Feb. 19, 2026
EP 25 | The Hidden Insurance Costs of M&A with Richard Hearden
In this episode of Merger She Wrote, host Paloma Goggins sits down with risk management consultant Richard Hearden from Freestone Insurance Group to uncover the frequently overlooked insurance requirements that can complicate a business sale or acquisition.
When navigating mergers and acquisitions, many founders focus entirely on revenue and valuation while missing critical risk management steps. Through real world case studies, this episode explores why private equity buyers demand specific policies before closing and how failing to prepare can cost you time and money. Richard breaks down exactly what policies you need, when to buy them, and how proper planning protects both the company and your personal wealth.
What You Will Learn:
- Directors and Officers Liability: Understand what D&O insurance is, why buyers require it, and the risks of purchasing a policy at the last minute.
- The Importance of Tail Coverage: Discover why professionals in the medical and legal fields must maintain coverage even after selling their practice.
- Scaling and Insurance Audits: Learn how rapid growth impacts your insurance premiums and how buyers evaluate these changes during due diligence.
- Key Man Policies: Find out how life insurance on crucial personnel can provide immediate cash flow to replace an irreplaceable founder or buy out a deceased partner's shares.
- Bonus Golf Advice: Richard shares a brilliant tip from his professional golfing days to help you escape sand traps with ease.
Notable Quotes:- "Insurance is almost never going to be the deal breaker, but the cost of things can drastically change depending on whether or not you have a full understanding of what the insurance plan is."
- "If you are getting D&O at the very end when you are careening towards closing, there could be exceptions or exclusions."
Connect with Our Guest: Richard Hearden is a producer and risk management consultant at Freestone Insurance Group. You can reach out to him directly for your commercial property, casualty, and M&A insurance needs at ricky@freestoneig.com.
Learn more about corporate legal services and M&A representation at https://nocturnallegal.com/
#MergersAndAcquisitions #BusinessInsurance #KeyManInsurance #BusinessExit #CorporateLaw #Entrepreneurship #BusinessGrowth #RiskManagement
WEBVTT
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[upbeat music] In the world of business, not all deals are what they seem. Fortunes rise, empires crumble, all with the stroke of a pen. Mergers, acquisitions, hostile takeovers.
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Welcome to Mergers She Wrote, where we examine strategies and stories behind the biggest deals in business. Because in M&A, the real risks are the ones you don't take.
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Welcome back to Mergers She Wrote. I am Paloma Goggins, your host and the owner of Nocturnal Legal.
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Today's guest is a professional, ex-professional golfer and a, an insurance specialist, and he is going to help demystify the insurance space when it comes to the things that we see commonly in both the buy, sell and preparation for sale process.
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So I'd like to welcome Ricky. Thank you so much for being on today. Yeah. Tha- thanks, Paloma. I'm, uh, really excited to do this and, uh, excited to chat with you as always. Yeah, likewise. Okay, I'm gonna jump in.
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Today's episode, like our more recent episodes, are going to be case study based with our guest. And so I'm gonna jump right into this first case study.
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My disclaimer is that this is based on a conglomerate of situations that I've seen in my practice. It does not represent any one specific individual. And with that being said, I'm gonna jump right in.
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So this first case study is with respect to a corporation. They are a professional service business, and they are selling the stock of their business to a private equity buyer.
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The process is going smoothly, and the private equity buyer has asked, as part of the closing deliverables, that a policy for directors and officers is taken out for anyone that is essentially leaving the company.
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Now, for a buyer that is private equity, it's pretty common. Um, for most buyers it's pretty common.
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And so it's not, I, I would say for someone who is selling their corporation, I think it is fairly market to say that this is a common occurrence, something that is a common request.
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And for most people who are selling their corporation for the first time, right, um, not everyone has built a very successful business and sold it multiple times.
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So for most individuals who are selling their corporation, it's for the very first time.
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And being asked to get directors and officers, uh, liability insurance, which is usually an acronym as D&O, um, it becomes kind of a shock because D&O can be quite expensive and, um, it is not uncommon for potentially the buyer, especially institutional buyer, to pay for the cost of D&O.
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So one kind of negotiation point related to this case study is that potentially as a seller, you could ask the buyer to pay for this policy if it's not already written into the document.
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But I wanted to ask Ricky, because I know this comes up so frequently with my sellers that are represented and the D&O policy comes up. You know, what is, at the very baseline, what is directors and officers liability?
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Yeah, I mean, the, the simplest way, um, that we normally talk to different, um, companies, owners, uh, officers about, um, anybody in the C-suite or on the board, is it protects the individuals within the company.
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So, um, the biggest, you know, again, kind of baseline, um, explanation of it would be it protects the C-suite, the board, any stakeholders from something happening.
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S- like, uh, we deal with a bunch of public companies. Um, let's say the CEO says something and the stock tanks because of it.
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Okay, dir- if directors and officers policy is written properly, you have coverage, um, because more than likely the shareholders will then be suing the CEO for saying or doing something, whatever happened.
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So, um, that es- essentially it protects the individuals within the company and their assets. That's the, um, that's the idea behind it. Awesome. I appreciate that explanation.
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And then for anyone who's thinking about going through this process, like what does it look like working with someone like yourself? You know, does this take time?
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Because I know a lot of people, when we're helping them sell their business, there's always a race. And I always, I, I hate to see people race.
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I think racing to the finish line for a deal is always rife with giving up things that you shouldn't or overlooking things that are important. So what does the timing look like for this?
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What does the process look like for this when looking to essentially obtain this policy? Yeah. The, the timing is, um, I- on our, on the insurance end of things, it's really just as fast as we can get the information in.
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So, um, which it can be a little bit of a pain in the butt sometimes. But, uh, um, so it's as, as quick as you can get us, um, the financial information, as quick as you can get us, um,
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I mean, simple stuff like names and addresses is, we can norm- you know, m- I would say, I mean us, but you know, most brokers could turn it around in, um, two to three days.
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If it w- if we wanna be a little bit more thorough about it, which would be preferred, um, you know, you give, give a couple weeks and, um, two weeks tops and everything should be able to be fine. Um, it,
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I would say to kind of go back to your point of, hey, now we need d- directors and officers for, uh, for a buy/sell type, type situation, I would
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kind of like to tell companies that you should probably get directors and officers a little bit- [laughs]... before the, the sale. Um, be- even before you're thinking about selling just to make sure that you're, um-
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That you're good on the, um, from a long-term perspective. Um, the, the policies can have quite a few exclusions if you're doing it, you know, at the moment of sale.
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Um, and the carriers will be aware of the, the moment of sale. So, um, but yeah, that's, uh, kind of the gist of that, I guess. But yeah- Yeah... as far, as far as what we need, it's...
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A- a- and the turnaround time for it is, you know, it's not, uh, it's not the due diligence of legal stuff that, uh, that you're all going through that takes, you know, hours and hours and hours, so.
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No, but you know what? It's good to know that it could take two to three weeks, because in some situations I feel like D&O comes up as part of the negotiation process. It's not always included in a first draft.
