Most business owners think accounting is just a necessary evil—until it costs them millions.
What hidden traps are killing the value of your business before you even go to market?
In this episode, Jason Kruger, Partner at Citrin Cooperman’s Business Process Outsourcing Practice, exposes how overlooked accounting gaps can sabotage your exit—and how precision financials can supercharge your company’s valuation.
You’ll discover…
- Why “good enough” bookkeeping could quietly slash your business sale price
- The secret financial move that doubles your company’s EBITDA multiple
- How deal momentum evaporates—and the one invisible risk that keeps buyers up at night
- The new evolution in rep & warranty insurance that’s changing deal dynamics for small and midsize firms
- What top buyers always spot in financial statements (and how you can make your next sale a “no-brainer”)
Mentioned in this episode:
Transcript
Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority in executive and transactional liability and national practice leader for mergers and acquisitions, for Liberty Company Insurance Brokers. Welcome to M&A Masters, where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders, and their investors.
Today, I’m joined by Jason Kruger, partner in Citrin Cooperman, a business process outsourcing practice. Jason specializes in providing outsourced accounting, financial advisory services, and operational insights to small and middle market businesses. And as we are getting more professional, particularly in the lower middle market, moving into M&A, it’s great to have you, Jason. Welcome to the show.
Jason Kruger: Yeah, thanks, Patrick. Appreciate it.
Patrick: Now, before we get into what you’re doing with Citrin Cooperman and Citrin Cooperman itself, let’s start with you. What brought you to this point in your career?
Jason: Yeah, it’s interesting. My career, I guess, has come full circle. So I started my career in, well, I got my degree is in accounting and finance, which, you know, makes sense, considering the topic and the conversation we have today. But I started my career in public accounting, most of it with Deloitte, which is one of the big four accounting firms. I was in the financial statement audit side of Deloitte.
Spent close to 10 years there. Was a senior manager, which means that the next step in my career was either to try to go the partner route there, or go do something else. Then I decided to take door number two. I always had a drive to an entrepreneurial, I guess, spirit, a drive to either get involved in something in an earlier stage or start something on my own.
So I leveraged my background that I had developed at firms like Deloitte to start a company called Signature Analytics. And what I observed, even working with our clients at Deloitte that are in the mid market, is that those companies deserve better than what they were actually getting or the value they were getting out of their accounting and finance function.
And what I mean by that is a lot of companies, business owners, they’re busy. They’re trying to grow their business. They see accounting and finance as a necessary evil. Meaning, I have to pay my bills, I have to invoice, got to make sure I have enough cash for payroll, and I have to file my taxed at the end of the year.
And as I started to realize and see some of the pain points associated with not having good financial information or a sophisticated team. And what I mean by that is, as they grow, they might want bank financing, and if you don’t, the first question that the banker is going to ask is, let me see your financials.
And if they’re not presented in a professional manner, or if you’re just hitting print out of QuickBooks and sending it off, it’s going to be challenging. You’re not going to have the credibility. It’s going to be more challenging to get financing. They may want to bring in investors, same thing. They want to maybe exit, which I know is a big topic here. And if you don’t have good financials, you lose credibility.
Maybe you lose the deal altogether, or you aren’t maximizing the value of your business when you sell it, and you’re not getting what you could be getting out of it by just having good financials. And then the other piece is just clarity in a better understanding of cash flow and just better visibility into the numbers to achieve your goals, the goals that you have to be able to make decisions, to maximize value, to grow revenue, to grow the business, all those things.
And so I started a company called Signature Analytics in 2008 with the idea of bringing the top talent in the marketplace to the small, mid-sized business community on a fractional, scalable way. And so we built that business up. Grew to about 75 full-time employees, and the goal was, again, all full-time employees, we’re not a staffing or recruiting firm. It’s how do we integrate, assess the current environment of our clients within their accounting and finance function?
How do we provide that financial and accounting leadership that they lack? How do we make sure that we support and integrate within their existing team so they drive value out of the accounting and finance function. And so we were able to grow that the business. And then in November of 2024 we were acquired by Citrin Cooperman, which is a top 20 traditional CPA public accounting firm in the United States, mostly based out of the east coast.
