Primary Agent - August 2023

AUGUST 2023

LINDSEY PETRILLO SHARES HER AGENCY OWNERSHIP JOURNEY

EXCLUSIVE MEMBER MAGAZINE

ALSO INSIDE COVERAGE FOR COLLEGE KIDS DUE DILIGENCE IN M&A DEALS

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AUGUST 2023

CONTENTS FEATURED 4

KIDS & COLLEGE: LOGIC & LANGUAGE AND FORMS & FACTS Bill Wilson explores the adjustments your customers with college-bound children likely need to make to their insurance programs.

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> > > > 13 JOIN US ON SOCIAL MEDIA: Facebook.com/IABforME

Q&A WITH LINDSEY PETRILLO Lindsey Petrillo, president of IA&B Member Agency Eric W. Snyder Insurance Agency, shares the experience of acquiring her mentor’s agency after his passing.

DUE DILIGENCE IN M&A DEALS Jen Martin, of MarshBerry, discusses the importance of the due diligence process in merger and acquisition deals and outlines the top pitfalls that it can uncover.

LinkedIn.com/company/IA_and_B Twitter.com/IA_and_B YouTube.com/@IA_and_B IA&B Podcasts can be found at:

IA&B is the premier resource and champion for independent insurance agents in Pennsylvania, Maryland, and Delaware.

Periodical postage paid at Mechanicsburg, PA and at additional mailing offices. Postmaster: Send address changes to Insurance Agents & Brokers, 650 Wilson Lane, Suite 200, Mechanicsburg, PA 17055.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2023-08, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B. Copyright 2023. All rights reserved. No material AUGUST be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and/or other professional advisors concerning specific matters before making any decisions. We disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.

MONTHLY 2 PRESIDENT’S MESSAGE 3 CLAIRE-IFICATION 6 NEWS & NOTES 17 PICS & POSTS 19 STAFF PROFILE 21 UPCOMING EDUCATION IABforME.com |

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PRESIDENT’S MESSAGE

SUPPORT IN THE HARD MARKET When I started at IA&B, 18 years ago almost to the date, the industry was on the tail-end of a hard market. I didn’t get the full experience of such a market, and in 2006 we moved into the soft market we have been experiencing since.

That all has changed, and it has changed quickly. The market has hardened significantly, and all indications are this could be the new norm for some time. I want to remind you that in an environment like this, IA&B is here for you: 1. If any carrier takes an action that you think is improper, please advise us. We are well-versed on the laws in our three states, and we can advise (and even take action) should any carrier act in a way that isn’t allowed by law.

INSURANCE AGENTS & BROKERS 650 Wilson Lane, Suite 200 Mechanicsburg, PA 17055 191 Main Street, Annapolis, MD 21401 800-998-9644 | IABforME.com

IA&B BOARD OF DIRECTORS OFFICERS Richard M. Rankin, CIC - Chair Murray Insurance Associates, Inc. | Lancaster, PA Sarah Brown, CIC, CRM, AFIS - Vice Chair Keller Brown Insurance Services | Shrewsbury, PA

MEMBERS Greg Bennett

Bill Purdy

2. If you are in need of markets, either because your current carriers have stopped writing, or you’ve lost an appointment, please look into IA&B’s market access program – Independent Market Solutions (IABforME.online/IMS). We can help you place business, without a direct appointment.

Kate Dawson, CPIA

Kent Reynolds, CIC

Andrew Enders, Esq.

Jason Rodriguez

3. Unfortunately, carrier insolvencies are a byproduct of a hard market, and we expect to see some over the coming years.

IA&B has resources available to assist agencies navigate this uncommon situation.

Len Gieseler, LUTCF

Donna Roper

Bruce D. Kraft, AAI, CIC

Candace Shoupe, AAI, AIC

Shayne McIntosh, CIC

Tara Silfies, CPCU

Chris Miller, CIC

Bob Smyrl, CIC

Michael Papa, CIC, MBA

Michael Thomas

Also, while a hard market may present some difficulties and additional work, keep in mind it is an opportunity for the independent agent to shine. The lowest-possible premium is no longer the focus in this market, but instead discussion turns to coverage and stability of carriers. Your role as an advisor to your clients is highlighted, and it’s a big advantage we have.

IA&B will be presenting further resources tailored to this market over the coming year, and beyond. While the market is changing, our dedication to our members is not.