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And so if it is potentially going to take a couple of weeks, I think it's good to be on everyone's radar as a gating item that could potentially slow down the closing process, especially, I mean, obviously a two-day turnaround is very expedited.
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But I would say for pretty much any transaction I've seen that does go through the process of underwriting, it usually takes much, you know, not much longer, but I would say a, you know, decent amount, like you said, maybe a couple of weeks.
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And so- Yeah. Yeah, like it, you know, if you wanna really press it and, "Oh, my God, it came out of nowhere and we gotta do this"- Yeah... okay.
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Um, it's why, it's why a big part of the reason of, you know, not having to press things like that is why we, um, um, at Freestone Insurance, where I work at, um, why we started, um, our M&A advisory team.
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Um, so that we can partner with buyers and sellers both, either, whatever the case may be. Um, we have a team that
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as the process of the, of the transaction is happening, "Hey, involve us in it and we'll be able to tell you what you need from a, from a policy standpoint, what the expectation is far in advance from the moment that you need it."
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Um, because, and, and then what the, you know, costs, um, the additional cost or the, um, cost savings that you're gonna have from preparing yourself ahead of time for all of that, um, ra- rather than, "Oh. Oh, wait.
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Hey, we need this thing now." That's this, this big D&O policy that's gonna cost, you know, depending on the size of the company, you know, hundreds of thousands of dollars. "Oh, wait. Okay."
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You know, and so, um, better to be just prepared at, of, for those things ahead of time. No, absolutely.
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And I wanna go back to what you were saying before, which was that if you're getting D&O at the very end when you're careening towards closing, that there could be exceptions or exclusions.
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And I, I've never heard that, because I've just not been part of the underwriting process more particularly.
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And so that topic is, is fascinating to me, because I feel like 100%, if anyone's listening and you don't have D&O and you are in a corporation that's doing well successfully, uh, you've gotta have D&O.
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It's just, you know, good Ps and Qs, good, um, operations. But let's go back to that question.
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And not to put you on the spot, if you don't know them off the top of your head, but, like, d- what is an example of an exclusion you've seen in this process? Oh, um, y- you are putting me on the spot there. Um- [laughs]
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So, it, I mean, the, the biggest things is that it would, um, there'd be t- I mean, you could buy tail ins- uh, tail coverage as well to go further back.
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But if s- if stuff comes up from, um, you know, from two years prior, um, now all of a sudden we have a whole bunch of issues on whether or not the- Mm-hmm...
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the D&O policy is going to, the current D&O policy is going to cover it. Um, it's why partially I'm like, "Hey, get D&O in place beforehand." Yeah. Um, but that, I mean, those are the biggest things.
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And then, you know, there's, um, there's different, um, bodily injury or property damage things that the, that D&O doesn't cover, that you're like, "Oh, wait. Doesn't this cover it?"
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And it's like, "No, that's in, like, general liability stuff for the most part." And you're expecting, "Well, this is covering me to its entirety." It's like, "Well, if you didn't set it up properly, then no it's not."
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Fascinating. No, I mean, I, I think that makes sense from a timing perspective, right?
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Because I hear that frequently in my practice, where I'm dealing with professionals, especially in the physician world, where they're talking about handing over their practice to a new physician, and the tail policy is, is a huge just general consideration, right?
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And the, and the bad part about tail policies is that they end when you stop paying for them. [laughs] And so it's, there's, there's never, like, this good, like, "Oh, you don't pay for it and it continues to cover you."
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It's, it's this never-ending obligation. And I think for a lot of physicians that are in practices where there's better or bigger risk, I should say, um, that tail policy becomes even more important.
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Because if you stop practicing and you don't have the tail policy, and then some sort of medical malpractice claim comes up, you've got nothing from a coverage standpoint.
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So I'm glad you brought up the tail policy thing. Because even though it's not pertinent to our ca- the fir- the first case study, I, I think it's very pertinent across professional services.
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I mean, even, you know, lawyers and accountants and things like that, the tail policy. Pretty much anyone in a professional services capacity. So, um- Yeah... that's very helpful.
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And 'cause people will, you know, for all sorts of reason, we're in a very litigious society now, and so for all sorts of reasons, people will, "Oh, wait.
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I could, I could maybe get after this person for this company for this one thing." You know, and they didn't think about it twice before.
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They just thought it was a bad break or whatever, and now they're gonna do something about it. So, um, yeah, it's just a always, I mean, obviously from the insurance guy, always better to have coverage earlier. Yeah.
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But, uh, um, but there's, I mean, real reasons for that. From a D&O standpoint with the O part for officers, is there limitations on what classifies as an officer?
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Like, if someone has a broader team and off- I mean obviously officers like president, vice president. But is there a limitation in the, the hierarchy of officer titles that there's a kind of a limitation to D&O? Um,
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I mean, yeah. I mean, yeah, there's I guess a limitation. It'd be different from carrier to carrier. Um, I mean, the, the biggest thing would that, that there'd have to be some sort of complexity to their role, um- Mm...
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to the, to the, to them being a stakeholder. Um, so, uh, I mean, no- normally, normally what we see is it's just, you know, any type of C-suite, so
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chief executive, whatever chief finan- whatever the case may be. Um, and then any, any board member.
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Really the board is the people, are the people who are most interested in this because they're, um, not day-to-day involved with, uh, with a lot of the company's going, goings ons. But, um,
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um, yeah, I mean, there, there is, there is a cutoff. At what point that is, is, yeah, varying d- depending on the, on the situation in the company.
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Um, I guess I don't have a great answer in terms of what that cutoff is. Um- That's okay. In my world, we, we say it depends all the time. Yeah. I, I say it's a yes or- So I think, I think you should get... Yeah.
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[laughs] Yeah. I think depends, it depends is a really solid answer for you in the insurance industry because, yeah, you're carrier specific and there's also... Like I always tell people, every deal is like a snowflake.
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Um, they're all so unique. The, the seller, the buyer, the circumstances, the, the, the sale that's actually occurring, whether it's assets or equity, right? And all of that plays a role. Um, I always, um...
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I'm always at a crossroads when I get a call from someone who could be a potential new client, and they're like, "Yeah, isn't this all the same across the board, and can't you just tell me how this is all gonna work?"
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And, you know, the reality is, is I can't without seeing the letter of intent or the deal terms. I mean, it, it, it drastically can change. So, um, I think you're well within your right to say it depends.
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[laughs] Oh, for sure. Yeah, I mean, it, it, 'cause it really does, and so it just, you know, it's all the... I think everybody knows- Yeah... going in. No, definitely.
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Um, well, before we move on to case study number two, I know Ricky you mentioned in brief, you know, the company that you're working for. But go ahead and re-explain sort of like what you do, what your company offers.
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And, and I know you- we've talked about this kind of in passing, just you and me separately, but having this, um, separate M&A specific division to help with the insurance piece of this, I think is awesome.
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Because I think people don't realize insurance can be quite the boon when it comes to the transaction process, something that, uh, individuals don't really contemplate, and especially in the lower middle market, which I won't get into what is the definition of lower middle market, because it seems to have taken a life of its own of what actually classifies as the lower middle market.