I’m on the West Coast, so it gives more West Coast presence, but now we’re part of that group, and they had started to build an internal service line. Very similar to what we provided at Signature Analytics. So we slid in very nicely, and it’s been a great transition, great team, great people. We’re able to provide a ton of value to our clients. And it’s just been, it’s been a good ride so far.
Patrick: I think it’s interesting because, as we’re in the lower middle market here, you have the concept of finding value, adding value, and also getting some leverage for your clients. The clients, their mindset right now is running their business. They have this function that needs to be done, and it’s a utilitarian kind of thing. They don’t see it as adding value, and they’re trying to get the maximum from the minimum. They’re not very big.
So they don’t have a lot of leverage to demand a lot of services. And, you know, other service providers kind of think, well, we don’t have a lot of leverage with you, because there are lots of you, and we prefer working in other areas where we could probably get more efficient revenue sources and so forth. And so you’ve got that, you know, you’ve got the need, and finding a way to fill that need.
I think with what you’re doing, a lot of these companies, they don’t need a full-time staff, but what they do need is, when they do need the staff, they need absolute pros who act like it’s a full-time gig. It is their calling, and that’s where you came and you brought that to the market. Tell me what brought you to Citrin Cooperman? Why them and how did that come about?
Jason: I mean, the market, their focus is the lower middle market. So really aligned with ours. Our client base was very similar. The culture of the team was awesome. They spoke about our service offering in a way, the same way that we speak about our service offering. We’re not a bookkeeping firm, we’re not a staffing firm.
We know what we’re not and we know what we don’t do, and we know what we’re really good at. And so they were the only firm that I spoke to that looked at our services the same way and the value that we can bring to the table. A lot of CPA firms, or smaller firms, have what they call CAS, client accounting services. We don’t look at it that way. We look at it as a notch above that. Driving higher value to the clients.
Not just bookkeeping, not just doing the accounting, but understanding our clients’ goals. What are they trying to accomplish? And then helping them to achieve results. And that’s where, what we can really do at again, that cost point that aligns with the value that they see, that’s flexible for the company and the clients that we’re working with.
Patrick: This is going to sound real basic when we’re talking about adding value, and then just a lot of organizations, business owners, they don’t know that services like yours exist. They think they’re too small. A Citrin Cooperman or a top, you know, 30 accounting firm or services firm, we’re not big enough for that. We’re going to get overcharged, we’re not going to get the top attention and they don’t realize there are things out there that that can help.
And I mean, to be very, very simplistic, I can remember early my career, I was a business owner trying to save wherever I could, and just with travel. Hotels, I went to like Hojo. I mean, I went cheap on the hotels because I wasn’t going to be there very long, and I needed just in out to keep the price to a minimum. I realized, hey, you’re not getting a good enough, nice sleep, you’re not comfortable.
You’re going to be working in that little hotel room for a while. All of a sudden, all these little things just took away, and while you were maybe saving pennies or a couple bucks on the room rate your productivity and your overall experience let you down, and you couldn’t execute at your top. Sometimes these little value-add investments really go a long way with something as basic, because you think accounting is accounting, and, you know, I just got to make sure the balance sheet, the numbers add, it’s arithmetic, largely.
So, how is that different? And it is really different. One of the things, and let’s get into this. Because a lot of time I asked my guest, you know, what sets you apart from the others in your field. You started off with one of them, making a good first impression. I imagine a lot of owners and founders, they can’t read their own financial statements extensively, other than bank balance or cash level, and so when they print it up, they’re probably not looking knowing what they’re looking at when they hand it to somebody blind.
And that’s the first impression. And talk about some of those things, because you’re bringing in this other element, which is analytics, into this whole practice. So it’s not just a culmination of basic stuff. There’s analysis behind that. So let’s go deeper in the services and how your approach is a little bit different with this, and then how that translates to value to your clients, so their valuation actually goes up.
Jason: Yeah, absolutely. I’ll go back a little bit to what we were just talking about. So, a lot of times our cost is not an increase in overall cost structure from what they have in place. It’s just an added value to what they have and a better overall solution. And so what I mean by that is, there are a couple of different things that we see and situations that we see with companies. We see companies that were at $5 million and they hired, they had their accounting team.
