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The Secondaries Market Solution

The Secondaries Market Solution

“Everything changes and nothing stands still.” – Heraclitus, Greek philosopher With few exceptions investment funds were not meant to last forever. Investors seek to cash out, while new investors want to join in. The challenge comes during the transition of the old investors leaving and the new ones entering: The original investors want one thing: their money (along with its accumulated growth) free and clear. New investors want to move forward without legacy risk. Between these interests lies the General Partner (GP) or sponsor, who has a foot on both sides of the fence. The biggest concern for new investors is potential Excluded Obligations – financial liabilities of the Seller Vehicle (SV, the original fund) that “leak” over to the continuing vehicle. This can happen where the GP serves a dual role on the SV as well as the Continuing Vehicle (CV). Therefore, the risk of an expensive “wrong pockets” case can drag in new investors – something they keenly want to avoid and can be the source of protracted negotiations. Enter a new risk transfer vehicle – Secondaries insurance. This coverage is designed specifically to address this exposure by providing legal defense expenses as well as settlement and judgement costs protecting the CV’s assets. This insurance is the natural by-product of Representations & Warranty (R&W) insurance, which has become a favorite of PE firms for more standard acquisitions (it’s featured in 90% of deals these days). R&W insurance elegantly moves financial risk from the deal parties to an insurer. As was the case with R&W in its early days, Secondaries is new and therefore seldom used. But we expect Secondaries to become as ubiquitous as R&W coverage as PE firms and Independent Sponsors seek a smooth transition. Just as R&W revolutionized M&A transactions, Secondaries serves as a facilitator that

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The Lowdown on “Naked Tail” D&O Insurance

In insurance parlance, if you insure a particular exposure, you’re covered. If not, you’re bare. If you’re looking for a policy that covers something that’s never been covered before, you’re… naked. That’s the situation many privately held, small and middle market companies find themselves in when they seek to sell their business. The Buyer asks them to secure Directors and Officers Liability insurance (D&O), specifically a “tail” policy to make sure there’s a source of insurance coverage in case the Seller is held liable for any wrongful acts against an employee or others – things like human resources issues or

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Rubicon - Two Ways TLPE Insurance Might Cover Your Next Deal

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

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Rubicon - Case Studies- TLPE and Multiple Sellers

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.”  

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Rubicon - Case Studies- TLPE and 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.

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Case Studies: TLPE Insurance and Tech Companies

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.

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Rubicon - Think of Insurance as a War Chest

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

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M&A Trends for the Rest of 2022 and into 2023

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

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