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I feel like it changes- Whatever the owner thinks it is. Yeah. Yeah. I feel like it changes across industry, it changes across state.
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Um, but I will say, you know, the small, the smedium, shmedium businesses are like the lower middle market is the most layperson version of that description.
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Um, but one thing that doesn't come up very often in that lower middle market, the smaller businesses that are for sale, is reps and warranties insurance, because it is just so expensive, and, um, I know your company offers that.
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And so I want you to tell us a little bit more about where you work, what you do, and then I'd love to talk briefly about reps and warranties insurance, and then we can go into my second case study, um, if we have enough time to cover it all.
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I think we should. Awesome. Love it. Um, yeah. So I w- I work for Freestone Insurance. We're a, um, vastly, um, very fast-growing, uh, independent insurance brokerage.
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Um, we're full service, so we, I mean, we can do anything insurance-wise is, um, how I describe it to some people.
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[laughs] Uh, but, but really, um, and my role there is I'm a, I'm a producer or a broker, um, risk management consultant, however you wanna word it. Um, and I, I ha- I'm licensed throughout the entire insurance spectrum.
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Um, and my job is to bring in business obviously. But then we have teams that I work with, um, for each, each type of insurance.
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So we, we have a, a dedicated team, an entire part of our business that does, um, individual insurance, so home and auto insurance, umbrella, jewelry, boats, um, all, all different kinds of stuff for, for families.
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Um, we specialize in, um, higher net worth individuals. Um, and so, like if somebody, say a friend of mine comes to me and is like, "Hey, I need help with coverage. I've had all these increases lately.
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What can we do about it?" Okay, so then I go, I start getting my, my team involved. I, I would go to Jerry.
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Jerry's my, um, my go-to on that side of things, and then we start developing a plan of, hey, this is the information we need, this is what we're gonna go out and do. Um, and we do that for kind of everything.
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So we, we have a, um, a commercial property and casualty division, um, that also deals with these financial lines like D&O and, um, pr- the professional liability like D&O, E&O, um, different things like that.
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Um, and that is headed up by our president, Nick Baxter, who's wonderful- Has taught me way more than I thought was possible to learn.
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So, um, but and so I, everything that I do goes through, I bring it to him and to the rest of our team. Um, we have a, a great staff of account managers as well.
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Um, and we dissect what, what is, analyze what is best for the, what we think is best for the client, present that to them, have a discussion with them.
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It's not ultimately our decision, um, but it's our, our job to provide, um, solutions and hopefully a little bit unique solutions so that it's not just, "Oh, okay, cookie cutter.
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Oh, wait, it, everything went up 5% this year, yay." Right. Um, that is what happens a lot of times, but, uh, but hopefully we can, uh, we like to think that at least that we bring, bring a little bit more to the table.
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And then we also have a employee benefits, um, division, which is incredible. That's how Freestone started actually. We started selling, um, ancillary benefits, um, life and disability stuff.
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Um, so we call it our leave management, um, team, which is incredible. Um, we have can, uh, we've found that we provide pretty significant savings, especially on life and disability, um, for large corporations.
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Um, and, uh, and so yeah. So that's kind of the, the scope of kinda how we were built and, and what we did.
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And then recently over the last, uh, I'd say about year now, um, we've brought on, um, and developed, uh, an M&A advisory team, um, that has worked together for a long time. So Austin, Linda, and Cassie. Linda...
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Austin kind of leads the team. Linda deals with the human capital, so the benefits part of it. And then, um, Cassie deals with the, the risk management and insurance parts.
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Um, we find, we find a ton of value, um, in working on transactions with companies. Um, for one, like you stated, the- there's just, there's a lot that goes into it that comes up and surprises people with it.
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Insurance is almost never gonna be the deal breaker. So we, you know, it's not as, uh, um, it's not as high leverage, I guess, in that sense for a deal.
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Um, but the cost of things can drastically change depending on whether or not you have a full understanding of what the insurance, um, plan is for that company or was for that company.
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For instance, for, you know, a lot of small companies are, you know, growing to sell, right? So, okay, hey, we just grew 10X and now we wanna sell and, you know, get, get out of here with a, with a good chunk of change.
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Okay, well, how fast did they grow? Did they grow that fast in two years? Almost always their insurance policies are rated what they were two years ago, right? Okay.
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Well, now as we do this, now we got a, we got a whole new rating of sales and revenue that, that the buyer just wasn't aware would be a difference. They were like, "Oh, this is how much we pay in insurance."
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Well, no, it's really not. You know? Now, now you got a whole bunch of, um, audits that can happen, um, that are changing different things. Um,
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on the employee benefits side of it, you've got different, um, you know, different, um, obligations that you have to meet from different states, um, from different areas.
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Well, what if this small company that you're buying their, what if their, um, their benefits are much more robust than yours?
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Okay, well, now the employees aren't gonna be very happy if you come take down their, take down their benefits. Definitely. How do you manage that, right?
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And so our, our, our, uh, uh, M&A team's job is to analyze all of it, but then come up with solutions for it as well. So not just, "Hey, here's your problem. Good luck." "No, here's your problem.
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Here's how we would solve it," or, "Here's how we would prepare you for it." Um- Nice...
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which, which is, which I think is just super unique and so it's a, it's a great, it's a great tool for us as well to show our worth- Yeah... um, before maybe officially being somebody's, um, sign-on broker.
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Um- No, absolutely... you can hire us to do the M&A, um, work for you. Um- Well, and I think on that topic, like you were talking about scaling a business and potentially acquiring through scaling, right?
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And having these difference or sort of disparate policies. I wanna jump into case study number two before we run out of time. Okay.
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Um, but I think that was all super helpful to better understand what you guys do and very full service.
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So if you're looking for multiple options and being all under one house, I think Ricky is a great option for you to reach out to.
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On this case stu- case study number two, um, with regard to someone who's scaling their business with a plan to exit,
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which I'm glad you brought this up because one of the things that comes up very often in the scaling process is the different insurance that could potentially come in and help protect the longevity of the business.
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And one of them is keyman policies, um, which we could just call them key person nowadays.
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But keyman policies are essentially, uh, a way for someone who is a key personnel to the company, think owner, operator, someone that if the individual who has owned and operated this business for
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the last 25 years is suddenly no longer available, what do we do to bridge the gap, right? And so Ricky, at like a very baseline, what is a keyman policy? Oh, keyman policy would be, um,
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life insurance, um, on important individuals or irreplaceable, um, would be a term used, uh, irreplaceable individuals in the company. Um, so that, that becomes- Um, okay.
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Uh, the president or CEO or let's say there's sometimes there'll be four owners and maybe you only take out a key man policy on one because they're the one doing everything on a day-to-day basis.
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Um, that's not the way it has to happen, but it can be, it can be the way that it happens.
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And so it's literally what it says is it's life insurance on the key man or woman or whoever, um, uh, that allows the company to become reimbursed, um, through the, through the insurance carrier.
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Um, if there were something to happen, they can now afford, figure out how to afford to, to replace that, that person.
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Through the underwriting process, what does that typically look like from a, from an owner operator or a key person perspective? Is there extra hoops to jump through?
