M&A Roundtable: Insurance Market Discussion with Houlihan Lokey

Jacob Borth (00:10):
Good morning, everybody. This is Jacob Borth from Alliant, Mergers and Acquisitions group. I’m a product specialist in rep and warranty insurance. I'll be joined by my colleague Sumit Agarwal here in Chicago. A product specialist in the rep and warranty, insurance product itself. Super happy to have a couple of individuals from Houlihan Lokey on the line. And today we're going to be speaking about the broader merger and acquisition market and tie it back to the rep warranty insurance marketplace. We are looking at providing just an update here in the month of September 2020. Obviously, 2020 has been quite an interesting year, to say the least. So, we're very much looking forward to getting some additional color and some additional insight from one of our partners at a leading investment banking firm, Houlihan Lokey namely Lance Myers, as well as Sean Murphy.

So, everybody thanks for joining us this morning and very much looking forward to getting your insight on the state of the M&A market especially given your background, as well as your experience. I think it's for noting as well that the individuals that we have on the phone are providing insight with more than three decades worth of experience on over a thousand transactions. So, very much appreciate that everyone joining us this morning, I do want to, have everyone introduce themselves, but we'll kind of kick off the conversation. I’ll pose a question and open it up to the table if you will. What are the major differences that everyone's seeing in deals, with respect to 2019 versus 2020, and just generally as the M&A markets are continuing to develop and adapt to current market conditions, you know, being at an investment bank, you might see more deal opportunities than us here on the insurance side.

So let us know of any hurdles that your clients are facing, new challenges, tougher questions that are being asked, and really what you guys view as key to getting, getting deals done in this environment.

Sean Murphy (02:30):
Great. Thanks, Jacob. This is Sean Murphy; I’m based in Dallas and looking forward to having a great discussion today. So, I appreciate the time. I'll start with a quick overview of what we're seeing in the market. And then I think Lance is going to come in and talk about some challenges and hurdles that we're seeing, but what was very unusual, about the last six months was the pace at which things slowed down. And then now the apparent pace at which things are picking back up. So, I'll give some color here clearly in the late spring, as the pandemic was hovering over the country and the world came to a halt and really the private equity firms immediately turned to trying to shore up liquidity and make sure that their existing portfolio companies were going to be able to survive the next period, whether they had enough cash to overcome a prolonged shutdown period, whether they had debt covenants, that they were going to be busted, etcetera. That all resulted in a screeching halt of M&A activity. As we started to get to the end of May and early June, and companies began to have confidence that their existing portfolio companies were going to survive, or at least the majority of them, there was some deal activity that was completed, and it was mostly smaller family own companies, as well as some other distressed assets being sold, or some limited carve-outs.

Then as we progressed later to the summer, the temperatures went up, deal volume actually started to pick up. And now as we’ve got on the other side of labor day, we're running at a pretty high pace. In fact, we're hearing from a number of our private equity sponsor groups that have noted that they're at pre-COVID levels. I believe that there is a concern about a blue wave coming in as potential tax law changes that might accompany that. That means that there are a number of sorts of owner-operator entities or, entities where there may not be a generational shift planned to the younger generation where the founder, owner-operators are just looking to monetize the investment in advance of again, a potential tax change that could cause them a lot of money.

So, we have that deal volume. We also have folks that are trying to deploy capital in their normal process and looking back and seeing that they're now six months behind their program. And, then maybe most importantly we're continuing to see a tremendous fundraising environment. I think I saw some stats that during the first half of 2020, a hundred billion in capital had been raised. Now, some of that had gone to debt funds and sort of nontraditional PE, but regardless of if you think about a hundred billion in capital being raised in that environment that puts pressure on the folks, the professional money managers of private equity groups to deploy their capital. So, we expect to see a continued increase in the pace of capital deployment until we see some signs that the pandemic is going to reassert itself, which I personally don't believe it will, however, I don't have an MD, but I think unless you see something like that, I think it's going to be up into the right, hopefully in terms of deal volume, Lance.

