Preparing for M&A: Compliance Insights with Michael Lamm & Sara Woggerman

Adam Parks (00:00)
Hello everybody, Adam Parks here with another Receivables webinar today, live on LinkedIn coming to you from Brazil. So pardon my internet connection, but I've got two really great guests to have a discussion today because we never think about the challenges of selling our business until we're in the process. you know, through my conversations with our first guest here, Michael Lamm over the last year talking about how we really need to get prepared three years in advance. And then continuing some of those conversations with my other guest today, Sara Woggerman, we discussed, well, the compliance aspects of all of that and making sure not only that we're prepared from a compliance perspective, that we can evidence what we need to evidence from a compliance perspective as we're going through the sale or the M&A process for our businesses. So thank you both for joining me today. I really appreciate you coming on and sharing your insights.

Sara Woggerman (00:58)
Glad to be here.

Michael Lamm (00:59)
Me too. Thanks Adam.

Adam Parks (01:00)
So, well, I appreciate you guys being here. And I know both of you are frequent speakers, frequent guests. Pretty much most of our audience is already gonna know you, but maybe starting with you, Michael, could you tell everyone a little about yourself and how you got to the seat that you're in today?

Michael Lamm (01:14)
Sure, Michael Lamm, I've been doing ⁓ M&A, valuation, strategic consulting work in the collection space for 25 years. And before that, I was doing a bunch of stuff with technology startups, helping them get funded and getting them capital.

Adam Parks (01:33)
Fantastic. And Sara, again, I know that everybody pretty much already knows Sara because you're a big deal. But can you tell everyone a little about yourself and how you get to the seat that you're in today?

Sara Woggerman (01:42)
thank you, Adam. Yes, I've been in the industry going on 20 years. I've been doing consulting for the last 10 of those years. And where this is really, I'm really passionate about this subject because I do a lot of compliance risk assessments as part of my consulting services. And oftentimes, I am brought in, dare I say, too late. And there's a big friction point there.

And so I spend time with companies, helping them build their compliance management systems, identifying gaps, their risks, and remediating them. So that's a bulk of what I do every single day. So I'm excited to, I think I put it in my LinkedIn post, Michael and I talk about this every time him and I get together. We talk about, ⁓ gosh, there was this disaster, or gosh, this happened. And so I'm just excited to share our insights with the broader audience today.

Adam Parks (02:43)
Well, I appreciate you guys coming on. anybody that's watching this live today, you can leave questions here on the LinkedIn live channel. I'll be monitoring that throughout our discussion today. But, you know, in kind of kicking this off, I thought we would start off by talking about really the timeline for preparing your business for sale. What should an agency or a debt buyer or even a law firm owner, what kind of timeline do they need to be thinking on in terms of exiting their business?

Michael Lamm (03:13)
It's a great question, man. I would tell you at minimum of one to three years. If they're not, it takes time to get all your ducks in a row. And when it comes to things around compliance and Sara, you live this every day. It's so critical to spend the time, get the workflows in place, get all your ducks in a row. If there were previous legal matters that you have to exhaust or put to bed, get all that stuff done. And that's why that one to three year window is so critical.

Adam Parks (03:45)
One year seems pretty short to me because we were literally just talking before we came live here about like, my God, we're already starting to prepare for another RMAI conference. Really, like what happened to 2025? And time moves so fast when you're running a business that I think one year is even a little short. I try to think about it in three years and it was one of our

It was either a webinar or podcast that you and I had done earlier this year that made me go back and evaluate my business and start thinking my way through it. Not that I'm looking to exit in the next three years by any stretch, but even just starting to think about it and to live in that constant state of preparedness so that if and when it is the time for me to exit that my businesses are prepared, I'm not behind the eight ball and I'm not kind of chasing my tail. But Sara, as someone who's come into a lot of these deals, probably a little bit too late. What are some of those compliance gaps that you're seeing commonly across organizations once they're in the M&A process?

Sara Woggerman (04:41)
Yeah, so the single biggest thing that I see is when a private equity group is coming in and they're not industry folks, right? They don't have the ⁓ industry expertise. So they're sort of relying on this company, especially if they're not working with someone like a Michael Lamm who knows this industry and knows the things to be looking for. Let's say they're doing an acquisition on their own, right?

And then they go and they don't have a good concept of the laws and regulations, the risks. And they're essentially allowing the seller to tell them whatever. And they're choosing to either believe that or not, right? What they do with that information. But that is where I see the number one ⁓ risk come up is because now a deal has been done and they start to unravel things or they go, Now let's bring the outsider in. And we start going through that evaluation and they're going, wait, what? Like, I mean, this happened with a company where they didn't understand that there was licensing requirements, Like, what those licensing requirements meant, the invasive nature of those licensing requirements, right? So it's really important if you're going to enter this industry, not only to have a really strong compliance process, but to have someone guiding you like someone like a Michael Lamm who also understands just the general framework of what you know what both parties need to know about each other.

Michael Lamm (06:23)
Yeah, I would tell you too, Sara, it's a great point. mean, having the people around you that really know all the facets of the transaction is important. But even before we even get to the deal, all the preparation, all the work around the compliance logs and figuring out all the legal issues that have happened and all the stuff that's buried on their website from consumers saying crazy things potentially like.

All of those things have to get vetted through. And as you said, Adam, it's one year goes by quick, but a lot of times we have to do things so much faster because an owner is sick, management team is having an issue. And there's a reason why they do rapidly sell the business. And we only are given so much time, but it's, it's, it's really getting that preparation on the compliance side done so far in advance where it's just operating like clockwork when you go into the sale process itself.