Maybe they start with a bookkeeper, maybe they have a couple of accounting AP/AR clerks, and that’s good enough at that time. Well, now there are at 10 million. Maybe they’re 15 and they’re 20 million, and they still have the same people. And now those people are little out of their comfort zone. They don’t have the sophistication that is really needed to operate a 10, 15, $20 million company on the financial and accounting side.
They’re starting to have conversations with banks, and they’ve never had that before. They might now have to be audited, because maybe they did get financing. Now the banks require an audit or review, and they’ve never done that before. They don’t have a good handle on cash flows. They not able to produce good, solid financials that the owner or executive team can make decisions off of.
And so in those cases, and what ends up happening is they start to the company starts to feel the pain points. They can’t understand their cash flow situation. They’re not getting numbers timely or accurately, or they haven’t closed the books in several months. The team is overwhelmed. They’re not happy. They need help. And so the options there are do nothing, which a lot of companies do, and they keep in the wheel because, you know, costs.
They don’t want to spend anything anymore on cost, because, you know, that’s just kind of how it is. They only see accounting as a cost to the business, not as a value driver. So they could do nothing or what they really need to do is invest in their infrastructure. It’s like investing in, it’s creating ability. It’s investing in the business, which you have to do to build the infrastructure, to take that business the next level, to scale it.
And so to do that, they need to either hire a full time CFO, hire a full time controller, or hire to a full time controller, maybe bring on an individual consultant, or bring in a firm like us that can really help understand the current environment and layer in a CFO or a controller or filling in the gaps to support their existing team so that they get what they need on a value that’s they’re adding value on a cost point that makes sense for the business.
And a lot of times that cost point is going to be the same or less than if they would have hired a full-time person at that point. So yes, you’re adding cost, but you’re adding costs that you need to invest anyway in your business to continue moving forward. Otherwise, you’re going to continue to be in that hamster wheel all the time. The other situation we see a lot is a controller leaves or CFO leaves, and it was really kind of a glorified bookkeeper, not really the skill set of a real CFO or real controller.
And we’re able to step in for, again, at a maybe even a discounted cost point, and provide so much more value from that perspective. And now, as you move forward, to get to that second part of your question, which is, you know, how do you drive value for the business. When you’re talking about, when you’re running a business, or when I was running my business, I was always thinking about, how am I always maximizing what I would call the valuation of the business.
Meaning what somebody would buy me at that period of time. Because you never know when somebody might approach you, you never know when you might have that opportunity. So how am I always maximizing the business. And what I see in in the M&A field is businesses have a general valuation range depending on the type of business you are.
If you’re a manufacturing business, or if you’re a certain industry, if you’re a software business, if you’re you know they’re typically valued at what they call a multiple of EBITDA, which is net income, and then adding back, like some depreciation interest, maybe, or a multiple of revenue, which SaaS based companies, or maybe higher valuation based on revenue multiples.
But in general, your main street client company is going to be valued on some level of multiple of EBITDA. Well, that multiple range for a company like yours might be from a four times EBITDA. So if you do a million dollars in EBITDA bottom line, you might be able to sell it for 4 million, or it could be eight times, or even 10 times EBITDA for the same business in the same field. And there are reasons why a company is only willing to pay four or five versus eight to 10.
And the company and management needs to know what those reasons are, so they can implement those strategies when they sell to be closer to eight to 10 times versus four, and that’s just doubling the value of your business for not having any more revenue or not having any more bottom line. And those are things like, the easiest one is client concentration. If over 50% or actually if over 20% of your client revenue is from one client, that’s a risk.
And so what you want to do is de risk your business so that a buyer will not see any risk and they want to pay maximum dollar. So client concentration. Reliance on owner. If you want to sell your business, and you sell it, and you walk out the door and your business falls apart because you haven’t built the infrastructure, that’s a huge risk.
Or if you have all the relationships, you’re the sales guy or you know everything about operations and you’re doing everything, no one’s going to want to buy a business if you’re going to walk out the door and there’s a lot of risk there. It devalues the business. A big one is the financial acumen or stability of the company, the financial professionalism of the company. The first thing that a buyer is going to ask is, let me see your financials.
