Insurance Distribution Company Due Diligence & Contracts presented by Chris Hughes Merger & Acquisition Services

Transcription

1 Insurance Distribution Company Due Diligence & Contracts presented by Chris Hughes Merger & Acquisition Services The materials presented during the webinar are for informational purposes only. They are not offered as and do not constitute an offer for a loan, professional or legal advice or legal opinion and should not be used as a substitute for obtaining professional or legal advice. Oak Street does not endorse any comments made by the speaker. All statements and viewpoints expressed in the comments are strictly those of the speaker alone, and do not constitute an official position of Oak Street.

2 Chris Hughes Merger & Acquisition Services Managing Director of Insurance Distribution for Merger & Acquisition Services, specializing on insurance agencies, MGAs, MGUs, E&S Over10 years of insurance and legal experience Served as an advisor for a boutique firm in CT where his exclusive focus was on insurance distribution companies Spent 7 years as a senior product manager for Hartford Financial Services Group ( HIG ) with full P&L accountability for specialty products, and as director of HIG s internal retained asset and structured settlement departments Practiced commercial litigation in Boca Raton, Florida Mr. Hughes was honorably discharged from active duty in the United States Marine Corps (USMC) in 1992 Earned a J.D. degree from Northern Illinois University, a M.B.A. from the University of Connecticut, and a B.A. from the University of West Florida.

3 Course Objectives M&A Process Letter of Intent Due Diligence Process & Requirements Common M&A Contracts Asset or Stock Purchase Agreement Employment or Consulting Agreement Non-Compete Agreement Promissory Notes or Security Agreement Process & Closing

4 The Sale LOI Structure Due Diligence Contracts Closing & Transition Cash and Equivalents Financial Purchase & Sale Closing Logistics Promissory Notes Earn Outs Employment Agreements Operational Corporate Employment Non-Compete Security Agreement Employee Integration Owner Transition Accountability

5 Key Terms Letter of Intent Purchase Price Cash at Closing Earn-Out Terms Conditions of Sale Asset or Stock Sale or Other Transaction Liabilities Assumed

6 Typical LOI Points Letter of Intent Exclusivity ( No Shop Provision) Contingencies Carrier or 3 rd Party Consents Financing Working Capital Requirement Break-Up Fee or Non-Refundable Deposit Due Diligence Process and Timing LOI Expiration Date Closing Date

7 Additional LOI Points Indemnity Caps/Baskets/Timing Letter of Intent Choice of Law and Venue Key Definitions (EBITDA, Net Revenue, Etc) Key Employee Compensation and Non-Competes Employment Agreement Terms Non-Binding (except for No Shop provision)

8 Due Diligence Due Diligence

9 Process Due Diligence Initial Due Diligence Request Response Gather Information / Documentation Team Attorney, CPA, Key Executives, Principals Physical- Onsite Diligence Timing

10 Due Diligence Key Categories Financial Corporate / Legal Operational

11 Financial Diligence Financial Due Diligence Financials Tax Returns, Bank Statements, QuickBooks Carrier Production Reports, Loss Runs, Claims Runs, Actuarial Reports Pro-Forma Adjustments Detailed verification of each adjustment Customers & Revenue Verifications Key Accounts Loss or Gain of Accounts Contingency or Bonus Income

12 Corporate/Legal Due Diligence Corporate/Legal Diligence Licensing (All business and insurance licenses) E&O Claims or Lawsuits Lease and 3 rd Party Contracts Carrier Contracts Employee Contracts / Independent Contractors Non-Competes Prior Transactions

13 Operational Due Diligence Operational Diligence Business Plans Corporate Policies (E.B. Plans, 401K ) Employee Handbooks and Processes Organizational Charts/ Salary Rosters Marketing Plans IT Processes Intellectual Property Assets List

14 Purchase Agreement Purchase Agreement

15 Purchase Agreement Key Sections of the Purchase Agreement Purchase and Sale (what is being purchased) Purchase Price and Terms Reps and Warranties of Seller Reps and Warranties of Buyer Indemnification Definitions Schedules

16 Purchase Agreement Process and What to expect: Buyer s Attorney will deliver to Sellers attorney with 15 days of signed LOI. Agreements vary in length and complexity Seller and Attorney will Red-line and Negotiate 2nd Draft of Agreement within 10 to 15 days. Seller and Attorney will create Schedules and Exhibits Final Negotiations and Draft of Purchase Agreement generally takes 30 to 60 days from signed LOI. Closing and Flow of Funds date and process executed.

17 Key Points Purchase Agreement Defining Revenue, EBITDA, Earn-Out Defining Roles and Controls Key Reps and Warranties Indemnity Definitions YOU WILL WANT TO HAVE AN ATTORNEY THAT SPECIALIZES IN INSURANCE TRANSACTIONS!

18 Other Common Contracts Other Common Contacts Non-Compete Agreement Promissory Note Security Agreement Consulting or Employment Agreement

19 Process & Timing Target Closing Date May June July July 1 st Letter of Intent Signed LOI May 1 st Due Diligence Request May 1 st Days Purchase Agreement May 15 th Days Other Contracts / 3 rd Party Contacts June 1 st Days

20 Closing Closing Process Purchase Agreement & Schedules Completed Due Diligence Completed Signatures Escrowed by Attorneys Physical Closing (Less Common) Transfer of Funds Memo Wires & Exchange of Signatures Congratulations!

21 Congratulations!!

22 Thank You for Your Attention! Questions? Copyright 2012 Merger & Acquisition Services, Inc. All Rights Reserved Christopher M. Hughes Managing Director M&A Services, Inc. (860)

23 Merger & Acquisition Services Merger & Acquisition Services, Inc., is an investment bank dedicated to providing the highest quality strategic advice to companies within the insurance Sector. As a trusted and dedicated adviser to our clients, we provide insight into industry trends and the capital markets, with the ultimate goal of providing comprehensive services to foster strategic growth and liquidity. Highly qualified and experienced team of professionals Significant transaction experiences Broad and deep relationships and market knowledge Global reach; serving both domestic and international companies We will distinguish ourselves through the following: Senior professionals prepared to make our client s assignments our priority Unbiased advice based on thorough diligence, not transaction orientated Leveraging our advisors collective structuring, financing and corporate development expertise One of the few insurance investment banking boutiques with an affiliate registered broker-dealer For over 10 years, Merger & Acquisition Services has assisted our clients in achieving their strategic goals.