Sara Woggerman (07:26)
That's a great point, Michael. I heard about a situation with a company recently and it was a husband and wife and there was an untimely death, right? There wasn't really a succession plan. Wife took it over ⁓ and just wanted to get out from under it as fast as possible, but things crumbled. The domino effect was really, really bad for this particular company. ⁓ And so it's really important.

When I run small businesses and just like what you said, you always have to be sort of planning. If I got hit by a bus tomorrow, what happens to my people? What happens to my company? What that succession plan looks like? And you should always be sort of, you said it really well, a state of preparedness. That's really important for all of us.

Adam Parks (08:20)
When we think about the transition and we're talking about transitioning from a compliance perspective, are the buyers well enough informed and shouldn't the buyer have some sort of compliance representation as they're going through this process considering the level of risk that ultimately compliance can bring to the table? Because if you're going from a, you know, if you're looking at buying a business and you wanted to think about the tech stack for example, like the tech stack is going to be a lot easier to modify into the future, but compliance is something that you're going to have to reach backwards to deal with. And the risk doesn't disappear just because you reached backwards. So are buyers putting the appropriate compliance people on their team as they're evaluating an asset to purchase?

Michael Lamm (09:06)
It depends, Adam, because what all end up happening in the private equity world, they're going to bring on a much larger law firm to help them with due diligence. That law firm may be thousands of people, but they don't have a Sara that's sitting on their roster to go answer all the questions you could think of about debt collection and how it works and why it works a certain way and why they get frivolous lawsuits.

And I think that's the piece that a lot of times what ends up happening is we end up telling the buyer, hey, yes, we know you're going to hire this wonderful law firm that's all over the world, but I need you to get an expert on the compliance and legal lens that knows our industry so they can speed up the process to get you comfortable with the business. And sometimes they listen at them and sometimes they say, Michael, we've got the smartest person you can imagine that can learn collections. And that's all good. But just from doing it for so many years, you see the issues and the concern that comes up because it usually leads to problems in a deal actually getting done.

Sara Woggerman (10:09)
You I couldn't agree more with Michael because yes, these really big firms, they have all this expertise in areas that are very important in this whole merger, but this element is, this is a specialized piece. And that is such a common mistake and misunderstanding that, well, it's like, you know, it's like Wall Street or it's like this. Like there's elements that kind of feel like that maybe, but like the way we're regulated,

Adam Parks (10:35)
Yeah.

Sara Woggerman (10:50)
things that pose risks, litigation trends and what those can balloon and look like. Like, I mean, there's so much.

Michael Lamm (11:01)
Yeah, and we're just in a period too, Sara, where, you know, yeah, the Trump administration's come in, take the teeth out of CFPB, but now the states are ramping up more. It's not like the regulatory and compliance world just stopped, right? This industry has to continue to follow the rules and the regs, federal, state, and the buyer wants to make sure that that's happening. So anyway, it's just how the market's shifting a bit.

Adam Parks (11:31)
compliance changes are different now, right? Like it's was federal now it's state. It doesn't really change what we need to be doing. And all we've been given with the CFPB being defanged on some level is an opportunity to get our ducks in a row. Now it does not solve the problems. It does not eliminate our needs. It is an opportunity and we need to look at it as an opportunity not to get lazy.

Adam Parks (11:56)
but to focus on solidifying our processes because eventually the political pendulum swings back and we need to be prepared for that. It always does, that's why it's a pendulum.

Sara Woggerman (12:04)
time. Yeah, it always does. I will say without a doubt every time I think my business running a compliance consulting business is going to take a hit because of something happening, I'm always proven wrong. Every time I have that inkling of fear, I am busy. My company is busier than it's ever been right now under this administration with a defamed CFPB. Like that is a true statement. am no BS folks. So because there's so much other activity, the other thing that's happening and I think this is important for this M&A discussion is where all people are beginning to introduce artificial intelligence into their companies. Well, a lot of people are also trying to figure out what those risks are, right? And because we have a more relaxed federal government, we are getting patchwork laws coming through the states. that could, if you're buying a company, if you're a buyer and you want a debt collection company that's already invested in artificial intelligence and you don't understand where the potential pitfalls are there, Those could be some very, very expensive class action lawsuits that end up on the flip side of that. You really have to understand that piece. And if you are a company who wants to sell, and one of the things that you're going to market yourself as is that you're cutting edge with artificial intelligence, you better have a very well vetted process for deploying that artificial intelligence that is keeping up with the laws and regulations. So vice, you know, both sides of the coin. Michael, I'm sure you have some thoughts on that too.

Michael Lamm (13:55)
Now we're seeing that all everything you said all the above Sara. I mean the investors that are coming to the table are concerned about how they're going to use the data, the consumer data in their models. And are they able to, whether they're a debt buyer or an agency law firm, how are they going to use it properly and are the clients okay with it? And so those are things that we're talking about on a regular basis because there isn't this black or white yet. There's a ton of gray. And so the buyers are looking at it and saying, how am I going to get comfortable with this data dynamic that exists in today's market? And there isn't easy answers. They're trying to figure out escrows and other ways to protect themselves in the event there's legal dynamics that happen after the transaction.