Lance Myers (05:45):
Thanks, Sean. My name's Lance Myers. I'm a director in our transaction advisory service group here in Chicago. And so, I guess I can just add on to what Sean was saying and discussing the next steps forward, and some of the challenges and hurdles we think might exist along the way. And I think still it's important to realize the market is unprecedented here. And so, everybody's pretty interested in how this will continue to evolve. And there's obviously some uncontrollable circumstances here, but I think the biggest thing that people are looking at is seeing look, deal volumes are picking up quite significantly. And how will this turn into impacts on evaluation, especially here in the next few months with all these variables, hitting the market and what we are seeing in multiples so far.

And, so far, all signs are pointing to multiple maintaining strong, and even at a pace where we saw on the first half of 2020 that they actually rose. There is some mix there with some opportunistic investing and also a little bit of mix of sectors, such as technology that usually have a little bit higher multiples anyways. But I think everybody's kind of under the impression here that they think multiples giving the market conditions and the competition that will be out there will maintain strong throughout the rest of 2020 and into 2021. But it's definitely something that people are keeping their eyes on as they think about how they want to approach the market. The next challenge, I think that we're seeing that's going to be very different is just kind of what people are saying, is really the new normal and process dynamics.

And that's really how you are approaching this, given the restriction on travel and everything. And so, what we are seeing is that most in meetings, which if there's in person meetings are getting pushed way later in processes. And so, whereas traditionally, you had these management meetings in very early in the process and people are getting the feel on culture, etcetera, but now they're, doing most of their diligence remotely and really waiting until they are very positive on a select few parties that are going to move forward in the process before thinking about any type of in-person meetings, which is very different than what is historical happen. And so, we're also seeing some processes are running at a much more targeted audience because of this. And we're just kind of continuing to see how that situation evolves and seeing what will continue in this regard and what will kind of revert back to the old normal, I think in Europe, we've already seen some increased travel for deals and more in person meetings, but here in the states, we're still seeing a lot of these remote diligent sessions and management meetings and zoom calls and all that.

So that will be very interesting and definitely a hurdle as we continue to navigate this market.

Jacob Borth (08:35):
I think that's good. I think that we very much are seeing the same thing on the insurance side as well. You know, irrespective of the broader economy I think we're all speaking the same language as respects. It's certainly been a V-shape recovery in M&A, again, irrespective of the of the broader economy. And I do always find it interesting hearing people say pre-COVID and almost post-COVID. I think we're pretty much at the point where that's going to be referred to something like BC, right? Certainly, it's had such an impact, in 2020 and kind of remains to be seen and completely agree with you guys as well, that from a deal volume standpoint we are definitely higher than actually where we were, let's call it in February and March, again, we're focused on rep and warranty insurance ourselves.

Given how commonplace that has become in deals question for the Houlihan guys has your approach changed to initial diligence efforts, at all? If it has changed to what extent, and do you see any benefit on the insurance side in getting a broker involved earlier in the process, and again, just helping to set expectations and advising your clients. And how has that, how are we integrated really, with respect to due diligence, and really highlighting areas of focus or concern to your clients.

Lance Myers (10:16):
The best way to handle your question, I think is looking at how reps and warranty insurance has evolved over time and look at how we've continuously adopted into our diligence, these issues that have come up through reps and warranty issues and have made them as an integral part of diligence. And so, I think it's important that we can take you evolve in the processes and learn from each situation that comes up. And I think that will continue to happen in today's environment. So, I think that if we can have a better working relationship earlier in processes, then of course we would invite that. And that's very helpful, because look this is a lot of uncertainties that are happening from a diligence perspective that we're continuously having to look at different areas. And I'm sure from a reps and warranty insurance, there's going to be different questions that come up on that we've never seen before. So, if we can work those in earlier in processes, I think that would be very helpful to make sure we get the right questions addressed. Sean, I don't know, if you have any thoughts on how we are dealing with this currently in this environment and what the impacts are on reps and warranty.

