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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
Two Ways TLPE Insurance Might Cover Your Next Deal
Two Ways TLPE Insurance Might Cover Your Next Deal When it comes to acquisitions by PE firms, having Representations and Warranty insurance to cover the deal has become almost S.O.P. – it’s that common. But not every transaction qualifies, such as those under $30M in EV, or deals where the target’s financial records weren’t complete, and the Underwriters declined to cover the deal or at least included many exclusions. There is an alternative to traditional R&W insurance. A specialized new product that can also act as a solid alternative to “tail” policies for Directors & Officers liability coverage, also known
Case Studies: TLPE and Multiple Sellers
In this series on the protection offered by Transaction Liability Private Enterprise (TLPE) insurance to small- and medium-sized business owners who are selling their companies, I’ve written about how it is especially useful in M&A transactions involving tech companies, as well as so-called “indifferent buyers.”
Case Studies: TLPE and Indifferent Buyers
You’re a small to medium-sized business about to be acquired by a much larger Strategic Buyer. You want some measure of protection during the transaction, and you’d prefer not to let a large portion of the sale proceeds sit in escrow for years in case some or all of it could potentially be clawed back if there is breach of a rep in the purchase agreement.
Case Studies: TLPE Insurance and Tech Companies
There is a new R&W product taking the lower middle market M&A world by storm: Transaction Liability Private Enterprise (TLPE). TLPE insurance is designed to fit a blind spot in deals that Buy-Side R&W policies won’t cover, specifically deals ranging from $1M to now $30M in enterprise value. Historically, these deals have been ineligible for traditional (R&W) coverage. Enter TLPE, which was innovated by London-based CFC Underwriting just one year ago, to offer protection for deals that are either too small or too expensive to justify a Buy-Side R&W policy.
Think of Insurance as a War Chest
You know about the drama with Elon Musk and Twitter. Lawsuits are flying back and forth, with both sides alleging breach of contract after Musk declined to buy the social media giant. For super-billionaires like Musk and multi-billion-dollar companies like Twitter, they have the millions needed for such drama. Money is no object. But most of us don’t have that kind of cash. That means when something goes south during a liquidity event, you need to have the proper insurance coverage in place – and proper level. But I propose that you should think about this insurance as more than
The Next Evolution in Representations and Warranty Insurance
An exciting innovation is coming to Representations and Warranty insurance world, and if you’re a Buyer or Seller in the lower middle market, you need to know about it. This new product is especially useful to serial acquirers. In short: insurtech is coming to M&A… sort of.
M&A Trends for the Rest of 2022 and into 2023
Inflation, a rise in interest rates, and global unrest and uncertainty represent some serious headwinds for the economy right now. But the consensus, from my sources in the M&A world is that dealmaking for the lower middle market has not faltered and will not falter going into the next year. Granted there has been a decrease in the pace of M&A activity when you compare 2022 to 2021, but that’s not a far comparison, as last year we saw record-breaking deal-making thanks to pent-up demand for deals as we emerged from the pandemic. As PricewaterhouseCoopers put it in their Deals
TLPE Insurance and Non-Disclosure Policies
Transaction Liability Private Enterprise insurance (TLPE) is taking the lower middle market M&A world by storm. Unlike traditional R&W insurance, TLPE is a Sell-Side policy where the Seller, rather than the Buyer, is the policyholder. The policy is triggered when the Buyer makes a claim against the Seller. Instead of going after the Seller directly, the Buyer simply collects from the insurer. Sellers benefit from this insurance as well, with TLPE effectively reducing escrow levels in deals from 10% to 1% of the purchase price. (The cost of TLPE is only $10,000 to $20,000 per $1M in Limits.) You can