Adam Parks (14:50)
In 2024, the number one concern of the debt collection industry, according to the TransUnion Debt Collection Industry Report was data security. In 2025, sneak peek, we haven't published yet, but it kind of remains the same, right? Everybody's concerned with data security. And I think artificial intelligence amplifies that from two perspectives. One, from an attack vector perspective, because now we've got a larger surface area and AI can be used for social engineering attacks and all kinds of other things from a penetration standpoint, but also from a like, where is the data? How deep does it go? How many models are stacked on top of it? And Sara, it was a conversation I had with you where we started digging into the privacy impact statements and trying to understand what we're, how we're using each piece of artificial intelligence within our businesses and what kind of impact might that have? Because the data set itself, if we're renting the model, so to speak, but the underlying data, I would think would be one of the assets that an organization would be looking to purchase, right? Because if we think about what a collection agency actually is, you're not really buying phones anymore. You're buying clients, you're buying data, right? You're buying processes, and it's a little bit different in terms of what's the actual value, maybe a brand, but what's the value that you're able to extract from this organization across the purchase. Now, when we start thinking about the biggest misconceptions that both buyers and sellers have about their compliance, where are they falling off the track here? Where is this misunderstanding or what's the biggest misconceptions from a buyer or a seller's perspective when we're thinking about compliance as it relates to

Michael Lamm (16:33)
Well, it depends, Adam, on the buyer that is coming to the table. If it's a private equity buyer, they frankly don't know. They only know what they know if they've had other experiences buying other companies in this industry. But they're going in with a clear whiteboard to say, what am I going to do now? Do I need to? And they're relying on people like Sara and their attorneys to say, what do I need to look for? They look, the first place they go is looking at ⁓ all their legal issues, right? How many lawsuits have they had and what have those lawsuits been and why have they occurred? That's usually the first place they start to unpack whatever problems or concerns they may have.

Sara Woggerman (17:21)
Yeah, I agree. ⁓ think they don't actually, it has been amazing to me when I have seen groups purchase a company and they don't actually have a very clear understanding of their outstanding suits or pending suits against the company. It is amazing to me that that could even happen, right? But it has happened. And In a case that I saw that happen, luckily they did bring me in on the front end and I identified an issue and I said, the fact that you're telling me that they haven't been sued on this yet is amazing to me. You will be sued on this. This is a very clear FDCPA class action lawsuit.

And guess what? It was. The new buyer had to deal with a giant class of action lawsuit within 30 days after the close. And they went, and they did. mean, luckily, they couldn't say, their eyes weren't open, but it was a hassle for them. And it was a lesson learned for a new investor, right? Somebody who was just starting to do this. I think that understanding what you don't know is over.

Sara Woggerman (18:37)
half the battle, right? Probably you need to know when you need to seek others advice and others counsel and again if you're gonna come into this industry I think there's a misconception that well we can disrupt it or we can we can do this better, right? Everyone think you know you don't buy something to think I'm gonna keep a status quo you think you can do it better, right? But You really have to understand the guardrails because I promise you this industry has lots of creative people. You've got three pretty creative people on this call right now. We simply can't do everything that we dream up. And because of the the myriad of laws and regulation and risk that we have to manage in every decision that we make.

Adam Parks (19:28)
So you bring up some really great points. So what should the process of stress testing the organization look like starting on the seller side? How does a seller go through the process of stress testing and trying to get a third party lens or a third party perspective on their business? Because asking the compliance folks inside my own organization, are we compliant is never going to get me an accurate answer. So what does this process look like? And I'm assuming Michael that this going through that process would increase the value of the organization overall.

Michael Lamm (20:04)
Adam, number one man, if you could take anything from this session is hire a third party. Don't rely on what your internal compliance folks are telling you. Go find a third party that's going to assess you independently. Just independently give you a view of your strengths, your weaknesses, and make recommendations on what has to be improved and put them into a bucket of high, medium, and low and figure out the best way that you're going to remediate each of the items. I found that when they do what you describe, which is, let's go to my internal legal person or compliance coordinator that's been there for 25 years, you just don't get what you need. You get more of, we're great, things are okay. We don't have really a lot of problems. Here are the three main things. That's why the third party

Adam Parks (20:53)
Yeah.

Michael Lamm (20:59)
becomes so useful to do that mock assessment. That's something that we push a lot of our clients to do.

Adam Parks (21:06)
That internal discussion is literally asking somebody inside your company, what part of your job are you not doing well? How honest of an answer are you really going to get unless you're gonna bring in a third party and actively have this assessment? And it's uncomfortable. Nobody wants to go through that proctology exam, but better to have an internal person, or better to have an ally going through it who's there with the intent of helping you improve.

Sara Woggerman (21:07)
Yeah.

Adam Parks (21:33)
than to wait for a regulatory audit or to wait for the buyer to come in, who's then going to use it as a negotiating chip to try and reduce the value of your business. And rightfully so, because now they've got stuff they've got to go back and fix.

Sara Woggerman (21:48)
Right. So I think there's two avenues. If you are looking at potentially selling your company within the next three years, step one would be, I would hire that third party independent assessment so that you can close any gaps that are identified. Because what's going to look really good to the buyer is that you've already done that. You could say, look at this report. Here were some high risk items. Here's how we remediated them. Here were some medium risk items. This is what we did to help mitigate risk here. Everything else we kept status quo because it looked pretty solid, we do check it. These are our internal audit controls. If you are a seller or if you're a buyer, then I would have somebody that you call on to do an independent assessment if they didn't have one recently. So I think from both viewpoints, I see it happening on both sides. I think what I find interesting is that oftentimes seller doesn't want to have the risk assessment. Right? It's like you don't really want an inspection. You don't really want an inspection on your house because you don't really want them to find out that you have a pipe problem, you know, like a plumbing problem or whatever, right?

Michael Lamm (22:54)
Sara, that's

Adam Parks (22:54)
I wonder why.

Michael Lamm (23:05)
And here's how we counteracted those Sara. I fight the battle every day and I say, guys, if something's going to cost you whatever it costs you to get that report done by Sara, your company or somebody else. Imagine if you put a multiple on that dollar amount and that's what you're losing in value from not doing the report. And nobody ever wants to spend money to not see a return.

Sara Woggerman (23:10)
Yeah.