Sean Murphy (11:28):
Yeah. I think everything that you said is accurate earlier involvement is always going to be, better. What I think is going to happen is we're going to see a huge uptick in the need and the deployment of, RWI. And I think that's a function of a couple of things. One is what I alluded to earlier, which is at least in the near term, a desire to get some transactions closed in advance of 12 31. Two is what you mentioned in the fact that the deal dynamics have changed a little bit, and that folks are trying to prioritize some level of activity and trying to minimize the in-person contact. That's going to inevitably lead to a truncated diligence process. And then three, I think is the very truncated due diligence process that's sort of underpinning this and that folks are going to be asked to spend money and to commit to something earlier, because there's going to be such a large amount of capital chasing a smaller amount of transactions that are available.

So, if you think that you had a company that either fared very well during the pandemic, and that might counter cyclical, or just something that was poised well, and then you have another company who didn't, wasn't impacted as negatively as one might expect. Well, those are sort of going to be the minority of the total population of traditional acquisition candidates. And so, there's going to be a lot more capital searching those or searching for those than traditional, if you can, and that's going to lead to the sell side bankers being able to push for more stringent terms or more quick settling of a firm commitment, as opposed to being able to draw diligence out. And that will come to the detriment of completing traditional due diligence. And thus, you're going to have a larger reliance on RWI. So, I think it's going to be an uptick at least for the next 18 to 24 months. And, then we will see how the market turns and evolves, but I think there's going to be a lot more of it sooner rather than later.

Jacob Borth (13:30):
Yeah. Right. And, oftentimes we, as the insurance broker and I'll stop short of, suggesting that we are taking on the role of an investment bank, but oftentimes we are asked even at a pre-LOI stage where we think underwriters or where we think that the insurance policy itself might have some sort of a hurdle, right. So again, pre LOI, oftentimes we are asked where might be areas of heightened focus or areas of concern in the diligence process. And that certainly continues to evolve, as well. And we'll talk about the process, it's a little bit later on and how RWI process has evolved. Certainly over the last five years and unquestionably over the last 10 years, but to the extent that, again, we can partner hand in hand, and let our collective clients know diligence is expected as respects network security and privacy data, as an example, or classification or misclassification of independent contractors as employees as another example maybe even material contracts, whether that is a material supplier, or a material customer contract, those are areas where we really look to get involved and try and add value early on for our clients.

And I do think that it alleviates pressure on the process from the outset, as opposed to the 11th hour where we're closer to the deal signing or we're looking to implement the insurance on a short fuse. Again, just being able to, to give our clients broader insight, if you will. I think goes a long way and has gone a long way.

Sumit Agarwal (15:25):
And Jacob, to kind of build upon that and for Sean and Lance by way of scope of diligence, what sort of changes have you guys seen over the last five to 10 years? And I guess this also is more recent given just current market trends, and this could include areas such as financial performance and employment matters that Jacob referred to.

Sean Murphy (15:42):
Yeah. I think that seismic shifts have come in the fact that over the last five years in particular sell side due diligence has really almost become a standard or a requirement. Quite honestly, it was something that we resisted on this side of the Atlantic for several years because accounting profession, the due diligence profession was viewed as being much more beholden to a client as opposed to beholden to industry standards. And I think we overcame that initially, and now we're starting to see folks fall into that trap and almost the due diligence document is sometimes becoming a sales document. I think we need to do a much better job of reverting it back to a due diligence document that reasonably outlines assumptions and can let the reader draw his or own conclusions, but I'll get off my soapbox.

So that's one big change, just the sales side document. And then I think the second big change is the emergence of additional due diligence areas, the topical area. So, now we have firms and cottage industries that are there to support information technology due diligence, human resources due diligence, like you all do. Every other form of due diligence, whether it be product and cyber, or, we have pension, we have environmental and all of those are coming through with a much more thorough due diligence approach. I think in the last five to 10 years than we had closer to the turn of the century where it was almost if somebody had a heartbeat and claimed that they had some cash flow, they could be acquired in post. So, it's been a nice evolution to a more thorough process in my opinion, Lance.