Until next time,

Famous & Spang Associates Aberdeen, MD Ferri Dawson Insurance Murrysville, PA Enders Harrisburg, PA

Evans Hauseman & Richard, Inc. Pottstown, PA Arbor Insurance Group Allentown, PA

JPI Insurance Associates Dillsburg, PA

Miller Insurance Protection Team Jonestown, PA Diversified Insurance Industries, Inc. Hunt Valley, MD

Purdy Insurance Agency, Inc. Sunbury, PA Blue Ridge Risk Partners LLC Hagerstown, MD Prominent Insurance Svcs Wilmington, DE E K McConkey & Company York, PA CBM Insurance Agency New Castle, DE

Hampson-Mowrer Agency, LLC Bethlehem, PA Robert L. Smyrl, Inc. Hatfield, PA Lighthouse Insurance Svcs Gambrills, MD

NATIONAL DIRECTORS Mike Ertel (PIA) The Jacobs Company, Inc. | Columbia, MD

Jason F. Ernest President & CEO

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AUGUST 2023

Mark Monroe (IIABA) Griffith Insurance, LLP | West Chester, PA Diana Hornung Hanby (IIABA) IOA National, Inc. | Wilmington, DE

CLAIRE-IFICATION

CLAIRE-IFICATION IA&B Vice President - Advocacy Claire Pantaloni, CIC, CISR Are you a member with a question?

Contact Claire to find the answer at 717-918-9202 or ClaireP@IABforME.com.

QUESTION: One of our carriers wants to extend the expiration date of the policy. Is that permissible? They are also asking us to look for coverage elsewhere.

ANSWER: When this change in expiration date happens (most often on a commercial line account), it is generally followed by a nonrenewal notice. In our three states of Pennsylvania, Maryland, and Delaware, the answer to the question would be no, it is not permissible: a carrier cannot unilaterally extend the policy renewal date to meet the advance non-renewal notice requirement.

WHAT OPTIONS DOES THE CUSTOMER HAVE? When faced with this situation, the customer can file a complaint with the regulator (most insurance departments have an online platform to submit a complaint).

WHY IS IT NOT PERMISSIBLE? Most agents are familiar with the statute that governs policy non-renewals and cancellations.

The statutes vary by state, but generally provide a timeframe for insurers to non-renew a policy.

To do so, the insurer is required to send a non-renewal notice a

certain number of days in advance of the policy’s expiration date. In this case, it is likely that the carrier failed to send the notice within the timeframe allotted. However, artificially extending the renewal date to circumvent the issue is not proper. If the insurer missed the window for a nonrenewal notice, the insurer should carry the risk for another year.

Following a recent complaint, IA&B took the matter to the Pennsylvania Insurance Department. The Department confirmed that they believed the regulation does not allow carriers to modify the expiration date of the policy when the carrier misses the 60-day advance notice of nonrenewal. The bottom line is that “policyholders need certainty that their coverage program is secured for 12 months and not at the mercy of inappropriate renewals.”

The Maryland Insurance Administration and the Delaware Department of Insurance confirmed their interpretation was the same. As the market hardens, it is important IABforME.com |

for members to be aware of this restriction so they can better assist their commercial customers.

Naturally, this applies to a regular non-renewal, not one where there are issues of misrepresentation, fraud, or any scenario that would be cause for a mid-term cancellation.

For additional information on policy non-renewals and cancellations, check our online resources at IABforME.com/carrier-resources.

This document is not a legal opinion and should not be relied upon as such. The intent of this document is to provide a general background regarding the topic or topics discussed, not to provide legal advice.

Producers and agencies should consult an attorney regarding specific situations and specific questions with respect to the topic or topics covered in this document. Neither the Insurance Agents & Brokers nor any of its employees shall be responsible for any errors or omissions regarding any statements made in this document, nor any errors or omissions regarding any statutes, regulations, court rules, and/or any other government documents cited in this document.

An audio version of this article is also available as a podcast

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KIDS & COLLEGE: LOGIC & LANGUAGE AND FORMS & FACTS

By Bill Wilson, CPCU, ARM, AIM, AAM I am a native of Nashville, TN, but in 1969 my parents drove me to college in Chicago, 500 miles away, dropped me off, and told me they’d see me at Christmas. And, while there were lots of “Be carefuls!” before we temporarily parted ways, I don’t remember one word ever being said about “insurance.” My guess is that, for the typical American family, very little is said, done, or even thought about with regard to “insurance” during the course of planning for 4

college. Needless to say, this can be problematic.

