CFC launches transaction liability solution to unlock $8bn micro M&A market

Specialist insurer  CFC has launched a new transaction liability solution aimed at unlocking the micro segment of the M&A market.

This segment represents the largest volume of M&A deals and CFC estimates it to be worth close to $8 billion in gross written premium (GWP), yet it has been all but ignored by the insurance market to date.

CFC’s first-to-market transaction liability solution is set to address this significant opportunity for brokers. Its new Private Enterprise policy insures the sellers of small businesses with an enterprise value of between $250,000 and $10 million for damages and defense costs resulting from a claim against the seller for a breach of a representation or warranty (R&W) in the purchase agreement.

“We estimate there to be nearly half a million SME M&A transactions a year globally, around ten times the number of deals in the current transaction liability addressable market. This important insurance cover has been widely adopted in the mid-market, and we believe the micro segment represents the next sector of growth” said Angus Marshall, head of Transaction Liability at CFC.

“The sellers of these businesses have often built them from nothing; they’ve worked hard to grow their value and want to protect that value when it comes to a sale. They need insurance that is relevant to smaller businesses like them, at a price they can afford and that is simple to understand.”

Unlike other transaction liability policies which typically provide a policy limit of around 10% of enterprise value (EV), CFC’s Private Enterprise policy insures the full indemnity given by sellers enabling a full 100% EV indemnity to be provided. The product also offers a fixed wording and streamlined underwriting to enable brokers who may not have extensive M&A experience secure coverage for their clients quickly and efficiently.

Marshall concludes: “With over 50,000 SME transactions taking place in the UK alone on average, there is a significant market to address and an opportunity for brokers to provide a vitally important service to their small business clients looking to realise the value that they have worked hard to build. We’re proud to have developed the solution they need.”

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