Lance Myers (17:20):
Yeah, I agree with both those things definitely. Couple things that I would add at first is it's probably data analytics and really over the past seven or eight years, you've seen a rapid involvement of data analytics and it's we're corporation and the diligence prophecy, I think if you look back eight to 10 years ago, data analytics consists of just an Excel data book where you might have ran a price volume analysis or something like that in there. And, if you fast forward to today with the programs of Qualtrics and Tableau and all of these advanced data analytics programs out there that make it easy and to have this type of analysis at your fingertips, it's really been incorporated as a necessity in most processes, you see that most data rooms now have a robust transaction level database in there.

So, potential buyers can look at this and you see all sales side processes using this type of analysis as well. So, I think that's a key movement and will continue to be a key movement of how diligence evolves, especially from finance perspective. And I mean, maybe also on that same, is just the involvement of diligence past just kind of that key risk aversion type diligence. And what we're seeing really in the last couple years is a lot more toward value creation as well is how you can do the diligence process, how you can find that additional value to help you be more competitive in your bid process as a buyer. And so, whether that be using data analytics to different pricing opportunities, or whether that be value created through doing it different types of work on the IT and HR footprint with cost takeouts or whatever that mean is. But I think private equity sponsors are really looking at ways to drive additional value and be it a little bit more competitive to hopefully win more processes.

Sumit Agarwal (19:15):
I guess, on that point one of the first things I want to touch on and just be how claims on reps and warranty insurance policy have driven diligence or scope of diligence. But otherwise just standard things such as the type of deal, driving diligence, such as, we see quite a bit of tech and healthcare deals. So, on a tech deal, data leaks, cyber breaches are pretty important and on a healthcare deal, billing, coding, licensure or healthcare regulatory diligence is pretty important. And as I just touched on the claims side recently a few household name carriers have recently published claims data. And I won't bore everyone here with the details and turn this into a claims podcast. But the point here is that high level claims data essentially in turn is going to drive diligence since that's where the carriers have been burned in the past.

And that's not to say that you can diligence everything. There are just certain things you can't diligence given certain sensitivities around the transact. So, when we're talking about an average of what a few carriers are seeing by way of driving claims, top of mind are financial statements, customer contracts, and relationships and taxes. The second, which is customer contracts, we are now seeing carriers ask for written summaries of customer diligence. This is one of the areas where diligence is a little difficult, just given sensitivities around, reaching out to clients and the like, but markets want to make sure that when you're talking about diligence in the top 10 customers, you're not just talking to customers A through 10, but rather a bulk. So, that basically counts for more than half of sales. And then with the third that I mentioned taxes, these are usually precautionary in nature and usually a result of an audit inquiry.

So, there's nothing more there other than what carriers have historically been requiring. But the first which I touched on, which is the most important is financial statements. And this is where carriers are kind of digging their heels in a bit, some won't quote a deal without audited financials or a QV. And this is a large part driven to smaller deals and maybe a CFO or his or her internal staff conducting the diligence. This is where carriers are commenting on internal versus external diligence. And that a third-party advisor with an army of associates can likely do a more robust report and deep dive into the financials than a CFO and his or her staff would. So, in tying it back to the specific question about changes in the last five to 10 years, I want to say from our perspective, amongst the many various factors that there are out there, it's in large part due to claims the diligence requirements are certainly driven by these transient claims and where markets may have been okay with certain reports whether they're internal, external, in the past are just requiring a bit more these days just given what they've been burned.

Jacob Borth (22:05):
Yeah. And I think that brings up a good, a number of good points as well, Sumit, and just the evolution of the rep and warranty product, again, over the last five to 10 years, inclusive of those areas that you touched upon, more claims are being paid. And again, not to turn this into a claims podcast, I think we'd probably have a number of people hit the stop button and go about their day if we did, but more claims are in fact being paid, which at the end of the day, this is an insurance product and what you want to see I think the products prior stigma if you will, was simply that it was an expensive arduous insurance policy to get place.