If you give them financials and the buyer can’t make sense of them, they’re like, I don’t know. Is this real? Is this not? They do due diligence. It looks good. Looks like it’s a good company. There’s more risk, because they don’t have full confidence in what they’re looking at, and they’re going to push that down. And what I see a lot of times is a company will get an LOI, so a letter of intent, it’s always at the max value. A lot of times be at the max value, be, oh, great, yeah, we’re going to sell it for this amount.
Patrick: Where all of the focus is.
Jason: I got that letter of, yeah, exactly, and everything else that goes along with that, right, which I know you’re a big part of it with reps and warranties and all that. Get the LOI, let’s just say, 10 million bucks. Great, feeling really good. Now that they’re going to do their due diligence, they’re going to hire another firm, like Citron Cooperman, we do due diligence as well, or Deloitte, or even a smaller firm or a smaller shop, and that firm’s going to come in and find their job is to find all the reasons why their client, the buyer, should not pay $10 million for that business.
And they’re going to come up with all the reasons why there’s risk associated with this business. And when they start to find those risks, the buyer is going to come back to you and say, well, you know what? We found this. We’re not really comfortable with this. So, now it now it’s 9 million. And then, oh, wow, we found this, and now it’s seven. And now you’re fully invested as a business owner. Your mind is already out the door. You’ve already sold.
You’re excited, you’re hearing this, you’re getting frustrated, and nine times out of 10 you end up taking the deal anyway, because you’ve already mentally been, you know, checked out, mentally exhausted. You’re stuck, and you have the bird in the hand at now, at six or 7 million, you thought it’s gonna be 10, but you still have the bird in the hand at seven.
Now you’re thinking about all the other additional work you might have to do to get back up to 10, and you take the deal and you you just left three, $4 million on the table because you didn’t have solid financials in place that you could provide to the client or sorry to the buyer, yeah, and you weren’t able to really provide the explanations, the confidence to the buyer as to what’s going on in your business financially, to give them the confidence that they want to buy and pay top dollar for this.
And we see that all the time is you get in at one price and you end up selling for another, and you don’t feel that great about it, but at least you sold. And it’s too bad, because these are easily correctable if you have some time upfront to make sure that you can get your hands around it.
Patrick: Not to sound naive, but everything rests on the financials. You gotta have a great service. You gotta have a great business model. You gotta have a great team of all-star, rock-star, sales people, all that’s great. And there is the allure. You know, when somebody wants to buy, there’s an emotional thing that there’s a prospective buyer out there, and they fall in love with this. The management teams get along. But if the financials, if there’s something wrong there, that in and of itself, could just nuke the deal.
Jason: Yep. And the owner, the owner or executive team’s inability to speak to the financials when they’re asked questions, there’s a lot of risk there.
Patrick: There’s also, I was just as you’re going through this, talking about this where, you know, a company doesn’t, they don’t close the books on time, and those issues can happen again and again, and all of a sudden it stretches out. Or other small problems are there, and it’s not a crisis. So they just keep moving on.
And there’s a saying, you know, let sleeping dogs lie. Let’s just keep going. We’re operating, we’re profitable. We’ll go, but eventually those dogs are going to wake up, and you need to be ready for those. And those are the types of things, I can imagine as you begin an engagement. There’s a lot of like, unwinding or corrections that are made first as you establish best practices.
Jason: And in most cases, there has, there is a the pain has bubbled up, right? And so that’s why they’re bringing us in, right? A lot of times it’s like, if the sleeping dog is lying, they don’t, they forget about it, until the pain finally bubbles up, and now it’s a crisis. And so unfortunately, a lot of times we’re coming in when the pain has been identified, and it’s, you know, we can’t get our books done. Or we had one person and they left, and now we’re in trouble.
Or we’re trying to get financing. We can’t do it. We were trying to sell. We, you know, fell out. You know, that fell out because it was we didn’t have our numbers in the right place. And so, you know, the first thing that we do, we take the first month to really assess the accounting and financial environment of the company.
And so that’s looking at their people, their processes, how they’re leveraging technology. Could be anything from QuickBooks, you know, what else are they integrating within QuickBooks or other systems like a NetSuite? And then the reporting infrastructure. And the first step is to understand their business, understand who’s doing what, understand what their priorities are, what they’re looking to accomplish, where their pain points are, and then come back with thoughts on how we can create efficiencies.