In my four years in college, I never brought my 1960 pink Rambler to school with me. So, one might think that “car insurance” wasn’t an important issue. It certainly never came up in any conversations with my parents. However, I had a roommate that did have a car, and he left his car keys on his desk along with permission for me to use it, AUGUST 2023

especially whenever we ran low on “liquid refreshments.” Fortunately, I never had an accident while using his car on an at least weekly basis.

Is it possible that this scenario exists in your personal lines book of business? Almost certainly. Is it likely that most of the auto policies in place for the families you insure exclude any losses arising from vehicles “furnished or available for your regular use” or words to that

COVERAGE CORNER

effect? I’ll guarantee it. Is that a risk worthy of addressing with your customers? I think so.

Did you know that ISO has a very new personal auto endorsement called Family Member Extended Non-Owned Coverage – Vehicles Furnished Or Available For Regular Use, the PP 43 31 01 23? Your non-ISO carriers may have a similar endorsement. Talk to your underwriters then to your customers with kids in college.

Another issue that often comes up is whether a kid at college needs a renter’s policy or if coverage is extended from the parents’ homeowners policy.

Several years ago, someone sent me a link (youtube.com/ watch?v=fSEDEQdJOdk) to a video of a fire at a New York university dormitory/apartment building that was negligently started by a student resident. We’ve all heard news accounts about tragic accidents involving college students and the inevitable lawsuits that follow.

The point I’m getting to, for both auto and non-auto exposures, is the need for adequate liability insurance.

How many students insured on a renter’s policy have high liability limits? How many have a renter’s policy and an umbrella policy? How much would it cost for a renter’s policy and a good-sized umbrella policy for a kid at college?

When my son went to college, we elected to extend the coverage under our own homeowners policy, auto policy, and umbrella policy to him. This gave him $3.5 million in

liability coverage for essentially no additional cost other than a slight auto insurance increase for a new garaging location.

One caveat for this approach is that many, if not most, homeowners policies have age limits and full-time enrollment requirements for kids at college in order for coverage to remain in force. ISO, and probably non-ISO carriers, have endorsements that might be indicated, one being the ISO HO 05 27 – Additional Insured – Student Away At School form which overcomes the “fulltime” requirement in the event that a student drops some courses or resides at school over the summer while not taking a full schedule of courses. ISO has other endorsements that might be appropriate as well.

Again, talk to your underwriters.

Likewise, talk to your insureds. Let them know that adjustments likely need to be made to their insurance programs to better cover their kids while at college. If you want to dig deeper on this subject, visit the Big “I” Virtual University and search for “college kids.”

CUSTOMER FLYER ON COLLEGE STUDENTS Rely on IA&B’s library of vetted insurance content to respond to customers’ questions or to educate prospects. Each of the 20 customer flyers – including one on insurance coverage considerations for college students – is professionally designed and ready for customization.

IABforME.com/marketingresources These customer flyers are an exclusive benefit of IA&B membership. (Please note that you will need your IA&B member login information to access them.)

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of seven books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at Bill@InsuranceCommentary.com.

An audio version of this article is also available as a podcast

IABforME.com |

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NEWS & NOTES

IA&B EDUCATION SCHOLARSHIPS Apply by Aug. 31 for the next round of insurance education scholarships.

On Sept. 15 IA&B will award two individuals with full CIC and CISR designation scholarships, as well as member agencies with scholarships for their staff to attend CIC, CISR, and CE courses.

Scholarships to attend licensing study courses are available throughout the year.

Applications are available at: IABforME.online/scholarships Questions? Contact IA&B Administrative Assistant Sarah Haas SarahJ@IABforME.com 800-998-9644, ext. 104

WEBINAR FOR WOMEN Register today for our upcoming webinar, geared to women insurance professionals. This webinar is part of IA&B’s broader initiative to support women in the industry and follows the sold-out Women’s Conference in March and first webinar for women in June.

The Thing About Women … That Make Such Great Leaders Presented by Sara Bradshaw Ray (keynote speaker at IA&B’s Women’s Conference) Thursday, Sept. 14 | 11 AM-Noon There is no cost to attend this webinar, which is available exclusively to IA&B members. Registration is required.

IABforME.com/ eventregistrations/?eventId=6655 800-998-9644, option 1 6

Please note: This webinar is designed with women attendees in mind, but it is open to everyone who supports the growth and leadership of women in the independent insurance agent community.

