Articles
- Articles
- Podcasts
Latest Article
How AI Will Take Over M&A Due Diligence
AI is on everybody’s mind these days… the topic du jour. You’ve no doubt seen how this technology will revolutionize how people live, work, communicate… Really there is no area where AI will not touch – if it doesn’t already. That extends to the world of M&A, specifically the due diligence process. Basically, the number of M&A transactions is ever-increasing. And with deals getting more and more complex, every step of the way towards getting those deals done is increasing in complexity too. Take deal structures. In the past, a Seller would have an asking price for their company. After some negotiation with the Buyer, the final price would be worked out. Then the Buyer would pay that amount in cash… take ownership… deal is done. Not so much anymore. Buyers now say that, because of Covid and other uncertainties in the market, there was a period where valuations were very high. They feel that everybody was overpaying – and doing so eagerly. But now that things have settled down. And between restrictions on lenders, the cost of finance, and other factors, many Buyers are saying to Sellers: “I’d love to buy you for $100M… if you’re worth $100M – which I don’t know yet. Can we figure out a way for me to pay you $60M now? Then, when we know more and you hit certain milestone post-closing, you’ll get your other $40M?” Basically, Buyers are using all sort of structures in deals right now. Seller financing, earn-outs, incentive payments… In other words, Buyers are seeking to hedge right now and are getting their way because, while it was a Seller’s market during and right after Covid, it’s now more of a Buyer’s market. It’s important to note that Buyers are not doing all this to take advantage of
How TLPE Insurance Made the Perfect Conditions for a Stock Sale
When owners want to sell their company there are two ways they can do it: Sell the assets of the company, including the equipment, product inventory, customers, and the like. In this case, the Seller retains the “shell” of the corporation to either shut down or use in another business. Sell the stock of the company. In this case, the Buyer gets everything, and the Seller simply walks away with nothing – but the proceeds of the sale, of course. As with many aspects of M&A deals Buyers and Sellers have opposing ideas about the preferred method of conducting the
Key Person Life Insurance in M&A Transactions
Every team member in a company is important. But some employees are simply essential, especially founders, C-suite executives, anybody with specialized knowledge or experience integral to the smooth running of the company, or someone who brings in a good portion of the revenue. Losing these folks would be hugely damaging to the company in the short-term and could also impact the long-term outlook for the business. And they aren’t easily replaceable. This is especially so with SMEs, lower middle market companies, and startups where things are often held together by the vision of those who started the business and are
The Importance of Excess Disability Insurance in M&A
There is a rule that prevents the U.S. president and vice president from traveling on the same plane together. The idea being that if the president’s plane crashes, the VP is ready to take the oath of office and immediately take the reins of power with minimal disruption. It’s done for the good of the country. It gets me to thinking about the equivalent – at least somewhat – in the corporate world. I’m talking corporate events or retreats… perhaps in a foreign destination. They put all the C-suite people… and other key personnel… on the same plane, in the
Deal Trends in 2023 So Far and the Potential Slow Down
Since the end of the pandemic, many in the deal-making community have been waiting for news of a slowdown in M&A activity. And that time has come, although the news is not dire, for several reasons I’ll go into in just a moment…and the deal-makers I’ve spoken to remain upbeat and positive too. But, in black and white, there has been a slowdown from the end of 2022 into the beginning of 2023. According to the Firmex Deal Flow Bulletin for Q2 2023, the numbers of deals in North America was only 1% lower than Q4 in 2022. And then
The Insurance That Protects Your Business From Cyber Crime
We’ve all been notified by a company we patronize that our personally identifiable information (PII) has been hacked. It can be a real headache for us customers. (PII can include customer names, birth dates, Social Security numbers, driver’s license numbers, credit card numbers, bank information, and more. In the case of healthcare businesses, add medical records to the list.) But when you’re the business that has been hacked, there can also be tremendous impacts. This apparent breach of trust can cause customers to take their business elsewhere, for one, which can affect the bottom-line.But more importantly for the hacked business,
A New Seller Fraud Policy for Buyers in Lower Middle Market M&A Deals
One of the main risks in M&A transactions is a so-called innocent, or accidental, misrepresentation. This is when a Seller makes an untrue statement about their company. They’re not doing it maliciously or “on purpose,” so it’s not fraud. Seems hard to believe, but in our quickly evolving regulatory environment, these issues can pop up more often than you think. But, in any case, even if not done intentionally, this misrepresentation is a big problem. Because… what the Seller said, and laid down in the Purchase and Sale Agreement, is not true. That means a misrepresentation like this can result
TLPE Insurance – A Must-Have for Lower Middle Market M&A Transactions
If you’re involved in lower middle market M&A, you probably know that traditional, Buy-side Representations and Warranty (R&W) insurance is not available to cover most transactions because of their small size. However, in recent years, alternative transactional liability coverage has come onto the scene for deals under $20M: Transaction Liability Private Enterprise, or TLPE. TLPE is Sell-Side insurance. This means the Seller is the policyholder (unlike Buy-side R&W coverage where the Buyer is the policyholder). In case of a breach of the Seller representations in the Purchase and Sale Agreement, the Buyer makes a claim against the Seller. The Seller in
Notable M&A Trends to Watch Out for in 2023
When the world’s largest transactional insurance broker talks… you listen. I’m talking about Marsh McLennan, a Fortune 500 firm with a global reach that wrote more than 1,000 Representation and Warranty (R&W) insurance policies in 2022. Their Transactional Risk Insurance 2022: Year in Review report is an excellent resource for anyone involved in M&A, as well as the specialized insurance products like R&W that have become essential to deal-making. It’s a report worth taking a close look at…because in addition to reporting on trends from the past year… they are also looking ahead and forecasting what they believe will happen