Michael Lamm (23:33)
But this is a perfect example of where a return will happen if you identify the problem, fix it, and then be able to show that you've actually done that for a period of time. we're a big fan. I mean, we're big fans of that. We think that's the right approach. We hate getting the call where they're like, let's sell this thing. And there's all these problems underneath. They won't listen. They're like, just get it done.

Sara Woggerman (23:44)
Yes. Yeah. It's just like selling a house. just

Adam Parks (23:46)
You mean to evidence it?

Michael Lamm (24:03)
But we could have gotten done so much easier if they just did what we just discussed. anyway.

Adam Parks (24:11)
Well, and I think the evidencing of that process, that things were identified. I think the seller looks at it and says, well, no, I'm perfect. Like I don't want to show them that I'm not perfect, but I would expect like as a buyer, would expect nobody's perfect. So I want to see that you're actively moving things forward and that there's some new value that's being added here. Not that you think that you're perfect since the beginning of time and you've never done anything wrong it's not realistic. It's like a collection agency telling me they're the best at everything. Like, no, you're not stopping. Like, that's bullshit. What you are is maybe you're the best at auto loans between five and eight thousand dollar average balance, but you're not the best at everything. So where are you not the best so that we can look at that honestly and try and evaluate it. But I think that honesty goes a long way towards the valuation itself.

Sara Woggerman (25:00)
I agree with that.

Michael Lamm (25:01)
Go ahead, Sara.

Sara Woggerman (25:01)
I also if they're going to maintain the management team or ⁓ if they're acquiring the company and their plan is to keep most of the people intact. Doesn't that say that you value the integrity of your business and that they're buying something that already has a culture that is not a high risk culture? It is a culture of compliance and understands the laws and regulations and as the buyer, hopefully you don't have to worry about all that stuff. I mean, I like to work with people who are honest people, right? When I go in and I do these assessments, the first thing I do, and I get this feedback a lot, is, oh, we were really scared of you, but you made us feel really comfortable. Well, yeah, because I need you to show me all of your skeletons.

Sara Woggerman (25:53)
I need you to trust me with all your dirty laundry so that I can help you clean up this house so that you're better positioned, right? In all aspects of your business, not just if you wanted to sell. And so.

You've got to have people who are willing to engage in that way. And I think that ultimately the buyer is going to recognize that and possibly want to work more with you, maybe spend more money than on another company because your core values align with integrity and honesty and all those good things,

Adam Parks (26:32)
I would think that that would add some value here, but are there some specific compliance elements that buyers are scrutinizing more closely today in our current environment?

Michael Lamm (26:44)
Yeah, I mean, Adam, they are ripping through the data security items. They care more about that because they want to know that the data is being housed correctly. Look, I've been involved in transactions in the past 18 months, ransomware attacks, compliance acts, offshore, nearshore data issues, all of it in the middle of a transaction, not before I even get to one, in the middle of one.

And they're ugly, they're painful, and they lead to a lot of issues whether you're even able to get a deal done in the first place. So I would tell you that's been a big topic and that the wonderful world of the compliance log. I was looking at one recently on a client and they updated the compliance log in about eight months, nine months. You know there's probably something wrong if the compliance logs not getting updated on a regular basis, right?

So those little things matter because when you do get to the point of selling, they're gonna assess those things and if they catch it, they're gonna be like, wait, this is a bit of an issue. Am I gonna be able to move forward with this type of a business?

Sara Woggerman (27:58)
about we never get complaints?

Michael Lamm (28:01)
Sure, love that.

Sara Woggerman (28:03)
Lies, lies, liar, liar. Like I just, when I hear things like that, I just wanna go, that's a lie. you, in our business, complaints happen, disputes happen. If you tell me you have no complaints, it tells me you're not managing complaints in any way, or form. And that is a big red flag.

Michael Lamm (28:05)
Yeah. But Adam, too, brand management matters. When you Google the collection agency, you see that they're littered with everything you can imagine, right? Like every kind of complaint against employee, ⁓ you got consumers complaining about the company, all that stuff where there's no other view of it, where they're just reading it and saying, ⁓ this is the way it is.

Adam Parks (28:25)
Yeah.

Michael Lamm (28:47)
And the industry is litigious by nature. So of course people get that. But if you can clean up some of those kinds of things in advance in that period of time, it is a really big help in the marketing of the business.

Adam Parks (29:03)
10 years ago it was acceptable that, like everybody hates a collection agency, we're never gonna have positive reviews. Now I've got clients with three, four, 5,000 five-star reviews because they've actively engaged in that process to develop their brand. And I would expect that the value of that brand is exponentially higher than it was when there was ⁓ one and a half stars in terms of reviews because that is how the organization is being seen. I mean, going back 15, 20 years, I had to talk to a lot of collection agencies that would say, we don't need a website because the consumers are just gonna say bad things, right? Like they don't, well, now you just look like a scam. So how's that supposed to balance out and what are we supposed to do going forward? Now, ⁓ I'm curious when we think about the transition and we think about the staff related to that transition, because if everything is perfect,

Adam Parks (29:56)
What is the probability that a buyer wants to take that staff on with them because they're going to have almost no trust. But I would think that the compliance team would have a much higher probability of future employment under the buyer should there be a much more honest compliance log that's regularly updated and they can feel more comfortable and confident that the business is being managed appropriately and not just viewed as always perfect.

Sara Woggerman (30:21)
Absolutely. Yeah.

Adam Parks (30:25)
What's the probability of that compliance team coming along?

Michael Lamm (30:25)
mean, day yeah, I mean, it's well, in the investor scenario, it's very likely they're gonna come along because the investors not coming to the table at them with a group of compliance people, right? They're relying on what's there. If it's a company buying another company in the industry, that's where you'll tend to see consolidation, right? You're not gonna have, you may end up if you've got 10 compliance between the two organizations, are you gonna get down to five or three or whatever it would be, you could easily see that kind of ⁓ a path that we see a lot. But then it becomes who's good, who's doing what they're supposed to do, who's actually helping bring the company into the 21st century. All of those things matter in terms of who stays or goes when it comes to the compliance folks.