IA&B Public Relations Director Karen Robison at KarenR@IABforME.com.

IA&B YOUNG AGENT CONFERENCE It’s back! Register for IA&B’s Young Agent Conference, Oct. 3-4 at the Cork Factory Hotel in Lancaster, PA. Registration opens August 1.

IA&B MEMBER MILESTONE Congratulations to Weymouth, Swayze & Corroon Insurance on its 90th anniversary. Headquartered in Wilmington, DE, WS&C is a full-service property, casualty, and specialty insurance brokerage. With origins in Wilmington, DE and New York City, WS&C is the result of a 2009 merger between Weymouth & Smith Insurance and Corroon & Associates.

WS&C has remained steadfast in helping clients protect their business and personal assets in 34 states and overseas by offering custom-tailored insurance programs and solutions for all types of risk. Case in point: WS&C once provided coverage for a rare 1 cent stamp that was insured for $6,000,000!

WS&C President Richard Corroon is a proud supporter of IA&B and served on the Board for several years culminating in the position of Delaware Chairman in 2019.

Is your agency celebrating a milestone anniversary? Whether it’s five years or 125 years in business, we want to acknowledge your accomplishment.

Email announcements and images to AUGUST 2023

The conference is devoted to developing up and coming insurance agents into successful leaders.

Young agents will connect with peers and mentors during roundtables, breakout sessions, and other networking opportunities.

Hurry! Early bird registration Aug. 1-25 Members $349 Members save $80!

Non-Members $429 Prices increase after Aug. 25.

Members $389/Non-Members $469 For more information and registration, go to IABforME.online/YAconference or call 800-998-9644, option 0.

DE WORK COMP EXEMPTION BILL In late June, Delaware passed legislation to increase the number of allowed workers’ compensation exemptions for LLCs. Previous law permitted as many as eight executive officers of a corporation and four of an LLC to be exempted from workers’ compensation, reducing the cost of coverage. This legislation increases the number of allowed exemptions from four to eight for LLCs. The bill was introduced in response to several IA&B members who

experienced situations in which the four-officer limit on exemptions was too low for their policyholders’ needs. Two members of IA&B’s Government Relations Committee, Lee Dotson and Maria Metcalfe, testified in support of the bill.

PA INSURANCE DATA SECURITY ACT Earlier this summer, Pennsylvania passed the Insurance Data Security Act. The legislation, which largely follows the National Association of Insurance Commissioners model cybersecurity law, will take effect in December.

Harford Mutual Insurance Group is a Ward’s 50® top-performing property-casualty insurance company for the second consecutive year.

The Act requires all licensees to report to the Insurance Department within three business days of a cybersecurity event resulting in the unauthorized access, misuse, or disruption of an electronic system containing private consumer information.

Licensees above a certain size will also need to conduct an annual risk assessment and implement a data security plan to mitigate any identified cybersecurity risks.

2022 & 2021 We partner with independent agents to insure restaurants, contractors, mercantile, and other commercial entities.

IA&B’s advocacy team successfully lobbied for several changes to the bill, including the addition of exemptions for licensees, the removal of a provision that would have required agents to pay for the Department’s costs of investigating violations, and the reduction of fines for violation by 80%.

Insuring Opportunity through Mutual Success.

HarfordMutual.com 800.638.3669

If you have questions, contact IA&B Government Affairs Director John Savant at JohnS@IABforME.com or 800-998-9644, ext. 607.

IABforME.com |

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Q&A with

LINDSEY PETRILLO Lindsey Petrillo, MBA, CIC is president of the Eric W. Snyder Insurance Agency, a full-service independent agency in Parkton, MD. Prior to purchasing the agency, she worked as a district sales manager for Erie Insurance Group.

Q. Eric Snyder passed away unexpectedly, which prompted the sale of the Eric W. Snyder Insurance Agency.

Why did you decide to take the plunge into agency ownership? And what was the acquisition process like?

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The acquisition process was a beast. Going about acquiring an agency without the prior owner makes it challenging.

I was lucky to have a solid team around me to support me throughout the process. I also had some great agent friends who let me vent on the hard days or were there cheering me on, on the good ones. Having a strong support system – both professionally and personally – is vital for anyone who is going through the acquisition process.