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I know for the DNO policy, we talked about providing financial information, you know, key individual information like names and addresses. What is, what's different about the key man policies? Yeah.
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So the, the, it, part of it depends on like what they would need finance, like as in terms of financial info would depend on, um, on the role of the person at the company.
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So if it's an, if we're talking about doing key man for owners, then we need the financials, right? Because we need to understand at least a baseline of how much the company is worth.
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Um, and then the purposes for the key man policy. Um, if it's a, um, cause there's also like the buy sell agreement policy that's similar type things. Um,
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but then you would also, for all of those, you need, um, different health information, kind of the same as you would get for taking out any sort of life insurance policy. So, okay. Are you, do you, do you smoke?
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Have you done, um, have you had a bunch of medical issues? Are you on a, um, in, in terms of like, do you have a heart condition? Do you have a, how old are you? Um, are you active?
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Maybe we take your blood pressure and do a whole bunch of things like that. So, um, depending on the age of the person, it gets more extensive.
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You know, if you're a little, you know, a little bit older, it, it can be kind of an extensive medical examination.
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Um, the most recent one I did was for a, for a man who was 38 and, and healthy and it wasn't, wasn't so extensive. They were pretty easy, uh, pretty willing to go ahead and, and, uh, put something on that.
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So, um, but yeah, there, there's definitely a, a medical component of information needed for it because you're talking about life insurance. So they want to know, are you going to die on us? So. No, that makes sense.
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And then related to the- That's it [laughs] yeah, related to the key man policy, like underwriting process does, and I just, I'm asking this question to dispel common misbeliefs and things because a lot of individuals who I speak with shockingly have never heard of key man policies and, and or haven't implemented them in their business as a fail safe, right?
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And so when a key man policy is taken out, does the individual take out that policy or does the company? The company does. And when the key person passes away, who gets the benefits?
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Uh, that, that depends. Um, so I mean, it depends on how you set it up. So there's that depends word again, but, uh, more often than not, um, I would assume that the, the company gets the benefit of it. Um, so
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let's, I mean, we can ballpark, uh, we've got four owners and you take out a $5 million key man on all of them.
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Um, one of them passes, okay, it's going to cost $5 million to replace this person is essentially what they're saying.
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So whether that's hiring somebody depending on how, um, how much work they did within it, um, or if it's literally paying for their portion of the company. Um, sometimes it gets really fishy with significant others.
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Um, and in terms of like, do we want that significant other to have ownership of the company or not? There's a whole bunch of ways to, to go about that. Oh, I'm so glad. And deciding what to or not to do.
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I'm so glad you brought that up because I was trying to guide our conversation in that direction.
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I, I was working with an individual a couple of years ago that owned and operated a business that was doing very well success, you know, financially.
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And their success was this thing that if one of the partners passed away,
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they didn't know if they would have the cash flow to essentially buy out the spouse that would then all of a sudden become the owner of that membership.
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And so to your point, I think the, the, the key man policies can be a really solid way to have the company all of a sudden have the appropriate amount of cash to eliminate that ownership.
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Otherwise, if you're in a position where you don't have the cash flow and a spouse or an extended family member all of a sudden owns that ownership, it can get very complicated very quickly because your operating agreement, um, or, or your bylaws or your, your, uh,
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any type of governing documents that might implicate voting and decision-making can all of a sudden have this extra owner that wasn't part of the business previously.
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So I'm so glad you brought that up because I was like, this is the perfect example of why key man policy can be a lifesaver if something unexpected happens. Yeah.
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I mean, without it done and without it done properly, that's how you get movies, right? [laughs] You know, like that's how you get crazy situations.
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Um, and yeah, and, and really the biggest, I mean the biggest kind of no-brainer s- reason for doing it though is just so that you have the cash flow necessary. You know, it becomes your cash flow.
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The policy does in the event of something bad happening. So, um, and that, I mean, it keeps it simple. It's not expensive enough where you shouldn't be doing it.
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You know, if you have any kind of a successful company, you need to be having it, so. No, absolutely. And I think to reiterate for anyone who, you know, was wondering, okay, yes,
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you know, underline double, double time of like, okay, this is a good way to have the cash flow to buy someone out who becomes an owner. But also if that isn't an implication, right?
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Because you could have something drafted into your organizational documents that essentially claws back someone's ownership upon their passing, right? It can be very clean if you have it set up properly from the outset.
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But to Ricky's point, it could be ex- a very expensive endeavor to replace that partner or that, that individual at an executive level.
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Um, and maybe perhaps not even replacing them, but maybe placing a previous, you know, someone in the company who's a, a lower ranked employee into a promotion, and then being able to hire to fill the gap because everybody essentially moves up in the hierarchy, and all of a sudden you've got a big gap in, in, uh, operations that you don't, didn't currently or previously have.
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So, um, I think all of that was super helpful. I appreciate it, Ricky. Yeah. Yeah, of course. Well, Ricky, if someone is looking to get in touch with you, how would they reach out for insurance needs?
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Um, I mean, you can call me, text me. You want me to put my, put my email and phone number on blast here or, uh, or maybe- Yeah, whatever. Pick one. Pick one and, and use that as your go-to.
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E- email's nor- normally the best way. Um, just kind of gets logged into our system. We, we communicate, our teams communicate together on everything, so normally email is the best way.
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It's R-I-C-K-Y at freestoneig.com, so F-R-E-E-S-T-O-N-E-I-G dot com. Um, IG for insurance group, not Instagram.
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Um, so we're, we're not the freestoneins- uh, instagram.com, but, uh, uh, but yeah, ricky@freestoneig.com. Awesome. Well, Ricky and I had the, uh, pleasure of playing golf together.
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He, uh, just told me before we started this episode that he is back with his amateur status, but is essentially a previous professional golfer.
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And, uh, he was telling me tips on the course when we were playing a round, which by the way, Ricky is an excellent golfer, even though he's a little hard on himself.
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And so you had excellent, um, advice in terms of how to get out of the sand. I'd love for you to share that with our listeners for anyone who's a golfer. Absolutely. Yeah.
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I've got, uh, I've got this little trick that, uh, an old college teammate of mine, um, gave me to just, like, to help other people. Wasn't... It actually wasn't to help me in the moment, but it was to, um...
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He's a teaching professional, um, and he gave me this little tip in the sand to pretend like the ball is on a tee when it's in the sand.
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And with your trail hand, so if you're, if you're hitting right-handed, it's with your right hand. If you're hitting left-handed, it's with your left hand. But with...
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So I'm right-handed, so with your right hand, kind of throw your hand at the tee, at the imaginary tee that's under the ball. So don't even worry about the ball.
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Don't worry about, oh, I've gotta hit three inches or two inches or one inch behind the ball. Just throw your right hand at that tee and try and knock the tee out. That's it. That's it. Not- nothing...
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Don't, don't worry about too much technique. [laughs] Just throw the right hand at it and let that thing pop on out of there. So Eric Meyer, if you're listening, I stole your tip and,
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uh- [laughs] I've teached it- No, I think it's excellent... to hundreds of people. I, I'd swear everybody's like, "Well, that's so easy. Why didn't I just do that the whole time?" [laughs] So there you go. No, I love it.