How we can streamline things, how we can get them caught up, because maybe they’ve fallen behind, and come back with a plan on, okay, based on our priorities, here’s what we’re looking to accomplish, and here’s the Gantt chart on how we’re going to accomplish that over a period of time. And so that’s the first thing that we do. So we don’t want to just jump in and just start doing accounting, whatever that is, right?
It’s let’s make sure we sit, take the time, we have a plan. We’re aligned on what our focus is and where we see value, and then we move forward, and we make sure we’re aligned on a cost point and what that looks like as well with the client, so that they see value in that too. And then what ends up happening is there’s a pain point, because their existing team, it bubbled up, because their existing team usually doesn’t have the sophistication to drive the business forward in the right way.
And so we define we make sure that we understand the responsibilities of the internal team and how we can leverage them to be successful, fill in the gaps around them, provide them the support that they need to be successful, and then provide that accounting and that financial leadership on top of that, to drive things forward and to communicate effectively with the business owner or the the CEO or the executive team. And that’s really our process.
And then you get into that consistency of, okay, now we’re closing the books every month before the 15th of the month. We’ve developed and have built and defined and built out a financial reporting package for you that really focuses in on the details of your business, the margins of your business, the profitability of your business, the profitability by product or product line or service line.
You have better visibility now and do cash flow, and you can start to we can project out, and that’s the first thing we do with all of our clients, is, let’s make sure we understand what our cash looks like in 13 weeks, which is a one quarter of the year. So let’s make sure we look we understand what that looks like. And so getting them in that rhythm, and now, when they want to get financing, great. We’ve already closed the books. Here’s the most recent financials.
Here’s the package. Looks good. You look credible, you look like you know what you’re doing, and it’s going to be a really easy process. And so now you’re ready. And then from there, we can start talking about what your goals are, and if you want to, if you want to sell at some point. What does that mean? And how do we maximize? How do we talk about maximizing the value your business so that you can do that? And so that’s really our approach on how we go about it.
Patrick: You just create a fine-tuned machine.
Jason: That’s the goal, yeah.
Patrick: And when you’re a fine tuned machine, you you have options, you’re flexible, you’re nimble, and you can respond to, as you said, there could be an unexpected offer that is at that higher, EBITDA multiple, because who knows that buyer for the right target they may need somebody now. And if they can go grab them, they will pay top dollar and bypass all the competition. Get in, and if you’re ready for it, you take advantage of that. Jason, provide us with a profile of your ideal client. Who is Citrin Cooperman, really looking to serve?
Jason: I mean, our sweet spot again, is lower middle market. We do have some public company clients, not a lot. But you know, from a revenue size 5 million revenue to 100 million is our sweet spot. But you know, really, it comes down to the mindset of the business owner or the executive team.
And if they have a growth mindset and they want to get better and they’re trying to scale their business, those are ideal clients for us, if it’s a company that’s been around for 30 or 40 years, and they did 10 million 30 years ago, and they’re doing 10 million today, and they have their accounting team, and they do what they do, and they’re happy with it, you know, they’re just going to look at us as a cost point.
Because they’re happy with the status quo. And it is what it is. But companies that are looking to grow and have that growth mindset are companies that we can provide tremendous value to, to help take their business to that next level. To help them to understand how to build the infrastructure of their business and scale it, because that is a challenge.
And make sure they understand the impact of the financial impact of the decisions that they’re making on who they’re hiring, who they’re not hiring, those types of things. And so that’s really our ideal space.
Patrick: It’s going to be one where you’re going to be collaborative, and they’re actually going to be working with you, not resisting your process. Okay, great. Industry agnostic, and you’re national firm, so no regional limitations?
Jason: Yeah, no national, yeah, generally, industry agnostic. You know, across the board, we have a lot of manufacturing, distribution, we have a lot of professional service, we have a lot of, a number of software, technology clients. We have a lot of clients in healthcare. We have, I mean, kind of you name it, construction, a little bit of everything. We do actually have a lot of nonprofit clients that we provide a lot of value to. And we can be a very good solution for them.