Q. What lessons have you learned from this experience?

A. Honestly, I never saw myself owning an agency. It’s funny what life throws at you though. Leading up to this in 2021, I was at a point in my career where I was really burnt out and looking for a change. Personally, I had been riding a rollercoaster for the two years prior. In 2019, I was diagnosed with a very rare head and neck cancer. Over the next year, while I went through surgeries and radiation therapy, I was also getting my MBA from the University of Maryland. As that chapter came to a close and I stepped onto the road toward recovery, COVID-19 hit. Needless to say, when 2021 rolled around I was admittedly a little lost, but knew I needed to make a change.

A. I think the biggest lesson I’ve learned from this experience is to have more patience … with the process, with myself, with the business, etc. It’s something I still have to remind myself of regularly. I have friends who have often told me the only way to eat an elephant is one bite at a time. My situation was a little more unique because Eric didn’t retire, he passed. I had to take the process and the transition one day at a time. There were things I had to learn and the key person to learn them from wasn’t here. I have had to lean on others to help me get up to speed. It’s been a very humbling experience.

Eric’s passing was devastating. He was a close friend and mentor I had worked with since I moved to Maryland in 2016 to work for Erie. Little did Eric know that prior to his death, I was debating the idea of approaching him about perpetuating his agency. Unfortunately, we never got to have that conversation. A few months later, when the family decided to sell the agency and asked for my help in finding a buyer, I felt compelled to step up. This was the opportunity I had been looking for, and the opportunity was made so much sweeter when I could do it in honor of a dear friend.

Another lesson has been accepting that you’re not going to please everyone. One of our biggest hurdles has been addressing Eric’s passing with customers while also introducing new ownership and team members. Again, we are in a unique situation, and there really is no “right” way to handle it. Some customers have taken his death very personally, and we know change is hard. All I can do is be confident and comfortable in the way I have approached it and that I did so with Eric’s family, my team, and the business in mind.

AUGUST 2023

ON THE COVER Q. You were a successful district sales manager before switching sides of the desk. What would be helpful for other independent agents to know about their carriers, reps, and the support they offer?

A. It’s important to remember that we are all on the same team. Success for an agent means success for the DSM, branch, and carrier. There are times where tough conversations are had or decisions are made by a carrier that aren’t agreeable to everyone, but know they are trying to do their best to advocate for agents and help where they can.

Another thing, be kind! Sometimes we can forget that DSMs and branch managers have a lot of plates in the air just as agency owners do. We are all busy and stressed and are trying our hardest. When days are hard or we disagree, it doesn’t hurt to remember to be kind.

Q. What’s your favorite thing about working in the insurance industry?

A. I think my favorite thing is operating a woman-owned business. I recently attended the Women’s Conference IA&B held in March. It was great to network with other women in the industry, but what really made the day special was meeting a few young women who currently work for another independent agency. When they found out I owned my agency, they told me how inspiring it was, and we proceeded to have a great conversation with them asking me a ton of questions about my experience. It’s only been 17 months of owning the agency, but a long-term goal of mine is to focus on the female customer – whether she be a homeowner, or a business owner, or both. I see it as an opportunity to empower women to learn more about their insurance and why it’s important.

Q. Having worked on the carrier and the agency side gives you a unique perspective on our industry. What do you see as the independent agency channel’s biggest challenge?

A. Currently, I think the hard market we are facing right now is the biggest challenge. I’ve heard others talk about it saying it’s the hardest market many will ever face in our careers. When it comes to rates and customers shopping around, as a district manager, we look at it very factually, and everything is data driven. We get to have the bigger conversations with multiple departments to understand what our experience is and what’s actually driving rates. On the other side, as an agent, it’s a much harder conversation to have. Every dollar added to someone’s policy is a pain point for a lot of customers right now.

IABforME.com |

I think there is some sharing of perspectives between company and agent that could help both sides.

Looking ahead, I think many can agree our biggest challenge is recruiting and retaining quality employees.

I have explored various ways to recruit talent and have worked with consultants in the fields of HR and recruiting to hone my approach. When it comes to retaining staff, I think it’s abundantly important to show gratitude toward and appreciate your employees. Providing structure, a comfortable work environment, and stability (in the form of quality pay, incentives, and benefits) are also vital. The market has changed, and we as agents must adapt and be willing to invest in our employees so they will want to stick with us for the long term.