And they don't want lip service. They don't want somebody to go into the conference and say, yeah, investor, yeah, buyer, we're great. Everything's good. Everyone knows it's not. And they've got it. And they want somebody that's going to push back and tell the collection manager what they're telling the collectors or the team that is not compliant. They should do it differently. Those are things that you got to unpack.

Sara Woggerman (31:22)
Thank you.

Adam Parks (31:23)
Interesting

Michael Lamm (31:51)
as a part of your process to evaluate the.

Sara Woggerman (31:53)
I agree. And that brings up another really key point in the event that we've got investors or private equity groups listening today is when you will have a responsibility to have oversight, even if you're very silent, right? If you're not a very, like you need to create a board, there needs to be oversight over the risks. That is a regulatory expectation. And I have, because I also can be hired as folks, Fractional Chief Compliance Officer, I've seen some companies recently do really great work in this area to where, you know, they're not afraid to say, Sara, what are the risks we're not seeing in your report?

Sara Woggerman (32:43)
I'll give you a really great example of one they I would give them their quarterly trend report of complaints and I would talk through it and they were like, you know what? This is great Sara, but I want to see this every week and I was like, are you sure?

They now get a report every week. And you know what? Sometimes they go, this complaint specifically concerns me. Is there any validity to it? Nope, we've already investigated. Whatever it is. Or we're remediating it. That might be a little bit too far to one side. the other is, if you invest in a debt collection company, you have a responsibility to have an understanding of what the risks are.

Adam Parks (32:58)
Yeah.

Sara Woggerman (33:28)
what the emerging risks are, because ultimately it falls on you at the end of the day from a regulatory standpoint. So that's just important to know.

Michael Lamm (33:38)
But Sara, another good point on that is that work at home, right? You got all these people hybrid in our industry, either work at home, work in the office a couple days a week. Work at home adds to a whole other level of compliance issues that the buyers are evaluating too. Because you get one rogue employee that's going to do something really, really stupid. It's not as easy as when you can go walk down the hall and go to their cubicle when they're sitting in wherever they're sitting.

Sara Woggerman (33:53)
Yes.

Michael Lamm (34:07)
Adam, in your case, Brazil, doing collections work. So like all that kind of stuff is real that comes up as a part of the compliance areas.

Adam Parks (34:19)
Which leads me to, so you make some really good points, especially when it comes to the work from home. What about the use of having wholly owned offices offshore, nearshore, offshore, whatever, or using BPO services and the compliance risks and evaluation that comes along with that? Because I think a lot of sellers look at it and say, well, I don't really want to talk about my offshore operations because it's not mine. I'm using a BPO service or It's a more complex transaction because now we're crossing international borders. But what does that start to look like from a compliance perspective, realizing that especially post-COVID, we live in a global world?

Michael Lamm (34:59)
If they're living in the world where they're trying to hide that under a rock they're they're never getting a transaction done in today's world like you've got to be so forthcoming transparent about where your people are and who's overseeing them and what company you're using. Do you own the facility do you lease it is it under wherever it is like they they're going into all those nooks and crannies. You're not you're not getting around it

Sara Woggerman (35:29)
Yeah, I agree.

Adam Parks (35:29)
But how do you start to evidence the value here, right? We're talking about engagement and operation with third parties. So Sara, as you're looking at that as a compliance professional, what are some of the things that you're trying to identify within that framework that should be in place, that needs to be in place?

Sara Woggerman (35:46)
Well, specifically, are they properly licensed to be using those entities? That's number one, because there are special licensing rules around that. Do they know where they can't use offshoring? There are states that forbid it. Do they understand that? And then it's going to be what is the oversight, the compliance oversight, how do you monitor them, how do you make sure the data is secure. It's all those other elements, right? It's another layer of all those other elements that you're going to look at for the onshore locations, right?

Adam Parks (36:21)
So as we think about the kind of regulatory environment around this, and I know lawsuits is right at the very top of the list, but how are buyers evaluating the regulatory risk, especially now that we're dealing with things at a state level. Are they going to an RMAI or an ACA who's actively involved in monitoring that and engaging with the associations in advance of, how do they wrap their hands around that? compliance risk level that doesn't exist yet.

Michael Lamm (36:49)
Yeah, Adam, it's a great question. They're going to folks like Sara, they're going to ACA, RMA, RMAI, NCBA. They're going to all of them to try to get their hand around what the risk exposure is. But when it comes to the numbers side of it, they're either putting in, there's usually an escrow in a transaction where some percentage of the purchase price gets put into an escrow for a period of time to deal with significant legal compliance, data security related items that may come up. And then there's also rep and warranty coverage, insurance coverage for larger transactions that get applied as well. So there are ways to put a wrapper around compliance risk and exposure, but if you don't diligence it with the right people that know what they're looking for, there's gonna be a lot missed. And that's what we've seen over the years.

Adam Parks (37:44)
I mean, that makes a lot of sense because I'm thinking about really, you can't trick someone forever. And just because you think that all of your compliance is in order and maybe you get through the transaction, like there's always some sort of a recourse if you haven't been telling the truth. Or if you're trying to hide something under a rock, as we were saying. So what is, it's an escrow management process? Like what does that process feel like?

Michael Lamm (38:06)
Yeah, there's basically, as a part of the purchase and sale agreement, there's an escrow agreement that says, in the event this happens or this happens post transaction or 12 months after the transaction, we will utilize funds from the escrow in order to cover whatever those damages are. And there's all these stipulations, legalese around when the money can be used and when it can be returned.