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I love it. And, uh, I feel like the sand is my arch nemesis out there, especially with the- You're gonna get it. You're gonna figure it out... with our home course. Yeah. You got it. No, I appreciate it.
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Well, Ricky, this has been an awesome conversation. Thank you so much for being on the show. Yeah. Hey, tha- thanks for having me and, uh, looking forward to maybe playing some golf sometime soon. Yeah. Yeah, me too.
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Well, thank you so much for listening to Merger She Wrote. If you enjoyed this episode, please subscribe to our channel and leave a comment on one of our social channels.
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We're always happy to answer questions about this episode. Tune in again next time. Thanks again for listening. [upbeat music] In the world of business, not all deals are what they seem.
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Fortunes rise, empires crumble, all with the stroke of a pen. Mergers, acquisitions, hostile takeovers.
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Welcome to Mergers She Wrote, where we examine strategies and stories behind the biggest deals in business. Because in M&A, the real risks are the ones you don't take.
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[upbeat music] In the world of business, not all deals are what they seem. Fortunes rise, empires crumble, all with the stroke of a pen. Mergers, acquisitions, hostile takeovers.
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Welcome to Mergers She Wrote, where we examine strategies and stories behind the biggest deals in business. Because in M&A, the real risks are the ones you don't take.
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Welcome back to Mergers She Wrote. I am Paloma Goggins, your host and the owner of Nocturnal Legal.
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Today's guest is a professional, ex-professional golfer and a, an insurance specialist, and he is going to help demystify the insurance space when it comes to the things that we see commonly in both the buy, sell and preparation for sale process.
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So I'd like to welcome Ricky. Thank you so much for being on today. Yeah. Tha- thanks, Paloma. I'm, uh, really excited to do this and, uh, excited to chat with you as always. Yeah, likewise. Okay, I'm gonna jump in.
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Today's episode, like our more recent episodes, are going to be case study based with our guest. And so I'm gonna jump right into this first case study.
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My disclaimer is that this is based on a conglomerate of situations that I've seen in my practice. It does not represent any one specific individual. And with that being said, I'm gonna jump right in.
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So this first case study is with respect to a corporation. They are a professional service business, and they are selling the stock of their business to a private equity buyer.
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The process is going smoothly, and the private equity buyer has asked, as part of the closing deliverables, that a policy for directors and officers is taken out for anyone that is essentially leaving the company.
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Now, for a buyer that is private equity, it's pretty common. Um, for most buyers it's pretty common.
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And so it's not, I, I would say for someone who is selling their corporation, I think it is fairly market to say that this is a common occurrence, something that is a common request.
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And for most people who are selling their corporation for the first time, right, um, not everyone has built a very successful business and sold it multiple times.
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So for most individuals who are selling their corporation, it's for the very first time.
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And being asked to get directors and officers, uh, liability insurance, which is usually an acronym as D&O, um, it becomes kind of a shock because D&O can be quite expensive and, um, it is not uncommon for potentially the buyer, especially institutional buyer, to pay for the cost of D&O.
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So one kind of negotiation point related to this case study is that potentially as a seller, you could ask the buyer to pay for this policy if it's not already written into the document.
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But I wanted to ask Ricky, because I know this comes up so frequently with my sellers that are represented and the D&O policy comes up. You know, what is, at the very baseline, what is directors and officers liability?
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Yeah, I mean, the, the simplest way, um, that we normally talk to different, um, companies, owners, uh, officers about, um, anybody in the C-suite or on the board, is it protects the individuals within the company.
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So, um, the biggest, you know, again, kind of baseline, um, explanation of it would be it protects the C-suite, the board, any stakeholders from something happening.
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S- like, uh, we deal with a bunch of public companies. Um, let's say the CEO says something and the stock tanks because of it.
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Okay, dir- if directors and officers policy is written properly, you have coverage, um, because more than likely the shareholders will then be suing the CEO for saying or doing something, whatever happened.
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So, um, that es- essentially it protects the individuals within the company and their assets. That's the, um, that's the idea behind it. Awesome. I appreciate that explanation.
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And then for anyone who's thinking about going through this process, like what does it look like working with someone like yourself? You know, does this take time?
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Because I know a lot of people, when we're helping them sell their business, there's always a race. And I always, I, I hate to see people race.
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I think racing to the finish line for a deal is always rife with giving up things that you shouldn't or overlooking things that are important. So what does the timing look like for this?
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What does the process look like for this when looking to essentially obtain this policy? Yeah. The, the timing is, um, I- on our, on the insurance end of things, it's really just as fast as we can get the information in.
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So, um, which it can be a little bit of a pain in the butt sometimes. But, uh, um, so it's as, as quick as you can get us, um, the financial information, as quick as you can get us, um,
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I mean, simple stuff like names and addresses is, we can norm- you know, m- I would say, I mean us, but you know, most brokers could turn it around in, um, two to three days.
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If it w- if we wanna be a little bit more thorough about it, which would be preferred, um, you know, you give, give a couple weeks and, um, two weeks tops and everything should be able to be fine. Um, it,
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I would say to kind of go back to your point of, hey, now we need d- directors and officers for, uh, for a buy/sell type, type situation, I would
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kind of like to tell companies that you should probably get directors and officers a little bit- [laughs]... before the, the sale. Um, be- even before you're thinking about selling just to make sure that you're, um-
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That you're good on the, um, from a long-term perspective. Um, the, the policies can have quite a few exclusions if you're doing it, you know, at the moment of sale.
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Um, and the carriers will be aware of the, the moment of sale. So, um, but yeah, that's, uh, kind of the gist of that, I guess. But yeah- Yeah... as far, as far as what we need, it's...
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A- a- and the turnaround time for it is, you know, it's not, uh, it's not the due diligence of legal stuff that, uh, that you're all going through that takes, you know, hours and hours and hours, so.
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No, but you know what? It's good to know that it could take two to three weeks, because in some situations I feel like D&O comes up as part of the negotiation process. It's not always included in a first draft.
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And so if it is potentially going to take a couple of weeks, I think it's good to be on everyone's radar as a gating item that could potentially slow down the closing process, especially, I mean, obviously a two-day turnaround is very expedited.
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But I would say for pretty much any transaction I've seen that does go through the process of underwriting, it usually takes much, you know, not much longer, but I would say a, you know, decent amount, like you said, maybe a couple of weeks.
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And so- Yeah. Yeah, like it, you know, if you wanna really press it and, "Oh, my God, it came out of nowhere and we gotta do this"- Yeah... okay.
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Um, it's why, it's why a big part of the reason of, you know, not having to press things like that is why we, um, um, at Freestone Insurance, where I work at, um, why we started, um, our M&A advisory team.
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Um, so that we can partner with buyers and sellers both, either, whatever the case may be. Um, we have a team that
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as the process of the, of the transaction is happening, "Hey, involve us in it and we'll be able to tell you what you need from a, from a policy standpoint, what the expectation is far in advance from the moment that you need it."