Q. When you’re not working, how do you spend your time?

A. Through my personal experiences, I have learned how important it is to take time for yourself and to prioritize self-care (especially when you’re a business owner). When I’m not at the office, I enjoy spending time with my friends and boyfriend exploring Baltimore city or traveling. I am an avid reader, so you can often find me completely engrossed in the next book on my list. I also love being active, whether it’s hiking, doing Pilates, or a spinning class.

Are you looking for

MARKET ACCESS? Take a look at IMS • A broad mix of standard and niche markets • No initiation or monthly fees • Low to no volume commitments • Standard commission rates • You will be the agency of record on all policies • 100% ownership of expirations

IMSaccess.com Contact Tim Wonder VP - Membership TimW@IABforME.com 800-998-9644, ext. 351

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IA&B PARTNERS PROGRAM

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IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

HELPING OUR AGENTS GROW With customized sales and marketing tools built for you, Plymouth Rock is committed to helping you achieve profitable growth in your business. You’ll have access to senior leadership, plus a dedicated team with regional expertise. And our competitive compensation plan will reward your success along the way.

A Leading Personal Lines Writer in the Northeast Plymouth Rock is committed to providing our agents and customers with superior service, innovative products, unique benefits and competitive pricing. As a leading personal lines writer in the Northeast, Plymouth Rock wants to be your preferred full package writer in Pennsylvania.

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• Motorcycle – backed by 50 years of experience with our acquisition of Rider Insurance, our coverage is built for the riding community.

Ease of Doing Business Our investment in technology and digital innovation ensure fast and easy quoting for our agents.

AUGUST 2023

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Exceptional Service Our commitment to service is focused on doing business the way our policyholders prefer – directly with our agents, over the phone with a licensed service representative, online using our enhanced eService platform, and now, via text message with a live customer solutions team member able to handle policy questions in real-time.

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• Our Crashbusters® mobile claims service comes right to your customers to assess damage – and often writes a check on the spot.

• With the CarPics® photo appraisal tool policyholders can send us photos of their vehicle right from their phone.

Thank You Thanks to these partners for supporting the independent agent network.

PLATINUM PARTNERS Acuity Erie Insurance Keystone Millers Mutual Insurance Penn National Insurance Plymouth Rock Assurance

Learn More For more information about Plymouth Rock or to inquire about appointment opportunities in Pennsylvania, send an email to MarketingServices@plymouthrock.com.

DISCLAIMER: Plymouth Rock® and Plymouth Rock Assurance® are brand names and service marks used by separate underwriting, managed insurance, and management companies that offer property and casualty insurance in multiple states pursuant to licensing arrangements. Each underwriting and managed insurance company is a separate legal entity that is financially responsible only for its own insurance products.

IABforME.com |

BECOME A PARTNER TODAY Interested in becoming a partner?

Reach out today.

Tim Wonder IA&B VP-Membership 717-918-9223 TimW@IABforME.com 11

INSURANCE

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At UFG Insurance, we’ve been insuring businesses of all sizes and specialties for more than 75 years.

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Next time a new account crosses your desk, think UFG. We’re ready to get down to business with you!

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MANUFACTURING

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DUE DILIGENCE IN M&A DEALS

The Important Role of Due Diligence in

M&A Deals

By Jennifer Martin, CPA, CFE, of MarshBerry IABforME.com |

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The term “due diligence” is synonymous with words like: assessment, investigation, scrutiny, and audit. It also conjures up descriptors such as: slow, laborious, or painstaking. Because of this, the importance of the due diligence process in merger and acquisition (M&A) deals may be easily dismissed or perhaps rushed – defeating its true value and purpose: to thoroughly examine the crucial elements of a transaction to the benefit of all parties. And a “thorough examination” of a potential M&A deal could mean the difference between tremendous success or disastrous failure of a partnership.

Reasons Some Firms May Forego Due Diligence Because of the assumption that the due diligence step will slow down the process of a deal, some firms may gloss over or rush this step because of the timing and/or cost. There are also some assumptions that experienced owners know their business or the industry so well, there is no need for outside consultation or expertise to perform due diligence. But having an experienced third-party due diligence review is more about having someone who understands the steps in the process, understands the insurance industry, and can provide unbiased assessments that both parties can trust, ultimately to help everyone make informed decisions.

Due Diligence is Valuable to Both the Buyer and the Seller As tiring and taxing as the process may seem, having both buyer and seller really dig into the details of the transaction can benefit both parties. Unlike the early courting phase of partnerships, which can feel like speed dating, the due diligence phase allows each party to slow down and really assess how the moving parts of both businesses will work together.