And there's good and there's bad. Some people get really freaked out that they've got to park a few million dollars in some cases in these escrows for a period of time to prevent or to be a kind of a safety net for any legal dynamics. But on the other hand, a lot of sellers say, man, I feel relieved. At least I know that that's the escrow and if it's got to be used, it'll be used. And at least they don't have to come after me personally for any additional funds.

Adam Parks (39:06)
It's a buffer process, right? It's like putting something in place here that allows the transaction to go through. But that recourse, I think even accentuates the need to address these things upfront versus allowing them to go through on the transaction because you can't leave that risk.

Michael Lamm (39:23)
Well, because Adam, you can't leave it. then also, to lower that escrow amount requires people like Sara and others to fix the problems before you're talking to the buyer. Because if it's littered with issues, they just up the escrow.

Adam Parks (39:48)
Fair. Now, as we think about compliance is not really just a book on a shelf, compliance is a living, breathing part of our organizations. So Sara, what are some of the ways in which you're helping organizations to evidence the fact that they're living the policies and procedures and they're not just a binder on the shelf?

Sara Woggerman (40:08)
One of the biggest ways is through board or executive leadership reporting. In your meeting minutes, that formal documentation, we identified this issue through our audit or risk assessment or whatever it is, here's what we did about it. Being able to show that full circle that you have a functioning compliance management system is really, really important. And so when I'm helping companies do that as their fractional chief compliance officer, I am helping them facilitate that information flow up and then the fixing it that comes down, right? And so everybody is in the know and it shows a culture of compliance. ⁓ Our decisions, our risk-based decisions are documented very clearly and then reevaluated based on new facts or case law or things like that. Like that is having a really clear ⁓ reporting mechanism is how you do that management program. Gosh, I can't say this enough. We made this change. We did this thing as a result of X, Y, and Z. And then we'll re-evaluate it to see if we need to tweak it. Maybe it's your communication strategies with consumers. Maybe it's the implementation of an AI tool, voice AI tool. This is a devolving area. It is important for the buyer to understand that our industry never stays. It's why none of us get bored in our jobs is because literally laws change case law determines a new outcomes ⁓ We're in a unique situation from a regulatory standpoint because we now have two Supreme Court decisions that say we shouldn't rely on past you know opinions of regulatory bodies. Okay. Well now that that creates a whole new slew of potential risk right for on a litigation front and it's

Adam Parks (41:41)
Yeah.

Sara Woggerman (42:07)
up to each circuit and each judge and all this fun stuff. So these things are things that we need to show that we're talking about them, we're evaluating them, and we're making methodical, smart, risk-based decisions. And again, that has to be documented. And a good place to do that is meeting minutes. You used the word log earlier, Michael. I like that too. Some people have a change management or a risk management log. Here is the thing. Here's what we decided based on this. We'll evaluate this in 90 days to see if, based on this change, there's any new risks we've identified. I think just having some way to show that is ⁓ imperative when you're working with a regulatory body or you're dealing with the sale of your company.

Michael Lamm (42:56)
Sara, it's a great point. I mean I can't tell you how many times I've seen in compliance data, logs where there's been this same issue that's happened with the collector. 30,000 times and it's still referenced that we were gonna fix this, but nobody ever did for three years. that's like one end of the spectrum, right? There's obviously tons of the middle or the end, but those types of things, when a buyer sees that, that nobody fixed the same thing that was happening 30 times over every month, they're gonna be a little bit suspect of how,

Sara Woggerman (43:12)
You

Michael Lamm (43:35)
compliant the company really is. They get a little spooked.

Sara Woggerman (43:37)
Right.

Adam Parks (43:40)
it's an impact of trust. If I'm seeing the same thing happening over and over again, like I'm glad that you're logging it, but like where is the remediation? Where is the active proactive fixing? Like thanks for the giant spreadsheet, but I don't want to see the same things over and over again. I want to see what actions were actively taken to review it. But as we think about the, I would think about collection agencies as there's two kinds of buyers. There's some that want to keep it as a standalone business.

And there's some that want to roll it up into their larger organization, which we've seen time and time again, as organizations acquire a whole bunch of smaller ones become a bigger one. And then, you know, seem to go off into that good night. But how does the compliance evaluation and understanding change with the different intents of the buyer? If I'm going to bring it into my business or if I'm going to keep it as a standalone in business that I've invested in. How does that actively change the compliance review process?

Michael Lamm (44:43)
It does because you're going to in that scenario of its agency buying agency, they may evaluate and say, we don't need this compliance team. We don't need this IT. We don't need this client services group. And as a result, they're going to be looking at this from a cost savings or synergistic cost savings exercise. And so they're just absorbing it into what they're already doing. What they are looking for though, is any big red flags.

Michael Lamm (45:12)
that are going to cause them pain from buying those clients and taking over those select folks. And that's what they're ultimately trying to identify versus a lot of what we talked about today, was an investor that's coming in and looking at that company as a platform. They wanna use it as a platform to grow over the next five to 10 years. And it's a different level of scrutiny than if it's an agency buying an agency doing what we just described.

Sara Woggerman (45:43)
I had a potential buyer when I did an evaluation and it was a small company, but I actually really liked the way that he said this. He said, when you are meeting with them on site, because I did it on site with this one, and he goes, and you're going to give me all these things, all these changes that need to be done and all these remediation because they've never had any kind of compliance program. We kind of knew that going into it. He said, if I make all the changes, will this team break as a result?

Adam Parks (46:17)
It's a great question.