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Um, because, and, and then what the, you know, costs, um, the additional cost or the, um, cost savings that you're gonna have from preparing yourself ahead of time for all of that, um, ra- rather than, "Oh. Oh, wait.
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Hey, we need this thing now." That's this, this big D&O policy that's gonna cost, you know, depending on the size of the company, you know, hundreds of thousands of dollars. "Oh, wait. Okay."
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You know, and so, um, better to be just prepared at, of, for those things ahead of time. No, absolutely.
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And I wanna go back to what you were saying before, which was that if you're getting D&O at the very end when you're careening towards closing, that there could be exceptions or exclusions.
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And I, I've never heard that, because I've just not been part of the underwriting process more particularly.
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And so that topic is, is fascinating to me, because I feel like 100%, if anyone's listening and you don't have D&O and you are in a corporation that's doing well successfully, uh, you've gotta have D&O.
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It's just, you know, good Ps and Qs, good, um, operations. But let's go back to that question.
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And not to put you on the spot, if you don't know them off the top of your head, but, like, d- what is an example of an exclusion you've seen in this process? Oh, um, y- you are putting me on the spot there. Um- [laughs]
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So, it, I mean, the, the biggest things is that it would, um, there'd be t- I mean, you could buy tail ins- uh, tail coverage as well to go further back.
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But if s- if stuff comes up from, um, you know, from two years prior, um, now all of a sudden we have a whole bunch of issues on whether or not the- Mm-hmm...
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the D&O policy is going to, the current D&O policy is going to cover it. Um, it's why partially I'm like, "Hey, get D&O in place beforehand." Yeah. Um, but that, I mean, those are the biggest things.
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And then, you know, there's, um, there's different, um, bodily injury or property damage things that the, that D&O doesn't cover, that you're like, "Oh, wait. Doesn't this cover it?"
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And it's like, "No, that's in, like, general liability stuff for the most part." And you're expecting, "Well, this is covering me to its entirety." It's like, "Well, if you didn't set it up properly, then no it's not."
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Fascinating. No, I mean, I, I think that makes sense from a timing perspective, right?
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Because I hear that frequently in my practice, where I'm dealing with professionals, especially in the physician world, where they're talking about handing over their practice to a new physician, and the tail policy is, is a huge just general consideration, right?
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And the, and the bad part about tail policies is that they end when you stop paying for them. [laughs] And so it's, there's, there's never, like, this good, like, "Oh, you don't pay for it and it continues to cover you."
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It's, it's this never-ending obligation. And I think for a lot of physicians that are in practices where there's better or bigger risk, I should say, um, that tail policy becomes even more important.
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Because if you stop practicing and you don't have the tail policy, and then some sort of medical malpractice claim comes up, you've got nothing from a coverage standpoint.
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So I'm glad you brought up the tail policy thing. Because even though it's not pertinent to our ca- the fir- the first case study, I, I think it's very pertinent across professional services.
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I mean, even, you know, lawyers and accountants and things like that, the tail policy. Pretty much anyone in a professional services capacity. So, um- Yeah... that's very helpful.
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And 'cause people will, you know, for all sorts of reason, we're in a very litigious society now, and so for all sorts of reasons, people will, "Oh, wait.
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I could, I could maybe get after this person for this company for this one thing." You know, and they didn't think about it twice before.
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They just thought it was a bad break or whatever, and now they're gonna do something about it. So, um, yeah, it's just a always, I mean, obviously from the insurance guy, always better to have coverage earlier. Yeah.
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But, uh, um, but there's, I mean, real reasons for that. From a D&O standpoint with the O part for officers, is there limitations on what classifies as an officer?
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Like, if someone has a broader team and off- I mean obviously officers like president, vice president. But is there a limitation in the, the hierarchy of officer titles that there's a kind of a limitation to D&O? Um,
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I mean, yeah. I mean, yeah, there's I guess a limitation. It'd be different from carrier to carrier. Um, I mean, the, the biggest thing would that, that there'd have to be some sort of complexity to their role, um- Mm...
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to the, to the, to them being a stakeholder. Um, so, uh, I mean, no- normally, normally what we see is it's just, you know, any type of C-suite, so
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chief executive, whatever chief finan- whatever the case may be. Um, and then any, any board member.
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Really the board is the people, are the people who are most interested in this because they're, um, not day-to-day involved with, uh, with a lot of the company's going, goings ons. But, um,
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um, yeah, I mean, there, there is, there is a cutoff. At what point that is, is, yeah, varying d- depending on the, on the situation in the company.
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Um, I guess I don't have a great answer in terms of what that cutoff is. Um- That's okay. In my world, we, we say it depends all the time. Yeah. I, I say it's a yes or- So I think, I think you should get... Yeah.
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[laughs] Yeah. I think depends, it depends is a really solid answer for you in the insurance industry because, yeah, you're carrier specific and there's also... Like I always tell people, every deal is like a snowflake.
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Um, they're all so unique. The, the seller, the buyer, the circumstances, the, the, the sale that's actually occurring, whether it's assets or equity, right? And all of that plays a role. Um, I always, um...
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I'm always at a crossroads when I get a call from someone who could be a potential new client, and they're like, "Yeah, isn't this all the same across the board, and can't you just tell me how this is all gonna work?"
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And, you know, the reality is, is I can't without seeing the letter of intent or the deal terms. I mean, it, it, it drastically can change. So, um, I think you're well within your right to say it depends.
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[laughs] Oh, for sure. Yeah, I mean, it, it, 'cause it really does, and so it just, you know, it's all the... I think everybody knows- Yeah... going in. No, definitely.
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Um, well, before we move on to case study number two, I know Ricky you mentioned in brief, you know, the company that you're working for. But go ahead and re-explain sort of like what you do, what your company offers.
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And, and I know you- we've talked about this kind of in passing, just you and me separately, but having this, um, separate M&A specific division to help with the insurance piece of this, I think is awesome.
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Because I think people don't realize insurance can be quite the boon when it comes to the transaction process, something that, uh, individuals don't really contemplate, and especially in the lower middle market, which I won't get into what is the definition of lower middle market, because it seems to have taken a life of its own of what actually classifies as the lower middle market.
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I feel like it changes- Whatever the owner thinks it is. Yeah. Yeah. I feel like it changes across industry, it changes across state.
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Um, but I will say, you know, the small, the smedium, shmedium businesses are like the lower middle market is the most layperson version of that description.
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Um, but one thing that doesn't come up very often in that lower middle market, the smaller businesses that are for sale, is reps and warranties insurance, because it is just so expensive, and, um, I know your company offers that.
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And so I want you to tell us a little bit more about where you work, what you do, and then I'd love to talk briefly about reps and warranties insurance, and then we can go into my second case study, um, if we have enough time to cover it all.
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I think we should. Awesome. Love it. Um, yeah. So I w- I work for Freestone Insurance. We're a, um, vastly, um, very fast-growing, uh, independent insurance brokerage.
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Um, we're full service, so we, I mean, we can do anything insurance-wise is, um, how I describe it to some people.
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[laughs] Uh, but, but really, um, and my role there is I'm a, I'm a producer or a broker, um, risk management consultant, however you wanna word it. Um, and I, I ha- I'm licensed throughout the entire insurance spectrum.
