Insurance Distribution Company Due Diligence & Contracts · Operational Diligence Business Plans Corporate Policies (E.B. Plans, 401K…) Employee Handbooks and Processes Organizational

Insurance Distribution Company Due Diligence & Contractspresented 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.

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.

© Copyright 2016 Merger & Acquisition Services, Inc. All Rights Reserved

Course Objectives

Letter of Intent

Due Diligence Process & Requirements

Common M&A ContractsAsset or Stock Purchase AgreementEmployment or Consulting AgreementNon-Compete AgreementPromissory Notes or Security Agreement

Process & Closing

M&A Process

The Sale Closing & TransitionContractsDue DiligenceLOI Structure

Cash and Equivalents

Promissory Notes

Earn Outs

Employment Agreements

Financial

Operational

Corporate

Purchase & Sale

Employment

Non-Compete

Security Agreement

Closing

Logistics

Employee Integration

Owner Transition

Accountability



Key Terms

Purchase Price

Cash at Closing

Earn-Out Terms

Conditions of Sale

Asset or Stock Sale or Other Transaction

Liabilities Assumed

Letter of Intent


Typical LOI Points

Exclusivity (“No Shop” Provision)

ContingenciesCarrier or 3rd Party ConsentsFinancing

Working Capital Requirement Break-Up Fee or Non-Refundable Deposit Due Diligence Process and Timing LOI Expiration Date Closing Date

Letter of Intent


Additional LOI Points

Indemnity Caps/Baskets/Timing

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)

Letter of Intent


Due Diligence

Due Diligence


Process

Initial Due Diligence Request

Response

Gather Information / Documentation

Team

Attorney, CPA, Key Executives, Principals

Physical- Onsite Diligence

Timing

Due Diligence


Key Categories

Financial

Corporate / Legal

Operational

Due Diligence


Financial Diligence

Financials

Tax Returns, Bank Statements, QuickBooksCarrier 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

Financial Due Diligence


Corporate/Legal Diligence

Licensing (All business and insurance licenses)

E&O Claims or Lawsuits Lease and 3rd Party Contracts Carrier Contracts Employee Contracts / Independent Contractors Non-Competes Prior Transactions

Corporate/Legal 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

Operational Due Diligence


Purchase Agreement

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

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.

Purchase Agreement


Key Points

Defining Revenue, EBITDA, Earn-Out

Defining Roles and Controls Key Reps and Warranties Indemnity Definitions

YOU WILL WANT TO HAVE AN ATTORNEY THAT SPECIALIZES ININSURANCE TRANSACTIONS!

Purchase Agreement


Other Common Contacts

Non-Compete Agreement

Promissory Note

Security Agreement

Consulting or Employment Agreement

Other Common Contracts


Process & Timing

Target Closing Date July 1st

May June July

Letter of Intent

Due Diligence Request

Purchase Agreement

Other Contracts / 3rd Party Contacts

May 1st 30 - 90 Days

May 15th 30 - 75 Days

June 1st 30 - 60 Days

Signed LOI May 1st


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!

Closing


Congratulations!!

Thank You for Your Attention!

Questions?


Christopher M. HughesManaging DirectorM&A Services, Inc.

(860) 748 - [email protected]

Merger & Acquisition ServicesMerger & 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.


Documents

Insurance Distribution Company Due Diligence & Contracts · Operational Diligence Business Plans Corporate Policies (E.B. Plans, 401K…) Employee Handbooks and Processes Organizational