For many buyers, they have done this before and recognize due diligence as a critical step in the M&A process. For them, it’s about understanding all of the potential risks, opportunities, and business components of their potential investment or acquisition. The more informed a buyer is, the better the relationship will be through integration post transaction.

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For most sellers, this may be the first time (or only time) they are involved in an M&A deal and might find the due diligence process inconvenient and unnecessary. But sellers should understand that due diligence provides them an opportunity to address any concerns, questions, or potential risks identified during the review. In fact, a seller should consider conducting their own pre-due diligence assessment in order to be prepared for questions from the buyer.

Getting Started Once a letter of intent is signed with a target to exclusively negotiate on an acquisition, confirmatory due diligence begins. This phase is often driven by the buyer and/or the buyer’s advisors. Some buyers perform due diligence in-house, but most buyers involve an outside advisor to represent their interest, and it is often a requirement of the buyer’s capital provider. However, it is just as important for the seller to confirm their understanding of the buyer during this phase. Afterall, the end goal is a successful partnership with no buyer or seller remorse.

Like dating – there will be many twists and turns, but most can be anticipated and/or avoided with proper planning.

And properly planned due diligence can help prevent deal fatigue by both parties.

Risk Assessment and Potential Pitfalls Performing a risk assessment at the onset of due diligence can save time down the road, help identify what matters most, minimize the unexpected, and allow for a more efficient process. Most due diligence assessments start by looking at the “why” behind doing this transaction in the first place. What are the goals and objectives of this partnership? How will everyone define and measure success for this deal? Once these are clearly identified – next, it’s important to think about and document the potential pitfalls that could undermine the “why” of doing the deal.

Here are some top pitfalls to watch for: ● Culture clashes. Integrating people from different corporate cultures can be one of the biggest challenges and potential pitfalls to a successful deal.

Healthy work cultures, team chemistry, and individual

AUGUST 2023

DUE DILIGENCE IN M&A DEALS

The due diligence phase allows each party to slow down and really assess how the moving parts of both businesses will work together. - Jen Martin

personalities of senior-level leaders aren’t identified on financial spreadsheets. These are qualities that need to be examined and evaluated closely and are proven to impact M&A deal success rates.1 ● HR issues. Every organization handles staffing differently – ranging from the classification of workers (i.e., full time, part time, independent contractor) to salary structures for sales personnel to restrictive covenants. It’s important to understand how a partnership may impact those existing employment structures. ● Lack of strategic alignment. M&A can be a powerful tool in helping both parties achieve their strategic goals. However, it is important to ensure that both parties are aligned on their vision and objectives. Without a clear strategic fit, the deal may not deliver the benefits as anticipated by both parties. ● Pro-forma disagreements. Pro forma EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) is often a primary driver of valuation in most deals.

Therefore, sellers are motivated to be aggressive in their pro forma assumptions, and buyers are motivated to take a more conservative approach. It is important for both parties to understand the methodology utilized in building the pro forma and agree on how any synergies or shared costs will be treated. Not only is this important for the initial valuation, but also for earnout purposes if contingent payments are part of the deal structure.

of how issues are handled as they arise. Afterall, in any partnership it is not a matter of “if” issues will arise but rather “when” they will arise. Take note on how collaborative or not your potential partner is being in determining an agreeable solution. It is better to gain this level of understanding during the engagement phase rather than after a completed transaction.

Every deal carries a certain amount of uncertainty and risk. However, properly planned and executed due diligence can help minimize the risk for potential issues post transaction and can help keep emotions in-check.

Documenting, quantifying, and analyzing the risks during diligence can help make buyers and sellers more comfortable on the day they are signing or making that wire transfer.

If you would like to learn more about how to navigate the complexities of partnership deal negotiations, email or call Jen Martin, Vice President, MarshBerry, at Jen.Martin@ MarshBerry.com or 440-287-6790.

Investment banking services offered through MarshBerry Capital, LLC, Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, LLC, 28601 Chagrin Blvd, Suite 400, Woodmere, OH 44122 (440) 354-3230 https://www.mckinsey.com/capabilities/m-and-a/ourinsights/the-flip-side-of-large-m-and-a-deals 1

Resolving Issues As items are identified during the due diligence process, whether positive or negative, keep a scorecard and compare with the initial risk assessment. Keep track IABforME.com |

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