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Um, and my job is to bring in business obviously. But then we have teams that I work with, um, for each, each type of insurance.
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So we, we have a, a dedicated team, an entire part of our business that does, um, individual insurance, so home and auto insurance, umbrella, jewelry, boats, um, all, all different kinds of stuff for, for families.
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Um, we specialize in, um, higher net worth individuals. Um, and so, like if somebody, say a friend of mine comes to me and is like, "Hey, I need help with coverage. I've had all these increases lately.
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What can we do about it?" Okay, so then I go, I start getting my, my team involved. I, I would go to Jerry.
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Jerry's my, um, my go-to on that side of things, and then we start developing a plan of, hey, this is the information we need, this is what we're gonna go out and do. Um, and we do that for kind of everything.
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So we, we have a, um, a commercial property and casualty division, um, that also deals with these financial lines like D&O and, um, pr- the professional liability like D&O, E&O, um, different things like that.
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Um, and that is headed up by our president, Nick Baxter, who's wonderful- Has taught me way more than I thought was possible to learn.
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So, um, but and so I, everything that I do goes through, I bring it to him and to the rest of our team. Um, we have a, a great staff of account managers as well.
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Um, and we dissect what, what is, analyze what is best for the, what we think is best for the client, present that to them, have a discussion with them.
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It's not ultimately our decision, um, but it's our, our job to provide, um, solutions and hopefully a little bit unique solutions so that it's not just, "Oh, okay, cookie cutter.
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Oh, wait, it, everything went up 5% this year, yay." Right. Um, that is what happens a lot of times, but, uh, but hopefully we can, uh, we like to think that at least that we bring, bring a little bit more to the table.
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And then we also have a employee benefits, um, division, which is incredible. That's how Freestone started actually. We started selling, um, ancillary benefits, um, life and disability stuff.
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Um, so we call it our leave management, um, team, which is incredible. Um, we have can, uh, we've found that we provide pretty significant savings, especially on life and disability, um, for large corporations.
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Um, and, uh, and so yeah. So that's kind of the, the scope of kinda how we were built and, and what we did.
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And then recently over the last, uh, I'd say about year now, um, we've brought on, um, and developed, uh, an M&A advisory team, um, that has worked together for a long time. So Austin, Linda, and Cassie. Linda...
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Austin kind of leads the team. Linda deals with the human capital, so the benefits part of it. And then, um, Cassie deals with the, the risk management and insurance parts.
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Um, we find, we find a ton of value, um, in working on transactions with companies. Um, for one, like you stated, the- there's just, there's a lot that goes into it that comes up and surprises people with it.
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Insurance is almost never gonna be the deal breaker. So we, you know, it's not as, uh, um, it's not as high leverage, I guess, in that sense for a deal.
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Um, but the cost of things can drastically change depending on whether or not you have a full understanding of what the insurance, um, plan is for that company or was for that company.
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For instance, for, you know, a lot of small companies are, you know, growing to sell, right? So, okay, hey, we just grew 10X and now we wanna sell and, you know, get, get out of here with a, with a good chunk of change.
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Okay, well, how fast did they grow? Did they grow that fast in two years? Almost always their insurance policies are rated what they were two years ago, right? Okay.
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Well, now as we do this, now we got a, we got a whole new rating of sales and revenue that, that the buyer just wasn't aware would be a difference. They were like, "Oh, this is how much we pay in insurance."
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Well, no, it's really not. You know? Now, now you got a whole bunch of, um, audits that can happen, um, that are changing different things. Um,
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on the employee benefits side of it, you've got different, um, you know, different, um, obligations that you have to meet from different states, um, from different areas.
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Well, what if this small company that you're buying their, what if their, um, their benefits are much more robust than yours?
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Okay, well, now the employees aren't gonna be very happy if you come take down their, take down their benefits. Definitely. How do you manage that, right?
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And so our, our, our, uh, uh, M&A team's job is to analyze all of it, but then come up with solutions for it as well. So not just, "Hey, here's your problem. Good luck." "No, here's your problem.
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Here's how we would solve it," or, "Here's how we would prepare you for it." Um- Nice...
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which, which is, which I think is just super unique and so it's a, it's a great, it's a great tool for us as well to show our worth- Yeah... um, before maybe officially being somebody's, um, sign-on broker.
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Um- No, absolutely... you can hire us to do the M&A, um, work for you. Um- Well, and I think on that topic, like you were talking about scaling a business and potentially acquiring through scaling, right?
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And having these difference or sort of disparate policies. I wanna jump into case study number two before we run out of time. Okay.
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Um, but I think that was all super helpful to better understand what you guys do and very full service.
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So if you're looking for multiple options and being all under one house, I think Ricky is a great option for you to reach out to.
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On this case stu- case study number two, um, with regard to someone who's scaling their business with a plan to exit,
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which I'm glad you brought this up because one of the things that comes up very often in the scaling process is the different insurance that could potentially come in and help protect the longevity of the business.
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And one of them is keyman policies, um, which we could just call them key person nowadays.
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But keyman policies are essentially, uh, a way for someone who is a key personnel to the company, think owner, operator, someone that if the individual who has owned and operated this business for
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the last 25 years is suddenly no longer available, what do we do to bridge the gap, right? And so Ricky, at like a very baseline, what is a keyman policy? Oh, keyman policy would be, um,
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life insurance, um, on important individuals or irreplaceable, um, would be a term used, uh, irreplaceable individuals in the company. Um, so that, that becomes- Um, okay.
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Uh, the president or CEO or let's say there's sometimes there'll be four owners and maybe you only take out a key man policy on one because they're the one doing everything on a day-to-day basis.
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Um, that's not the way it has to happen, but it can be, it can be the way that it happens.
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And so it's literally what it says is it's life insurance on the key man or woman or whoever, um, uh, that allows the company to become reimbursed, um, through the, through the insurance carrier.
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Um, if there were something to happen, they can now afford, figure out how to afford to, to replace that, that person.
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Through the underwriting process, what does that typically look like from a, from an owner operator or a key person perspective? Is there extra hoops to jump through?
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I know for the DNO policy, we talked about providing financial information, you know, key individual information like names and addresses. What is, what's different about the key man policies? Yeah.
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So the, the, it, part of it depends on like what they would need finance, like as in terms of financial info would depend on, um, on the role of the person at the company.
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So if it's an, if we're talking about doing key man for owners, then we need the financials, right? Because we need to understand at least a baseline of how much the company is worth.
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Um, and then the purposes for the key man policy. Um, if it's a, um, cause there's also like the buy sell agreement policy that's similar type things. Um,
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but then you would also, for all of those, you need, um, different health information, kind of the same as you would get for taking out any sort of life insurance policy. So, okay. Are you, do you, do you smoke?
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Have you done, um, have you had a bunch of medical issues? Are you on a, um, in, in terms of like, do you have a heart condition? Do you have a, how old are you? Um, are you active?
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Maybe we take your blood pressure and do a whole bunch of things like that. So, um, depending on the age of the person, it gets more extensive.
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You know, if you're a little, you know, a little bit older, it, it can be kind of an extensive medical examination.