Patrick: One of the things is, as you’re helping business owners prepare for an exit and or acquisitions and with, you know, the M&A environment out there, which has been growing steadily for the last 10 years, one of the biggest reason is because the insurance industry has been able to enable the deal parties to transfer risk.
You mentioned de risking a company, they’re de risking the transactions with rep and warranty insurance. And it’s been a boon to really, not only transfer that financial risk away, but also to accelerate the process, but, you know, don’t take my word for it. Jason, good, bad, or indifferent, what experience have you had with rep and warranty insurance?
Jason: I mean, I think it’s pretty much almost required on every single deal now, which is great. It does help the buyer de risk, you know from maybe from disclosures that they weren’t aware of when they originally got into the deal, which makes you know what, again, what we do all the more important, because if you don’t, if you’re not prepared to sell, you may not be disclosing everything.
If something goes bad, you didn’t disclose it, you’re on, you know, rep and warranty. You know, there’s insurance, but you’re also on the hook. I mean, the seller is still on, you know, potentially on the hook for some things. If I’m the seller, I want the buyer to pay for it. So I’ve seen the buyers actually pay for the rep and warranty. A lot of times. I’ve seen it split. Each party will pay for a portion of it. That’s all part of the negotiation of the deal.
I think it’s absolutely worth, if you are the seller, absolutely worth, you know, a negotiating point is who’s going to pay for it. But it’s a, it’s a way for the buyer to, you know, de risk some of what they’re acquiring, but at the same time, nobody wants a deal to go bad. So they’re still going to do all the due diligence they can to make sure they understand the risks of what they are buying.
And that’s where you know having a true understanding of your business, financially, operationally, sales, and marketing. HR. I never knew how important HR was until I started my own company, and it’s not even really about preventing yourself from lawsuit, employee lawsuits, it’s culture, it’s career development. All those things add value to a buyer.
If you have a great culture, if you have a great pathway for your employees, career development, a process where your employees are being trained. You have great training program in place. They’re being supported. They know their path in the organization. That’s all value to the company as well, to the buyer as well.
So things like that will set you apart from any other company that they’re looking to acquire. A good HR team, good HR practices. Solid and defined sales and marketing processes. How do you sell your business, or how do you, how do you drive sales? You know, good finance and accounting, good operational processes, all of that comes into play, but the rep and warranty insurance is a big one, and I think it’s critical for every engagement or every deal that happens.
And like I said, I think it’s a negotiating point on who sell, who pays for it as well. But I mean, I’d love to hear your thoughts on that. I mean, you’re, you’re the expert too. And I, I know you’re doing the interview, but I’d love to hear you kind of give your thoughts on that as well, what you’ve seen.
Patrick: Well I appreciate that. I think that as much diligence as you do, you can never know everything. And it’s a real challenge for a seller who, if they are fully disclosing everything, like you say, they may not have top of mind some disclosures of some problems potentially there, and they’re not aware of it. And what happens there, where you’ve got an innocent omission, and now you know, the buyer doesn’t want to get stuck holding a lemon.
Seller doesn’t want to be left on the hook indefinitely post-closing. They both want to go on with their respective lives. And so this has been a nice, elegant tool that comes in. I would say, when I got started in rep and warranty, and now it’s 10 years ago, less than 5% of the deals had insurance. Okay, it was, it was new, and there was a lot of resistance from the attorneys out there. And it would just, it was looked upon skeptically.
It was an insurance product. So it took a little time, but you know, fast forward now 10 years, we’ve gone from 5% usage to almost 95% usage of some insurance product on transactions valued at 100 million and up. The only reason why we don’t have as much market penetration, market share on smaller deals, and I’m talking deals priced between 1 million and 50 million in enterprise value.
The biggest reason why is because those deals traditionally have been too small for rep and warranty. They don’t have audited financials. They don’t meet the eligibility requirements or based on the size, they’re cost-prohibitive, and buyers, quite frankly, do not want to spend $200,000 on a $20 million add-on. And so you’ve got owners and founders that are in that lower middle market that, as you say, they’re underserved, they’re exposed.
There is the risk, and you could have something very ugly there. The buyer has the leverage, because they are going to go and they’re more experienced in the transaction process, they’re going to word the reps as broadly as possible so they can hold the seller accountable. And either you know whether they do that with a sizable escrow or just being able to claw back, there is that fear. The sellers, with no alternative, got to grit their teeth and bear it.
