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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
V
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
JOHN P. CORRIGAN
CORRIGAN & BAKER, LLCWWW.CORRIGANBAKER.COM
Stan KinnettChief Corporate Counsel
www.assuredptr.com
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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
Stan Kinnett - 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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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
Background – John P. Corrigan
• Managing Member, Corrigan & Baker, LLC (2003 to present)• Founding member of The Breakwater Group, LLC (1996-2003)• Vice President, Secretary and Tax Counsel, White River Corporation (1991-1996)• Assistant Tax Director and Tax Counsel, Frank B. Hall & Co., Inc. (1989-1991)• Senior Tax Manager, Deloitte & Touche, LLP (1982-1989)
• Juris Doctor, Fordham University School of Law • M.B.A. (Accounting), cum laude, Pace University• B.B.A. (Accounting), cum laude, Pace University• Achieved professional licenses of CPA, CFP and CVA• New York State Bar Association, Member • Connecticut Bar Association, Member • American Institute of Certified Public Accountants, Member
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Critical aspects of all transactions:
The importance of a Nondisclosure and Confidentiality Agreement (“NDA”)
The importance of a Letter of Intent (“LOI”)
What to expect following the LOI moving towards an ultimate closing of the transaction
Why some deals fall apart in due diligence and how to effectively navigate this process
The art of financing the deal which is as important as the agreed purchase price
Minimizing corporate and/or personal income taxes and the techniques used
Drafting an appropriate purchase and sale agreement to protect each party’s interests
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BUYER’S OBJECTIVES:
Purchase a profitable company as inexpensively as possible
Reduce upfront cash requirement as much as possible
Deferred Purchase Price
Tax treatment = prefer treatment as compensation
Earnings = prefer treatment as purchase price
Easily fold business acquired into existing business (unless new platform)
Find great operators and leaders to join the team.
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SELLER’S OBJECTIVES:
Get maximum FMV for the company
Minimize income taxes paid on the sales proceeds
Make sure any deferred purchase price is not taxed as W-2/1099
compensation
Minimize potential for future reduction of purchase price for loss of
revenues
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Asset or Stock Purchase Agreement
Asset Deal (APA) Stock Deal (SPA)
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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OK - Let’s Do A Deal
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Legal ProcessTimeline
NDA
Term Sheet / LOI
Legal Due Diligence
Negotiate Purchase
Agreement Terms not covered in
Term Sheet
Negotiate Employment Agreements & Ancillary
Docs
Prepare Disclosure Schedules
to APA/SPA
Finalize All Docs
Closing & Post-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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Financing – Types:
All Cash Due at Closing
Cash Down Pmt. (“CDP”) + Prom. Note
CDP + Prom. Note + Formula Earn-Out
CDP + Equity (restricted stock, options)
All Equity Deal
Employment Agreement (multi-year)
CDP + Debt Assumption
Escrow Holdback
Combination of Above
Personal or parent company guarantees
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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
Co-broker servicing deals (book not owned)
• Corporate Housekeeping
• Ongoing Litigation
• Employment Agreement Issues Severance / Change-In-Control Payments
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The Purchase Agreement
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Elements of a Purchase Agreement
Definitions of Purchased Assets vs. Excluded Assets
Purchase Price; Form of Payment; Tax Allocations
Assumed Liabilities vs. Excluded Liabilities
Forms of Consideration (Earn-Outs, Promissory Notes, Bonuses)
Restrictive Covenants
Representations and Warranties
Conditions to Close
Accounting Cut-offs and Post-Closing Obligations
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The Purchase AgreementRestrictive Covenants
Confidentiality and Trade Secrets
Non-competition with buyer’s business (how broadly defined)
Geographical radius and period of time
Non-solicitation (employees, customers, vendors)
Non-disparagement
Equitable Relief/Injunctions
Joint vs. Several liability for breaches
Potential Cross-Default Provisions
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The Purchase Agreement
Representations and Warranties
30 Common Reps and Warranties – all negotiable
Unconditional vs. to Best of Knowledge limitation
Joint and several Reps and Warranties or just several
Financial Statements audited/unaudited
Pending litigation and/or potential claims
Intellectual Property (trademarks, copyrights, patents)
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Legal ProcessDisclosure Schedules 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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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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Legal ProcessPrincipals / Owners Employment Agreements
• Compensation / Benefits
• Length of Term
• Definition of “For Cause” Termination
• Good Reason Concept
• Restrictive Covenants Term and Nature of Restrictions
Relationship to Non-Compete in Purchase Agreement
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Other Miscellaneous Clauses
Governing State Law & Venue for disputes
Arbitration vs. court intervention
Award of attorney fees to prevailing party
Rights to Assign contract
Rights to Terminate Agreement prior to Closing
Notice
Severability
Expenses (including broker fees)
Indemnification
Liquidated Damages
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Other Considerations
Is Buyer assuming the office/warehouse lease; landlord consent needed?
Is the LL one or more owners of real estate used in business?
Is Buyer going to assume all accrued paid time off liability for employees?
Are buyer’s employee benefit plans better or worse?
Are all employees getting re-hired by buyer?
Who is issuing employee termination letters with COBRA notices, etc.
[coordinate w/ buyer H/R rep.]
Will buyer/seller be managing outstanding A/R?
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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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Closing the Deal Conditions precedent satisfied or waived
Bill of Sale/Stock Certificates
Assignment Agreement
3rd Party Consents and/or Waivers
Attorney Opinion
Escrow Agreement (for holdback)
Shareholder/B.O.D. Resolutions
Bank checks/wire transfer confirms
Swap Signature Pages
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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
• Hire a deal lawyer!
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Questions & Answers
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