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PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
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PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
PRESENTED BY:
w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Navigating the Legal Process in an Insurance Agency M&A Transaction
Stan KinnettChief Corporate Counsel
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Background
• Joined AssuredPartners at its inception in 2011• Chief Corporate Counsel
Acquisitions Debt & Equity Financing Corporate Matters
• In-house counsel with two national insurance agencies• Over 100 M&A transactions in the insurance
intermediary industry• 3 years of primarily sell-side M&A work• P&C License and AAI
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• Led by:– Jim Henderson, Chairman & CEO– Tom Riley, President & COO– Paul Vredenburg, Chief Acquisitions Officer– Dean Curtis, CFO
• Private Equity Partner is Chicago-Based GTCR• First Acquisition in September 2011• 70 Acquisitions in 3 years• Approximately $380 million in annualized revenue
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Disclaimers
Nothing (including any Q/A) in this presentation constitutes legal advice or in anyway establishes an attorney-client relationship. If you are buying or
selling a business, you should hire a lawyer.
Any views or opinions expressed in this presentation are mine alone and do not necessarily represent the views of my employer, except when I say great things
about my employer.
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Ground to Cover
1. The Legal Process
2. The Purchase Agreement
3. Engaging the Right Counsel
4. Working with Your M&A Counsel
5. Questions & (Typical Lawyer Non-Committal) Answers
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Legal ProcessTimeline
NDA
Term Sheet / LOI
Legal Due Diligence
Negotiate Purchase
Agreement
Negotiate Employment Agreements & Ancillary
Docs
Prepare Schedules
to Purchase Agreement
Finalize All Docs
Closing
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Legal ProcessNDA / Confidentiality Agreement
• Protect your information
• Protect your people (within reason) Limit to people the Buyer will interact with during the process
Should not prohibit Buyer from hiring employees that respond to general advertisements, etc.
• Protect your clients (within reason) Should only limit Buyer from using Confidential Information to solicit
clients
Should not limit fair competition that is already taking place
• Mutual – Buyer’s information should also be protected
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Legal ProcessTerm Sheet / Letter of Intent
• Non-Binding v. Certain Binding Provisions
Exclusivity Period
Due Diligence Process (Access / Timing)
• Non-Purchase Price Provisions – Include?
Indemnification
Closing Conditions
Representations and Warranties
• Involving outside counsel
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Legal ProcessLegal Due Diligence
• Clean Title Liens related to bank debt – payoff letter, lien release
Producer ownership or interest in book of business
• Corporate Housekeeping
• Ongoing Litigation
• Employment Agreement Issues Severance / Change-In-Control Payments
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Legal ProcessPurchase Agreement
To be continued…
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Legal ProcessPrincipals / Owners Employment Agreements
• Compensation / Benefits
• Length of Term
• Definition of Cause
• Good Reason Concept
• Restrictive Covenants Term and Nature of Restrictions
Relationship to Non-Compete in Purchase Agreement
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Legal ProcessSchedules to the Purchase Agreement
• Purpose Asset Deal – List Assets Being Acquired and Liabilities Assumed
Exceptions to the Representations and Warranties
Confirms Due Diligence – Often Repetitive
Keep files from due diligence to populate schedules
Miscellaneous Items
• Preparation Seller’s responsibility
Outside counsel should lead the charge [$$$]
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Legal ProcessFinalize All Documents / Closing
• Scheduling Closing Owners must return from vacation for at least a day or two
Employees will need to sign
Simultaneous sign and close v. Signing with delayed closing
• Closing Remotely v. In Person
• Hyper focus on minute details Let your counsel guide you and bear most of this burden
Better to be correct than fast
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The Purchase Agreement
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The Purchase Agreement
Assets Stock
Tax favorable to Buyer Tax favorable to C-corp Seller
Buyer only assumes listed liabilities Buyer assumes all liabilities
Buyer must obtain licenses Licenses transfer with business
Consent to assign key contracts Generally contracts transfer with business
Employees must sign or transfer agreements
Employment agreements continue
Most transactions in this industry Larger transactions, ESOP-owned agencies
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The Purchase AgreementRepresentations and Warranties
• Due diligence grows some teeth
• Use the disclosure schedules
• Materiality and Knowledge Qualifiers Definitions
Pick your battles
• Survival / Expiration
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The Purchase AgreementNon-Competition Covenant
• Different from covenants in Employment Agreement
• Geographic Area– Metropolitan Statistical Area
– Mile Radius
– Nationwide specialties
• Length of Time (from Closing)
• State Law Issues
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The Purchase AgreementIndemnification
• Typical positional arguments Sellers will attempt to limit with baskets and caps
Buyers want Sellers to stand behind the business
• Acquisitive Buyers place significant value on consistency and fairness.
• Should be rare - we are insurance agents, after all.
• If both parties have experienced M&A counsel, this section should not be a difficult hurdle.
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Engaging the Right Counsel
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Engaging the Right CounselWhat to Look For
• Acquisitions / M&A prominently listed in online bio
• Acquisitions in the insurance intermediary industry
• Both sell-side and buy-side representation
• Works well with others
• Client-focused – They advise; you decide
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Engaging the Right CounselYellow Flags
• Attorney re-schedules meetings to accommodate court hearings or depositions
• Counsel is also your client You may need to ignore or disagree with their advice.
You may also need to push them on timing
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Engaging the Right CounselRed Flags
• Your divorce attorney
• Your ex-spouse’s divorce attorney (even though the evidence suggests he/she is more competent than your divorce attorney)
• Online profile includes dog bite cases or DUIs
(or anything that is entirely unrelated to M&A and corporate law)
• A relative or friend that happens to have a J.D.
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Engaging the Right CounselThe Point
Don’t ask your cardiologist to perform brain surgery.
Don’t ask your electrician to fix the plumbing.
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Engaging the Right CounselSome Questions to Ask
• How many acquisitions have you worked on in the last 12 months?
• What percentage of your practice consists of M&A activity?
• If you are engaged on a transaction, how frequently and how quickly does the transaction reach closing?
• Representation of insurance agencies?
• Do you have experience negotiating executive employment agreements? Other members of your firm?
• Experience negotiating real property leases? Other members of your firm?
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Engaging the Right Counsel$ $ $ $ $
• Flat Fee An experienced M&A attorney should feel comfortable quoting a flat
fee, or at a minimum, a firm range.
(A range is simply a flat fee at the top of the range.)
• Fees will vary, somewhat significantly, by geography, deal size, and deal complexity.
• Get a quote and ask the Buyer or your financial advisor if the fee is reasonable.
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w w w . M e r g e r s A n d A c q u i s i t i o n s S e m i n a r . c o m
Working With Your M&A CounselOur Process at AssuredPartners
• Communicate early and often
• At least one in-person meeting with attorneys if at all possible
• Legal process should move in step with the financial due diligence process
• 2 in-house attorneys and 2 corporate paralegals focused primarily on acquisitions
• Make the process as smooth as possible for my client and our future partners
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Thank you for your time!
www.assuredptr.com
Stan Kinnett
Direct Dial: 407.708.0026
Email: [email protected]
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Questions & Answers