That was until a couple years ago, Lloyds of London came up with a product called TLPE, transaction liability private enterprise. It is a product designed exclusively for deals, again, priced between 1 million and 50 million enterprise value. They’re dealing with, again, simple main street businesses, manufacturers, business services, you know, processing, SaaS tech, IT, things like that they want to be in Main Street.
These risks are smaller. They are less complex. They are lower risk. Therefore, the cost is substantially lower. We’re talking 15 to $20,000 per million dollars in limits. So you could have a $5 million limit policy for a $10 million deal. Okay, you’re insuring half of it for 75, 80 grand. Okay, that’s not much more than the underwriting fee for a traditional buy-side policy. So its purpose is to come in de risk transactions and speed the process.
Once you’ve got insurance, you know, the negotiations between the two sides suddenly get a lot more efficient and speed through. And that’s where we want to bring that in. So, you know, we’re very proud about that, because rep and warranty as a product line has been very, very efficient there. There have been claims. There are more claims, but that’s because there are more deals insured. It is a low risk product exposure for insurance companies.
So they wanted to come Lloyd’s came in and said, look, we’ve got a huge market that is not being served. We can write at scale. And when you want to write at scale, you do three things. You got to offer a solution, which they do with the coverage. It’s got to be simple to implement. So there’s no underwriting fee, and there is a quick application process.
Deals can be turned around, underwritten in one to two business days. So that’s not going to slow down the process. Finally, it’s got to be affordable, and again, 15 to $20,000 per million in limits. We can ensure up to 20 million. So we can ensure a deal for 100% of the purchase price up to 20 million. So we can do that, or we’re writing deals up to 50.
Jason: Then the thing is that you mentioned is, I think an example earlier, like you don’t need to insure the entire deal price, because, let’s say something happens, and nine times out of 10 it’s not going to wipe the whole company out completely. There’s still value in the company, but maybe it wipes out 20% of the value of the company because of something that was not disclosed effectively, and something happened, right? And so you can still get, you can still have that coverage without having to have a policy on the full deal price?
Patrick: You were talking about that earlier. When you want to de risk the company, sometimes you don’t have the luxury. You’ve got a key client, and you can’t necessarily dilute that client’s revenue impact, and you’ve got to sell it as is. And unbeknownst to the seller, the client had some financial problems.
Maybe they had a tariff issue, and all of a sudden they went under or when in COVID, we had a lot of key clients go away for and nobody knew. This is the product that’s going to step in. And again, you mentioned about costs. The cost is negligible. We are seeing about 50% of our deals, more than 50% of our deals, the two sides just split it.
And what happens is, you’ll have a balance where the buyer now they realize there is insurance. Would like a greater percentage of the transaction insured. The seller, hey, there’s no risk. We just need a million dollar limit on a $10 million deal. We don’t need any more. Buyer is looking and says, I’d kind of like, 3 million. Why don’t we do three and we’ll figure out the cost.
Jason: Exactly. Yeah, so in our deal, that’s exactly what happened. Is exactly that, you know, our attorneys push back. They’re like, hey, you don’t need it that much. And then it’s like, okay, well, we’ll split the cost. And so that’s exactly what you said, is exactly what happened with us.
Patrick: We like that and we like that flexibility. You want a dynamic scenario. And that’s what’s great on these sophisticated transactions now is, you know, it’s not the old days where it’s my way or the highway. There are ways that people, parties, are working things around and where there’s a will, there’s a way. And we love the innovation, you know, in American business, in technology, in processes, and now in insurance, there are just, there are new ways to doing this. So, Jason, as we look forward into the year, what trends do you see for the rest of 2025?
Jason: Yeah, I think that’s a loaded question, because nobody really knows. With all of you know, the stuff going on. I think, you know, the last month has been, there’s been more, you know, craziness than the last, I don’t know outside of COVID, I mean, but you know, right now, from an M&A perspective, we were talking about this earlier, before we jumped on.