Sara Woggerman (46:18)
And that is a really, and I thought it was, it was a very astute thing for him to say. And I was like, I think this person is not going to be able to handle that change where like, because I spend all day with them and I know, like, you know, this person actually wants to do things better. They have a yearning to be more compliant. ⁓ in fact, it frustrates them that these things don't get fixed like they're supposed to. Whereas other people, you know, we all know, we've seen these, we've worked with these people. We know people are just different this way, but understanding if you are absorbing people if they can actually handle any cultural changes is or they will mesh well with the way you think about compliance or the importance you put on compliance as a buyer that's going to be a really important thing that you want to evaluate.

Adam Parks (47:06)
What an interesting perspective. It's a kind of a different way of looking at it and will the team break. But I know early on, as a reformed compliance professional writing policies and procedures, I had to build software to help people actively be able to manage this because when we wrote the first manuals, it was like, well, and then you're going to need 25 people to do this. And I don't know if your business can support this giant department of non revenue producing individuals in order to move, manage licensing and all of those other things. Now, I know it wasn't really part of what we had originally been talking about, but you know, I always hear people say that I'm going to go buy that business for the licenses. I don't, it doesn't feel like a real statement these days. And, know, I've asked quite a few professionals around the board, but I hear it all the time.

Michael Lamm (47:53)
still Adam there's they're still calling they call up all the time can I just do you the best question is do you have Michael do you have a shell for me to buy got some licenses and some states I'm like no I don't I don't but but I know why you want it and and I know why people want to utilize it the problem is is that you're you're basically walking into or inheriting something that may not have worked out. And they may not have done the licensing correctly, Sara. They may have skipped out on a few states or a few bonds and they didn't really care because they weren't really focused on it. Well, you're inheriting that plus all of the other dynamics of that operating entity that holds the licenses. So that's where due diligence levels go way up in my mind because you got to check for all the potential pitfalls that exist in whatever that shell is or isn't.

Sara Woggerman (48:52)
Yep.

Adam Parks (48:53)
Even if you've got an organization that's prepared to sell, licenses aren't like, it's not a liquor license that goes with the building, It's not. mean, I've just, from my experiences. What does that really look like for a buyer or for a seller who thinks like, well, I got this shell, now I'm gonna sell this for a multiple because it's got some licenses. Look, I hear crazy things. So talk to me a little about the realities of that transfer process. mean, in a lot of locations, you're starting over again. Like you're, you're still going to have to file everything. You're going to have to put new people on the licenses. You're going to go through a whole new set.

Sara Woggerman (49:28)
You are, you are a There's a whole process within the states in which you're going to transfer who has ownership over those. Licensing is a pain. We can all agree it is an incredibly invasive process that takes a long period of time in certain states. It will take you years to clear Massachusetts because you need so many years of financials. And so buying a company because they are fully licensed, but that's the only thing you care about, OK. That might help you get over the initial hurdle, but you're still going to, you need to have a really good understanding of what, Massachusetts does their exam, what they're going to be looking at. Because by the way, it's really intense, like very intense on the financials, right? You're still going to have those headaches. You're just not going to have the initial headache of the application and maybe waiting a couple of years, things like that.

Michael Lamm (50:28)
You also have that in that operating entity. That business or that entity is not just sitting there. You got legal employee issues that are all sitting there. Some dormant, but then somebody buys it and then it becomes a big issue. Because they're like, somebody has some money to go against whatever the issue is. So you got to really think through all those dynamics of who held the licenses.

Sara Woggerman (50:50)
That's exactly right.

Adam Parks (50:51)
Yeah.

Michael Lamm (50:58)
Sara, know, like all the things for each of the states, like having a rep in this particular state, like did they do something incorrectly or did they file wrong? I don't know. It's riddled with headache.

Sara Woggerman (51:11)
It really is. mean, and also, let's say you change the personnel as part of this transaction. Whoever's in charge of compliance in certain states with the license, you can't just change that person.

Michael Lamm (51:29)
Right.

Sara Woggerman (51:29)
That person has to hand over their personal financial records in some states, right? Some states have licenses where their spouse's information has to be submitted. I mean, when I say licensing is invasive, it is no joke. And depending on what asset classes you're buying into, they might be more invasive, right? ⁓ mean, basically, you're signing over your firstborn and everything to some of these states.

Michael Lamm (51:57)
The tech guys like the the virtual agent guys They're the ones that have been reaching out more recently and saying hey, can I buy a shell that's got the licenses? I'm gonna send them to you and Sara so you guys can you guys can help?

Adam Parks (52:06)
my,

Sara Woggerman (52:12)
Okay.

Adam Parks (52:12)
no joke, I've had that convert between ACA, DCS and NCBA. I've probably had that conversation 12 times and I'm not actively involved in

Sara Woggerman (52:19)
I've been on a phone with dozens of them. like, guys, you've got to really understand this risk here. OK.

Michael Lamm (52:23)
You're the new room, I'm referring him over to you.

Adam Parks (52:27)
my God. right. Give him a fake phone number. God, what a challenge. it's and it's usually entities that are entering from outside of the United States that don't understand how the licensing works. They haven't met with anybody. They haven't had any of those conversations and they have this assumption. But in my experience and in the M&A is that I've done through my career, there's really two types of transactions. There's buy the whole business and there's buy the assets because I don't want your headaches going with it and those come at very, very different price points. So have we seen any trends in that regard, you know, avoiding this compliance issue? Cause I'm just going to acquire these assets for a fraction.

Michael Lamm (53:03)
Well actually,

Sara Woggerman (53:05)
That's a good question.

Michael Lamm (53:06)
Adam, it's a great point. We've actually been seeing more because the regulatory environment has calmed down a bit from the CFPB. More folks engaging to do stock sales. And the reason is because client transfer. Obviously there's tax advantages, but there's a real interest from the clients because then you have to change over client contracts, consent. It makes it easier than if you're just buying the assets and lifting the clients out. So definitely seeing a trend in more stock deals where there's a good financial performance, a good compliance, all the things that we talked about today is where that tends to play. Not the guy living under the rock or hiding the offshore entity ⁓ in somewhere over in the Middle East somewhere.

