Hey guys,
This is a pretty specific operational question - I'm struggling to get a confident answer here and am hoping one of you can help.
I'm nearing closing on a company in the licensed trades in Florida (asset purchase) and want to make sure we don't have issues with ongoing construction projects during the license transition.
At close here's what might ordinarily happen:
- Oldco cancels old insurance, Newco binds new insurance
- Newco submits application for Seller to act as qualifying agent (let's say it takes###-###-#### days to process)
- Oldco continues being the contractor until Newco is qualified pursuant to a transition agreement
Insurance Problem: During the transition, Oldco's insurance carrier sends cancellation notice to additional insureds including building departments, and building departments put a pause on permitted work since the contractor is no longer meeting insurance requirements.
Permit Problem: After the transition, if Newco is acting as contractor to finish the jobs, Newco may have to pull new permits and those costs can be significant
Potential solves:
- The insurance agent says they would just list Oldco as additionally insured on Newco's policies and this would be acceptable to customers and building department (sounds too easy)
- Don't cancel Oldco's insurance, reduce it to the regulatory requirement to keep it in compliance, and eat the extra insurance cost for a short period
- Have Seller qualify both Oldco and Newco. Oldco finish existing jobs to minimize permit replacement cost.
I know these deals happen all the time so I'm hoping there's a tried and true solution out there. Has anyone handled this for similar deals?
Transitioning Contractor's License - Insurance and Permit Issues
by a searcher from University of Florida - Warrington College of Business Administration
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
Do not cancel Oldco's insurance, I would recommend reducing it to the regulatory requirement to keep it in compliance and eat the extra insurance cost for a short period of time. I would keep the insurance in place until ALL ongoing projects are completely done. I don’t know premium involved here but it likely would not cost much for the short period of time. Then once all ongoing projects are done, and the insurance is in place for the new company, then you can look to cancel the Oldco insurance.
I hope this helps and please feel free to reach out to me with any other questions.