Article November 2, 2022

Recent risks: Transaction liability insurance for small deals

Transaction liability private enterprise (TLPE) is CFC’s first-to-market M&A (R&W) product aimed at small business sellers. It protects the seller’s sale proceeds by providing cover for innocent breaches of representations and warranties, plus defense costs. Take a look at some of the recent deals we’ve covered:

  1. Manufacturer

    Limit: $8,500,000
    Enterprise value: £9,000,000

    An online business specializing in e-commerce development was being sold and required insurance. The broker had not placed a W&I policy before. CFC set up calls with the broker to explain the product, which gave them comfort when talking to their client. The buyer of the business was made a loss payee under the policy, which gave them increased comfort that claims would be paid. Therefore, the seller was able to negotiate a significantly reduced escrow, meaning they walked away with a larger proportion of the sale proceeds upfront.

  2. Meter installation services

    Limit: $666,667
    Enterprise value: $666,667

    A very small meter installation business was being sold. Historically, a transaction of this size would not have been able to get insurance. CFC was able to provide an effective and competitive solution even though the transaction had already closed.

  3. Bicycle and accessories retailer

    Limit: $6,250,000
    Enterprise value: $6,250,000

    A specialist M&A broker had a smaller deal for which they were struggling to find competitive terms. The seller was a bicycle and accessories online and instore retailer. CFC provided competitive terms quickly and was happy to answer all questions and queries of the buy-side lawyers. The policy was put in place efficiently and the deal went through smoothly.

  4. File storage company

    Limit: $2,400,000
    Enterprise value: $1,200,000

    A file storage and document collaboration business was being sold and the sellers had concerns regarding the large escrow. The broker came to CFC looking for insurance as an alternative to the escrow. CFC was able to provide highly competitive terms and make the buyer a loss-payee on the policy. This allowed the seller to negotiate the removal of the escrow. In a high-inflationary environment, freeing up the full sum of sale proceeds is paramount so that money is not wasted and can be put to good use.

If you have any questions regarding M&A insurance for small business sellers, get in touch at tlpe@cfcunderwriting.com.