And there simply was no loss data because frankly losses were few and far between then I think that's a massive shift and something we'd be remise in not mentioning. I'd also offer up the fact that users of the product itself and really advocates the product itself certainly is more prevalent amongst financial sponsors. So, the likes of investment banks fund less sponsors obviously private equity as well. They’re very much in tune with and in accustomed to utilizing the product. And I guess the irony of it is even though there are more claims being, paid, our market has frankly exploded. Even within the last three years, it feels like every six months or so, there is another insurance carrier and more insurance capacity on the reps and warranty side which in turn has resulted in broader terms and conditions and downward pressure on pricing, which again is music to the ears of our end users.

I also think that in 2020, I think we're starting to maybe see a little bit more of a blend of strategic transactions as opposed to focus solely on those that are financial sponsor driven, which is obviously great to see as well. So, certainly I think the major players in our space continue to be some of the usual suspects. But I do think we're starting to see, and we'll continue to see in the next six to 12 months, some more strategic transactions as well.

Sumit Agarwal (24:39):
For the question folks want to know, and this is specifically for Lance and Sean, but how have you, and the larger Houlihan Lokey team been handling challenges around COVID-19 and the Cares Act, and this kind of ties back to a previous question, but this just includes deal flow diligence efforts. And just generally from an investment banking standpoint, but obviously as it specifically relates to COVID 19 and the Cares Act.

Sean Murphy (25:01):
Yeah, it's a great question. And it's one that we are asking ourselves every day, because it seems to be a very organic situation and ever evolving. Initially, when the pandemic started, we definitely gathered the team, and we started thinking about the establishment of a COVID task force. And the idea being that we do recall some issues that impacted the US economy and various companies. Katrina and the, like over the last decade. And we recall coming out of that, there was definitely an aggressive spend by sellers to try to maximize the benefit provided during the pandemic. And I realize I'm speaking quite callously. I don't mean the benefit in the sense of everyone acknowledges that there was tragic loss both then and now, however, in terms of financial performance, there were potential benefits to be gained by identification of adjustments, whether they were valid or less valid.

And so, we circled the wagons and we tried to identify those air areas where we thought sellers might try to position the company in the most positive light. And we try to sort of collectively come to a conclusion as to how we were going to treat those. And maybe most importantly, what standard of, proof or support we were going to require in order to corroborate some of these adjustments that are identified. And we did have good collaboration. We worked that through a large port of the organization at Houlihan Lokey, and I think we've come to a sort of fact-based approach that has the ability to stand a lot of scrutiny from other parties, whether Houlihan Lokey’s working on the buy side or the sell sign. So that's one way we did, we sort of prepared for COVID and the impact of it.

And I think the second thing was just trying to, as we've alluded to, we've all alluded to several times on this discussion is how could we effectively get a transaction done remotely? And I'm perhaps more old school in my approach. And I'm one who believes or did believe that the only way you could get it done was being faced to face and reading not only the efficiency of being able to reach into the top drawer to pull out a schedule that you needed, but you could also read the nonverbal cues, etcetera. And I must admit that I still think that's very valuable, but I underestimated the ability of our teams and the industry to conclude work or complete diligence via a video call, and or several video calls rather and chats. And I'm pretty pleased with the work that our team's been able to accomplish in that regard. And I feel like we've been able to do it without sacrificing any efficiency, and we'd been able to do it with the benefit of our teams, being able to spend more time at home or in the case of the most immediate impact, not expose themselves to any potential ramifications of the pandemic.

Lance Myers (28:02):
Maybe I can add on to that just a bit. I think the first point on the COVID task force that we put together here at Houlihan, I think that's very important. And another point add onto that is it just didn't stop there. It continues to evolve with regular meetings and continuous updates with the group on what they are seeing in the current deals that they are working on. And I think that also so goes beyond just internally at Houlihan and it's pretty important. Now, s probably even more important than ever, is for it all of the respective diligence parties to align and communicate with each other, whether that beat the insurance or at IT, or HR and because these issues are definitely overlapping diligence streams. And, so what we found is pretty helpful is a more cohesive approach to diligence and, and to make sure all parties are communicating the issues that they find and how they overlap.