Adam Parks (53:50)
You Yeah, well, look, I'm sitting here talking about it from South America. So I mean, to each their own. But I think it's interesting because the the stock sale versus the you know, I'm going to buy the assets and just pull out the pieces and parts that I need. And I can see different valuations and I can see different needs sets as well. The compliance risk being one of them, the tech stack being another. Like, I don't want your old tech stack on your green screen, guys. But thanks. So, you know, I do see that there's some different

Michael Lamm (53:59)
There we go.

Adam Parks (54:25)
you opportunities there. But Sara, any thoughts on, you know, what you've seen as some of these trends? Like, have you seen organizations that have had to move from I'm doing a stock sale to like, that's not going to work because of the compliance risk, but I'm willing to buy your assets at a fraction of the price?

Sara Woggerman (54:40)
I've seen a mix of all of it. Recently, ⁓ it's been interesting. So I've ⁓ been working with a lot of startups. Some of them have been AI voice folks. It's interesting because they really toggle between the, do I build it from the ground up or do I go buy, like you just said, a company that, and potentially inherit, and we talk through, you might inherit some risks. However, the foundation will be there. ⁓ And so if we do this, you have to let me go in and do a really thorough inspection of what their compliance looks like, because otherwise you're going to have a bunch of headaches. And so I've had some people who have delayed and are kind of keeping an eye out for just kind of buying the assets where others are, especially if they're a technology based company, because they're like, we don't want your tech. Your tech sucks, right? And it does in comparison. Yeah. They don't want that. They don't want that.

Adam Parks (55:35)
I don't want the contracts that go with it either, right? Like I don't want to have the professional services and yeah.

Michael Lamm (55:40)
Yep. They want to get rid of... All go away.

Sara Woggerman (55:45)
And so I am

Michael Lamm (55:45)
All go away.

Sara Woggerman (55:46)
actually seeing a lot of people go, I'd rather ⁓ maybe grow it from organically from the ground up. I've had a couple that have done that and made that decision because they did not want to deal with sort of that other piece of it. But again, ⁓ because of the rate of technology changing right now and the moment that we are in,

Michael Lamm (55:59)
you

Sara Woggerman (56:09)
I think technology has lost a little bit of value. And Michael, you might disagree with me. But unless they have really kept cutting edge, and most people in our industry have not. And so you have to find other avenues if you're trying to look for value. Compliance is one of those. You can clean up your compliance. Clean that up. That will be a value add. If they don't have to go and find those people, if a tech company comes in and purchases you, they don't have to go find those people a really solid compliance program, that's going to help that transition so much and that sale so much.

Michael Lamm (56:46)
The tech guys, Sara, they want a company that's got all their workflows, all their compliance. They want all the bells and whistles. They don't want problems and headaches or it ends up a asset sale, ugly type transaction. They want something that they can use bits and pieces from, but they don't really want the technology. They think the technology is typically archaic from there for whatever view they're coming to the table with.

Sara Woggerman (56:52)
Yep, that's exactly right.

Adam Parks (57:15)
they're trying to bring new tech into the space and they're trying not to walk into a situation that's already built into silos and how few organizations in our space have built true data lakes or data warehouses and the capability of crawling that data set. So I think these tech companies look at and they're like, look, I'm going to have to slice and dice all of this information anyway to put it into a structured data format so that my AI can do anything with it to begin with.

Because you know what's not structured? Collector notes. But most of the value is in the collector notes. So until we start solving those problems on how we're going to structure this unstructured data, that's one of the ways in how you can make your organization exponentially more valuable in a short period of time.

Sara Woggerman (57:57)
Absolutely. Yep. You summed that up really well.

Adam Parks (58:01)
Well, as we come into our final moments here, any final statements for our audience today on M &A? Compliance? I mean, we talked about a lot of different things today.

Sara Woggerman (58:12)
We did. I would say my closing thoughts would be, Michael and I have the privilege of talking to lots of owners within our industry. And there's not a single one who isn't thinking about their exit strategy, mainly because a lot of people have gone through some massive transitions in this industry. And they're like, you know what? It's time for the next generation to deal with this AI transition. And so if you're in that situation, then Again, bring in a third party and say, what are the things that I need to be working on to make this valuable from a compliance perspective? You know, someone like Michael from all the other pieces of it, right? The valuation and where should I invest my money? Where should I not invest my money? Just like you would bring in a real estate agent to sell your house, right? What should I update first? Do I do the kitchen or do I do the bathroom? Right? What's going to bring me the more bang for my buck? That's what you need to be doing right now because it's not as easy as calling Michael and saying, hey, just want to sell it as is, right? So that would be my big thing.

Michael Lamm (59:13)
Well said, Sara. I would say deals do not get done in today's market without thoughtful compliance. And if you don't have all your ducks in a row, work to get them in a row. They're never going to be perfect, but put some effort in before you decide to consider an exit.

Adam Parks (59:37)
Well, I really appreciate both of you coming on and sharing your insights today. We've had a very active chat here on LinkedIn Live. And for those of you that did not catch it or your colleagues weren't able to catch it, you'll be able to share the YouTube replay after the Thanksgiving holiday with all of your colleagues as well. So again, thank you so much for joining us today. We really appreciate you guys coming on and sharing your insight.

Sara Woggerman (1:00:01)
Great, thank you Adam.

Michael Lamm (1:00:03)
Thanks Adam.

Adam Parks (1:00:05)
Absolutely, and thank you everybody for watching today. We appreciate your time and attention. We'll see you all again soon. Bye.