There’s a lot of pause everything, things. A lot of things have been paused because of the uncertainty with the tariffs. We’ve seen that. I just had lunch with some investment bankers today, and they were saying the same thing, everything’s on pause right now. So which is frustrating, they’re not dead deals. Most of them are not dead deals.
It’s just pause to make sure that, hey, we understand what’s going on, but it’s still, you know, still creates some frustration. And the reality is, the longer a deal takes to close, the more you know, the higher risk of it not closing is. All the time. I know when we did our deal, we were, you know, we tried to practice what we preached. We were pretty buttoned up.
We went from the LOI to the closed deal in 60 days. And so that was, you know, a quick process. And everybody was on top of it. The team at Citron, you know, they were on top of it. They had done deals before we were on top of it. We had consulted our clients through deals before, so we knew what we were doing.
Patrick: You were familiar with it.
Jason: We all had attorneys that collaborated effectively, and so it was great. But anytime you have a pause, it does create some concern. I am still optimistic that the M&A activity will pick up if we can get some level of stability on these tariffs. I think overall, the metrics in the economy are still solid, but there are just so many unknowns with the with the geopolitical and the tariff situation and what we’re trying to accomplish.
So, you know, it could go any direction, obviously, but generally I’d like to be optimistic. And, you know, think that again. But what I’ve always seen, no matter the market, good companies are always in high demand, a good, solid company on solid footing that can show solid financial information is always in high demand. No matter what the market is. You can always get top dollar no matter what you know, no matter what the market is.
Patrick: I compare the uncertainty today to the uncertainty we had a year ago where it was up in the air, and we had the election going, and I thought once we got it decided one way or the other, everybody’s going to move forward, and they will adapt to however this environment that we get. So I think this is more of a shorter-term uncertainty period.
The one thing is that underpins this, though, is we have a business-friendly administration, which is going to be around now for the next couple of years, so we don’t have to worry about a change in administration at least for three years. I’m fairly certain that we’re going to have tax continuity going forward, so we’re not looking at the risk of some major, huge tax upheaval or rewriting of tax policies that could impact business.
So those two are there. We’ve got these other cost issues that we’re going to deal with, but I think as people are patient, we’re going to we’re going to move through it. I’m banking on that, you know, I’m an optimist by heart, but I think we have enough dynamic companies out there that are ready to move, and it’s just when they get a little bit more confidence going forward, I think we’re off to the races.
And if you’re in a more business-friendly environment, I think there’s a greater margin for error for maybe not those pristine, clean companies. But now you got companies down there, owners and founders that want to exit. Their companies aren’t perfect, but they’re really, really good. They’re gonna get a little bit more, you know, most favored nation status by buyers as because then you’re gonna get momentum.
Once you get momentum, you’ve got FOMO and other animal spirits and these other elements that can come in that will increase competition. And again, overall momentum will just, you know that rising tide is going to lift a lot of boats. We see that, but it’ll be, I think, probably the last quarter, but then it’s going to run. I could see it running for a couple of years. So, you know.
So we’ll have our fingers crossed. And then you got Citrin Cooperman, who’s going to be, you know, upgrading these companies, and getting their fundamentals in line so that they can go up to that top tier on the EBITDA scale. So that’d be fantastic. So Jason Kruger, Jason Kruger from Citrin Cooperman, how can our audience members find you?
Jason: Yeah, I mean, the easiest is, I’m, you know, pretty, fairly active on LinkedIn. You can find me there pretty easily. I’m always open to an email if you want to reach out the letter J. Kruger, that’s J K R U G E R @citrincooperman.com. Citrin starts with a C. C I T R I N cooperman.com, and I like to, I love talking to business owners.
And if I can provide some value over a conversation, I’m happy to do that. If I, if I don’t know the answer, I usually you know. I usually know somebody that does, so I can help you, point you in the right direction on who you might want to talk to, but yeah, I’d really welcome any business owners that’d like to reach out.
Patrick: Yeah, I’m going to recommend any business owners if for the last 40-plus minutes, we’ve had the topic of accounting and business services, probably more exciting and more sexy and interesting than you’ve ever thought you could hear from a conversation about this topic. So Jason Kruger from Citrin Cooperman, I am so thankful that you came. Great to have you, and we’ll talk again.
Jason: Yeah. Thanks so much, Patrick. Appreciate it.