I think that's something definitely that impact in the current environment. And I think the last thing is just like, it is just kind of continuously, to adopt. I think Sean mentioned earlier, how the process has kind of evolved since late spring. I think when you first saw that at the beginning, people were concentrating on portfolio company management on 13-week cash flow management on making sure their companies were adequately prepared to handle whatever was approaching us. And then I think we saw this shift, throughout the late spring and early summer too. Then especially private equity sponsors, but basically all companies, started looking toward, okay, well, we are adequately prepared, and we've done some kind of risk aversion and how are we going to grow our companies with the current deal flow that's out there.

And we saw a lot of sponsors turn into add-ons and smaller acquisitions to build their companies that way or focus on operational improvements. And we saw carry for basically today where you see, now that there's a big shift into new investments and cell side activity is significantly ramping up and this will create its own, challenges as we continue evolve. And just kind of looping back to that COVID task force. That's why we continuously meet and digest on what's going on in the market, because everything's changing day by day and that's going to be a hurdle in itself and something that we will continue to address.

Sumit Agarwal (30:31):
Thank you both and Sean, I was glad to hear that you guys are able to conduct just this thorough of a diligence via a video chat, as long as people figure out how to turn that mute button on and off. I guess there's only so much you can do by video chat, but, in any event from a, reps and warranty standpoint, one of the biggest challenges we've had is exclusions in the policy around COVID and, the Cares Act. Obviously, the insured are concern that should there be a claim in the next year, two years that the insurance carriers just going to kind of point to COVID and deny a claim, but more from a diligence standpoint, there's just been a lot of sensitivity on both sides buyer and from the insurer on what's considered adequate, carriers have kind of taken the position, obviously with the exclusion that COVID 19 Cares Act or PPP loans.

Sumit Agarwal (31:21):
Are aspects that should not be covered by reps and warranties insurance. This is where, to the extent that there are specific reps in the policy, policy's going to read out those, those reps and consider them excluded. But on the flip side, and to your point, if buyers believe that adequate diligence has been conducted, then they're a little bit more sensitive as to why there's an excluding. If the diligence was conducted and this ties back into if there's tax or financial matters or customer diligence concerns, as long as the diligence is conducted, the insurer should get comfortable. And, in this regard, buyers are providing much more information. They can ahead of time, whether it's scope of diligence, what the company, or what the target's going to do with PPP loan money, if applicable. And this also ties back to earlier in the conversation with this is an area where buyers are getting ahead with insurance markets, as in terms of: Hey, this is a concern we're having. The company has a PPP loan money. It's cut workforce. And a like carriers is going to kind of give their questions ahead of time and be like, if you can answer these questions, we should get comfortable with the associated risk.

Jacob Borth (32:28):
Yeah. And that's a good point too. And one I would add, and I think we can all appreciate. I'm not in our IT department, but it is worth mentioning. We're also seeing that same scrutiny on the underwriting side as respects network security and data privacy, again, in relation to COVID. More people are working from home. So, to the extent that there is going to be a rep surrounding, there have not been any data breaches or there have not been any network breaches, insurance carriers want to know that what, diligence is the buyer conducting as respects network security and rightfully so, just another tidbit worth that we're mentioning.

Lance Myers (33:17):
Yeah. I think we can all appreciate that COVID has put heightened focus on certain risk areas, obviously from financial and accounting diligence that’s financial performance, but then there's areas that cross many streams of looking at contracts. And there's been several key changes in contracts that companies have with customers or vendors or whoever that might be. And then obviously with employment there's so many changes there with different furloughs and the PPP loans. And how do we handle that with transactions? I think we're seeing all of these different focus areas evolve. And I think that goes back to the point wherefrom a reps and warranty perspective, I think we just need to continue to have open communication streams. And I think you highlight a point of getting questions out early, and that’s very helpful for all parties involved in the process of knowing what you guys are looking for and making sure we're addressing those risks as well. And I think then we'll have more successful processes as a result.