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Um, the most recent one I did was for a, for a man who was 38 and, and healthy and it wasn't, wasn't so extensive. They were pretty easy, uh, pretty willing to go ahead and, and, uh, put something on that.
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So, um, but yeah, there, there's definitely a, a medical component of information needed for it because you're talking about life insurance. So they want to know, are you going to die on us? So. No, that makes sense.
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And then related to the- That's it [laughs] yeah, related to the key man policy, like underwriting process does, and I just, I'm asking this question to dispel common misbeliefs and things because a lot of individuals who I speak with shockingly have never heard of key man policies and, and or haven't implemented them in their business as a fail safe, right?
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And so when a key man policy is taken out, does the individual take out that policy or does the company? The company does. And when the key person passes away, who gets the benefits?
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Uh, that, that depends. Um, so I mean, it depends on how you set it up. So there's that depends word again, but, uh, more often than not, um, I would assume that the, the company gets the benefit of it. Um, so
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let's, I mean, we can ballpark, uh, we've got four owners and you take out a $5 million key man on all of them.
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Um, one of them passes, okay, it's going to cost $5 million to replace this person is essentially what they're saying.
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So whether that's hiring somebody depending on how, um, how much work they did within it, um, or if it's literally paying for their portion of the company. Um, sometimes it gets really fishy with significant others.
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Um, and in terms of like, do we want that significant other to have ownership of the company or not? There's a whole bunch of ways to, to go about that. Oh, I'm so glad. And deciding what to or not to do.
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I'm so glad you brought that up because I was trying to guide our conversation in that direction.
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I, I was working with an individual a couple of years ago that owned and operated a business that was doing very well success, you know, financially.
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And their success was this thing that if one of the partners passed away,
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they didn't know if they would have the cash flow to essentially buy out the spouse that would then all of a sudden become the owner of that membership.
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And so to your point, I think the, the, the key man policies can be a really solid way to have the company all of a sudden have the appropriate amount of cash to eliminate that ownership.
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Otherwise, if you're in a position where you don't have the cash flow and a spouse or an extended family member all of a sudden owns that ownership, it can get very complicated very quickly because your operating agreement, um, or, or your bylaws or your, your, uh,
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any type of governing documents that might implicate voting and decision-making can all of a sudden have this extra owner that wasn't part of the business previously.
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So I'm so glad you brought that up because I was like, this is the perfect example of why key man policy can be a lifesaver if something unexpected happens. Yeah.
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I mean, without it done and without it done properly, that's how you get movies, right? [laughs] You know, like that's how you get crazy situations.
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Um, and yeah, and, and really the biggest, I mean the biggest kind of no-brainer s- reason for doing it though is just so that you have the cash flow necessary. You know, it becomes your cash flow.
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The policy does in the event of something bad happening. So, um, and that, I mean, it keeps it simple. It's not expensive enough where you shouldn't be doing it.
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You know, if you have any kind of a successful company, you need to be having it, so. No, absolutely. And I think to reiterate for anyone who, you know, was wondering, okay, yes,
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you know, underline double, double time of like, okay, this is a good way to have the cash flow to buy someone out who becomes an owner. But also if that isn't an implication, right?
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Because you could have something drafted into your organizational documents that essentially claws back someone's ownership upon their passing, right? It can be very clean if you have it set up properly from the outset.
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But to Ricky's point, it could be ex- a very expensive endeavor to replace that partner or that, that individual at an executive level.
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Um, and maybe perhaps not even replacing them, but maybe placing a previous, you know, someone in the company who's a, a lower ranked employee into a promotion, and then being able to hire to fill the gap because everybody essentially moves up in the hierarchy, and all of a sudden you've got a big gap in, in, uh, operations that you don't, didn't currently or previously have.
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So, um, I think all of that was super helpful. I appreciate it, Ricky. Yeah. Yeah, of course. Well, Ricky, if someone is looking to get in touch with you, how would they reach out for insurance needs?
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Um, I mean, you can call me, text me. You want me to put my, put my email and phone number on blast here or, uh, or maybe- Yeah, whatever. Pick one. Pick one and, and use that as your go-to.
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E- email's nor- normally the best way. Um, just kind of gets logged into our system. We, we communicate, our teams communicate together on everything, so normally email is the best way.
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It's R-I-C-K-Y at freestoneig.com, so F-R-E-E-S-T-O-N-E-I-G dot com. Um, IG for insurance group, not Instagram.
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Um, so we're, we're not the freestoneins- uh, instagram.com, but, uh, uh, but yeah, ricky@freestoneig.com. Awesome. Well, Ricky and I had the, uh, pleasure of playing golf together.
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He, uh, just told me before we started this episode that he is back with his amateur status, but is essentially a previous professional golfer.
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And, uh, he was telling me tips on the course when we were playing a round, which by the way, Ricky is an excellent golfer, even though he's a little hard on himself.
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And so you had excellent, um, advice in terms of how to get out of the sand. I'd love for you to share that with our listeners for anyone who's a golfer. Absolutely. Yeah.
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I've got, uh, I've got this little trick that, uh, an old college teammate of mine, um, gave me to just, like, to help other people. Wasn't... It actually wasn't to help me in the moment, but it was to, um...
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He's a teaching professional, um, and he gave me this little tip in the sand to pretend like the ball is on a tee when it's in the sand.
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And with your trail hand, so if you're, if you're hitting right-handed, it's with your right hand. If you're hitting left-handed, it's with your left hand. But with...
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So I'm right-handed, so with your right hand, kind of throw your hand at the tee, at the imaginary tee that's under the ball. So don't even worry about the ball.
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Don't worry about, oh, I've gotta hit three inches or two inches or one inch behind the ball. Just throw your right hand at that tee and try and knock the tee out. That's it. That's it. Not- nothing...
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Don't, don't worry about too much technique. [laughs] Just throw the right hand at it and let that thing pop on out of there. So Eric Meyer, if you're listening, I stole your tip and,
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uh- [laughs] I've teached it- No, I think it's excellent... to hundreds of people. I, I'd swear everybody's like, "Well, that's so easy. Why didn't I just do that the whole time?" [laughs] So there you go. No, I love it.
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I love it. And, uh, I feel like the sand is my arch nemesis out there, especially with the- You're gonna get it. You're gonna figure it out... with our home course. Yeah. You got it. No, I appreciate it.
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Well, Ricky, this has been an awesome conversation. Thank you so much for being on the show. Yeah. Hey, tha- thanks for having me and, uh, looking forward to maybe playing some golf sometime soon. Yeah. Yeah, me too.
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Well, thank you so much for listening to Merger She Wrote. If you enjoyed this episode, please subscribe to our channel and leave a comment on one of our social channels.
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We're always happy to answer questions about this episode. Tune in again next time. Thanks again for listening. [upbeat music] In the world of business, not all deals are what they seem.
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Fortunes rise, empires crumble, all with the stroke of a pen. Mergers, acquisitions, hostile takeovers.
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Welcome to Mergers She Wrote, where we examine strategies and stories behind the biggest deals in business. Because in M&A, the real risks are the ones you don't take.
