picture together was when Broadtree and you were pursuing the acquisition of RedCAT, which is a SAAS company based in Colorado. What led you to that particular investment? What was it about RedCAT that attracted you?

    Why RedCAT?

    Rob: Yeah, so outside of any sort of investment thesis that existed in the area, specifically about RedCAT, what was so interesting was the work that the existing the management team, which consists of the two co-founders have managed to build to this company over kind of its fairly long life. And the kind of proof is in the pudding in the really impressive customer base that the company had as well as the fact that they were really filling a hole that seems to exist in the marketplace. But a lot of it was really a combination of the product as well as the people who are going to be part of the team that’s really what made the difference.

    Patrick: So if you can walk me through the process just overview real quick. You meet with them their synergies, there’s a connection. You decide to move forward to design the letter of intent. How did the process Go for you from that date, how long of a time are we talking about? And then just, you know, it’s not it’s a lower middle market company, that doesn’t necessarily mean it’s going to be quick. And there’s not a lot to look at.

    Rob: Yes, this process was certainly not quick, I would say this is on the length and if not on the far end of long for these processes for a lower middle market company in terms of time. So, there’s diligence, that obviously needs to be performed, you know, small businesses, in companies in the lower middle market in general. So sometimes can be more difficult to your point. You know, sometimes they’re easy because there’s not a whole lot to look at, but sometimes they can be difficult because they also don’t necessarily hold their data or information or are and ways you’re used to looking at for larger companies. And part of it is either lack of sophistication or lack of resources to do it and ultimately lack of resources can also play a real role and how long diligence takes to know if your company has hired if your target rather is hired, you know an investment banker or has an advisor who is actively pushing it into a sale or pushing into an auction process that will be more well defined.

    Now, if you are a company that is not the norm if you’re looking at companies, now, the normal process this may or may not take longer and with RedCAT, one of the interesting things as you know, the founders are also busy running a business during this time. So, you know, acquisition or in their case of sale is a significant amount of effort. And they had to juggle that while also simultaneously continuing to grow their business. So so the process took a while but the kind of key points where there’s obviously for Due diligence, lower middle market companies will tend to have different quality of financials. And you know, which you might expect for a company that’s 10 times the size.

    The next area is obviously tech diligence, because this is a software company, as you mentioned, Patrick, and it’s having someone kind of go through and perform technical diligence and kind of understand feedback on the development process and code base, and everything else like that. And then one of the things that it also comes down to is, you know, once you’ve gone through the kind of some of these key diligence items and spoken with customers is you still have to find a deal. One of the things that pushed us past one of our sticking points in this deal was, frankly, the use of rep and warranty insurance. It was a large concern on the part of one of the sellers that we were able to satisfy by using warranty insurance and it’s part of the reason why our dealership is cross the finish line. 

    Patrick: Well, the concern with that partner was out there and can happen had you use rep and warranty before I always your initial reaction to it, ultimately we went forward with it. But tell me about your reaction if this was your first time if not, give me a few your feelings on the concept of rep and warranty.

    Rob: Yeah, so this is the first deal I’ve executed with rep and warranty insurance as part of process it’s, you know, it’s been brought up and I kind of gone through bidding as well as diligence with this being understood, but I’d never gone all the way across the finish line and that is, I think, a noticeably different discussion when you’re actually going through and executing rep and warrants even when you’re saying you know, roughly how much does it cost to get something that looks like this. And you know, Paul, parking is doing forth in the real world. So that was, that’s kind of my background with rep and warranty. For me, I was in an interesting place because as the buyer for this particular deal, at this particular size, I did not have the concerns that one of the sellers did. And so this was really used on my end primarily as a tool to help the seller one of the sellers become comfortable with the transaction and part of that was based on their prior experience. And not necessarily even with M&A, but with lawsuits and things from a corporate perspective is, is they saw this as a potential area of risk and this person was very concerned very, very, very concerned about this. And rep and warranty insurance pretty much quickly mitigated the issue.

    And this was something that could have really, really been time intensive if we had not used this solution and I and it could have derailed the deal.

    Patrick: It was more of accommodation on your part. And in part of this, and this is one of those common questions I get is OK, if there’s policy here, you the buyer, or the or the policyholder, because if you suffer the loss, the insurance carrier comes to you and pays you your loss rather than requiring you to go pursue the seller on them and then find the seller so it’s more of a direct line. And the question I get all the time is okay, well, if the buyer is the policyholder then who pays for and it varies from deal to deal and it can be one of three ways either the buyer pays for it. The seller pays for or the two sides split it and you were willing to accommodate them and move forward on this and they stepped in and funded the cost.

    Rob: Yeah, I think that’s an important thing to note is, like you said, there’s a lot of options here about where, who pays for what in this process. And I think part of the different factor for this deal, in particular, is that this was not a concern that I had, as the buyer, the policy, the concerns that were brought up, were not one that I reflect that what I reflected was, from my perspective, or something I was concerned about. And so, you know, that’s, that’s part of the reason why it ended up that way. Now. Now, I know through our earlier conversations and through, you know, having spoken to some of my other past and present colleagues, is there are other cases where the answers on the opposite side of table where this is primarily a buyer concern, and that there are some real concerns and that the warranty insurance is there to really protect the buyer. Interestingly enough here, it is a buy-side policy, but it’s primarily meeting the needs. And not primarily, I mean, it really is there to meet the needs of the sellers.

    So I think that’s an interesting way to look at it. And, you know, I think if we’re being transparent about to regardless of whose needs its meeting, that’s not necessarily with to who funds the policy, you know, negotiating point like everything else in a deal.