Sean Murphy (34:19):
I think that's a great set for maybe, maybe you guys can talk to us about what the general approach is. You all are seeing regarding blanket or specific exclusions for RWI in regard to COVID.

Sumit Agarwal (34:34):
Yeah. Specifically related to, COVID 19 or Cares Act. The reps and warranty market has now had the better part of a year, which is weird to say. And I always forget what month it is just this year has been a big blur, but with exclusion late February, early March, markets had come out with a very broad exclusion. I was quote unquote, any losses related to COVID-19 and the following weeks and months everyone had their shot of kind of modifying language and adding qualifiers and now markets have their hands around it. And it's four or five lines long, includes qualifiers, as I mentioned, and also usually applies to specific reps in the purchase agreement, just given the nature of the operations or the deal specifics. And this evolution in the language is in large part due to diligence, which I know we've been about as discussed markets have 10 to 15 questions they ask.

And if a buyer is able to show that sufficient diligence was conducted, then the carrier is more willing to narrow the exclusion. And in some instances, remove it all together. Recently I've seen brief summaries or memos and data rooms where there's a four-to-five-page summary on diligence efforts that either the buyer, or the seller has conducted. Recently as of late August, early September, there's just some type of deals where markets aren't coming in with an exclusion at all. And these are somewhat limited to at least in my experiences online tech platforms more or less competitors to Zoom in some comparison where they've largely been unaffected by what's going on in the market and have actually their sales have increased, tenfold. In addition to the, the COVID-19 portion of the exclusion evolving, losing is also evolved to a include PPP loan or Cares Act matters.

Some markets are willing to remove it, but this would only apply to certain area such as the initial application for that loan or eligibility for it. So, there's at least one market out there that has a list of 10 to 15 questions. And they're going to ask whether the PPP loan submission materials are act whether proper analysis was conducted when determining the amount of PPP loan money requested as well as the economic condition for the company prior to the pandemic. They're also going to want to know how the company is fair since receiving those funds and what those funds are being used for. And then I'd be remise to not mention, but there are a few or a handful of markets, I want to say two or three that are actually offering, insurance policies for this PPP loan repayment. And it's meant to cover a few things which include loan eligibility, certification, forgiveness and repayment. And this kind of gives reps and warranties insurance markets, a bit of leg to stand on that there's a separate policy out there., So, they don't need to rely on reps and warranties insurance to cover that. And from a business standpoint, most buyers are simply just not taking on the risk of PPP loan money. I have a recent public to private deal where the buyer is requiring a company to either pay it back or take out a separate insurance policy on the loan proceeds.

Jacob Borth (37:38):
I think you hit the nail on the head that we are seeing more markets open to specifically underwriting toa COVID related exclusion. And the role of the broker in that instance, or at least a decent broker will be pushed to have that exclusion removed altogether or narrowing it or tape it as best we can. So, as not to limit coverage on the app of our clients to Sumit’s point earlier, I think earlier in the year and certainly five months ago at this time markets were very much taking a hard stance and drawing their line in the sand with respect to that exclusion. And I think as time goes on, we’re seeing a little bit, of a softer stance. And again, a more, a more favorable position on that exclusion, which again is obviously a value add to our end users. I think we're pretty close to the end of what we wanted to talk about today. And we otherwise really appreciate you guys jumping on the phone this morning. Certainly, after that Dallas Cowboys win calling in from Dallas.

Lance Myers (38:58):
Thank you. From my perspective, I think that was very insightful and I thoroughly enjoyed the Cowboys win as well, even though that I'm in Chicago now, I'll never leave the Cowboys behind, here that eventful game, but thanks a lot for the time here. And I hope this was a helpful conversation and hopefully the listeners will find that some of the topics covered are helpful as well. And appreciate the invited us on the podcast.

Sean Murphy (39:25):
Yeah, I appreciate the time as well. Hope everyone has a great day and a good week.

Outro (39:34):
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