    Patrick: Absolutely. So as you go through this experience, you had your first rep and warranty policy, any experiences you can share good, bad, indifferent, anything surprise you?

    Experience With Rep & Warranty

    Rob: Yeah, one of the things that surprised me frankly was the variation in responses you get from talking with different brokers about rep and warranty insurance, everything from you’ll hear some people ballpark mentioned it’s not even possible to get rep and warranty insurance on a lot of these lower middle-market deals. which I know is something you and I extensively talked about that that’s, you know, just not the case anymore. You’ll get that response. You’ll get responses that have differing amounts of, you know, cost, as well as coverage. And you and I working together. I know you kind of already know where I’m going to go with this. But I was blown away by the coverage options that we got working, working with you because they were far above and beyond not only what I expected, but having spoken with my counsel who does an extraordinary number of these lower middle-market deals, as well as some other people who are in this market is no one expected to get this word average. We got them still.

    Patrick: Yeah, that’s one of the big developments, which is why I wanted us to talk about this particular deal is that traditionally, rep and warranty was reserved for the hundred million dollar plus transactions they had in the last couple of years come from 100 million. down to $50 million as a threshold. The product now due to a number of competitors coming into the marketplace are now able to ensure deals with transaction values below $20 million. And the other item that was the big change is underwriters do not like ensuring more than 30% of the deals transaction value. Now mostly in Germany counts we’ve seen out there then between 10 and 20%. There are the outliers but it’s usually between 10 and 20% of the transaction value.

    So the insurance carrier’s comfort level of 30% or less was rarely breached. But when you get these sub $20 million deals, and you’ve got parties out there that want to ensure up to the entire transaction value. That’s a real change but that is now available where we are now getting involved with transactions we’re ensuring 75 to 100% of the traders that So that is the new development that’s out there. Now, how likely we got this through successfully at there were a lot more applications for it and options that you expected? How likely are you to use it again on another deal?

    Rob: I would say that the first step in that is this is immediately now part of my toolkit before it was kind of reactionary. On the only previous times prior to this deal, that revenue, I’d really looked at revenue mortgage insurance, and like you mentioned part, it’s the market I’m working in, in the deal size, you know, this was something that kind of I only looked at based on seller requirements, you know, they really should be happy to have this, you know, give a banker or someone else who basically says this is you know, you must include this, I kind of used it under those circumstances only, I would say now, this is an immediate part of my toolkit, one that can allow some risk mitigation on my side if I feel the need and too, I think it’s also a great tool to help overcome some buyer discomfort, as they’re worried about any sort of risks to the deal. things that can happen, that rapid warranty insurance can cover. This is exactly the tool to use that.

    Once again, it’s everything is about the cost. So, it depends on you know, whether or not you need it, how comfortable you are. I will say for me personally, I would not hesitate to use it again, as a tool to help overcome buyer objections or to make them feel comfortable or in some cases where I do feel there’s a risk here to protect myself from the risk.

    Patrick: I think it’s a great tool that can be deployed strategically just wear it particularly if you’re in the position as a buyer. You can offer terms that letter of intent with the seller where you say, here you go, we were looking at traditionally there is an escrow or there’s a withhold, and here are some of the risks we’re going to look at if you will so here’s another option where we don’t have to have as big an escrow or any escrow we can ensure the deal is about this is about the cost of it and seller, which would you prefer, you know, having the funds in escrow or unlocking the funds is just going to cost a little bit more, we’ve got a ballpark for you.

    And I would think more often than not the seller is going to jump in at getting insurance. Ideally, you’ll get over once they see the cause they get a custom to the cost is the peace of mind and the lack of worry of a lot of these risks as the process goes on, particularly as they go through the whole diligence process with you.

    Rob: I think you nailed the one thing that I probably didn’t highlight well enough in my response, which is, this is also a way like you mentioned to differentiate your bid because it does allow you to minimize dollars in escrow. And from my experience, at least that is something that sellers actively look at it’s not just How much money is you know when under what conditions they get it. And I do think this is a way when you are bidding with a company or structuring an LLI or whatever your process is, this is a way to differentiate yourself. And I think that is invaluable outside of the risk mitigation factor. Simply unlocking the cash for the sellers is a very important thing to note.

    Patrick: I couldn’t have said it better myself.

    Rob: Thank you very much.

    Patrick: Now, Rob, you’ve with RedCAT, which we closed a few months ago, you’ve gone through by now your first board meeting with them, how are things going with them?

    Rob: Things are going well, working with the sellers, we’ve been visiting some customers, we’ve acquired some new customers as well during this time and we are getting ready to make a big hire to continue to push growth. So things are going well and everyone is excited about working to kind of take RedCAT towards the next level.

    Patrick: Well, I know you’re busy, a success brings on more and more Success for you. And I know that you’ve got a lot going on with us. But if there are some other folks out there that are in the same position as RedCAT, where you got owners and founders of the lower middle-market company, and they want somebody who’s not just going to throw money at them and put demands for growth, but somebody who really wants to partner with them, I really think they should reach out at least think about you and Broadtree. 

    Rob, how can our listeners find you?

    Rob: Yeah, so you can find my contact information, as well as my partners is on And I would encourage you to reach out to someone there if you’re looking to meet with anyone at Broadtree Partners. And we’d be happy to discuss anything with you tonight.

    Patrick: Well, Rob Joyce, thank you very much. It was an absolute pleasure working with you and I look forward to working with you again very, very soon.

    Rob: Thank you, Patrick. I look forward to as well.