Angus Marshall | An Exclusive Look at M&A Insurance for Main Street

Our guest for this week’s episode of M&A Masters is Gus Marshall, Head of Transaction Liability at CFC Underwriting, Ltd. CFC is a specialist insurance provider, pioneer in emerging risk, and market leader in cyber and transactional liability.

Today we are talking with Gus about CFC’s exciting new product launch, Transaction Liability Private Enterprise (TLPE).Gus says, “Reps and warranties insurance is currently Wall Street and we want to make it Main Street with TLPE.” He’ll break this new product down for us and tell us:

  • How TLPE creates groundbreaking opportunities in micro markets
  • 5 Key TLPE coverage highlights
  • 3 key points to making TLPE work
  • And more



Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority on executive and transactional liability, and president of Rubicon m&a Insurance Services. Welcome to m&a Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here as a clean exit for owners, founders and their investors. Today I’m joined by Gus Marshall, head of transaction liability for CFC. CFC is a specialist insurance provider and pioneer in emerging risk and market leader in both cyber and transactional liability. Gus is here today to present CFCs newest transactional liability product, which was just launched and titled transaction liability, private enterprise or TLP. 

Now on a personal note, M&A Masters has been doing podcast for over two years, Gus is the very first transaction liability insurance person to be here. And it’s a real key day for us because Gus is here to talk about a new product is the first time in rep a warranty for a long time that a new product has been launched. And this is a product that is designed specifically for an unserved market in the m&a community. These are trying transactions with enterprise value of 10 million and less. I’ll say that again, for you owners out there with companies 10 million or less investment bankers, Business Brokers, or buyers seeking companies at a value of 10 million 10 million or less. We now have a product that has not been around. Gus is a great pleasure to have you. Thanks for joining me today.

Angus Marshall: Thanks for joining Patrick, delighted to be here and flattered to be amongst such August company, m&a masters.

Patrick: Yeah. And before we get into the TLP, and CFC, let’s talk about you tell us personally, just what brought you to this point in your career.

Angus: So, you know, prior life, so to speak, I was a m&a attorney at Norton rose Fulbright, here in Sydney. And it probably would be remiss of me to not mention my background, which is somewhat unusual and dynein, from my parents in law’s house in Sydney, and I’m in the pottery studio. But I’ve converted it to a makeshift m&a Center. But ordinarily, I’m based in London, as you said CSC. Prior to my my joining CFC, I was head of m&a for the UK and London market at AIG. And I moved to CSC about two years before that. And as I mentioned, I was a an m&a attorney at Norton rose Fulbright in Sydney. 

And I think might be interesting to your audience to know that the Australian m&a insurance market, it’s one of the most developed in the world. So in many ways I had the perfect market in which to learn the key skills of underwriting and advising underwriters as an attorney here in Australia, before moving to London, close to a decade ago now. So I’ve been knocking around the m&a insurance market for pretty much a decade. And it’s been an absolute pleasure to be involved in such a nascent, innovative and emerging type of insurance sector is to insurance has come to me.

Patrick: Yeah, and it was for our audience members to understand CFC is a long term player and rep award to actually just full disclosure, Rubicon just plays to a recent traditional rep and warranty policy list, CFC. So you guys have been around for a long time. And it was let’s talk about CFC and just the nature because it is very innovative. And you talk about the culture that created the opportunity where, you know, it came up with a new product like TLP.

Angus: Sure, so CSC, founded about 20 years ago by our founder and CEO, Dave Walsh, who, at that point, identified a real niche in the market with cyber insurance. Now cyber insurance back then was certainly nowhere near what it is today. And like all businesses, cc’s had to evolve and we got some things wrong, and we got some things very right. But about the name, you know, this sort of tells you a bit about about that story. And that is, cc stands for click for cover, not only more, but it did. And the original theory there was we wanted to be a web based insurer for cyber where you could literally click for cover. 

Now things have evolved since then, and we’ve we’ve dropped the cliff we cover now just CFC and also expanded across a whole variety of different lines of business to being a pretty cool line and you are about and how do we come up with TLP. So it’s at the height of COVID. We were, I think it’s fair to say fairly concerned about the outlook for m&a, I think everyone was. And we wanted to try and create some opportunities and some positives from what was a fairly depressing blip on the overall m&a lifecycle. And CST, we do a lot of SME business. And I think the board at CSC myself got together and we identified, I think, something that we always knew for a long time. And that is there really isn’t a product for what is such a massive part of m&a. And that is for deals under $10 million enterprise value, the so called SME micro segment. 

And for us, this was quite a neat pivot, both from a tail standpoint, but also from a CFC standpoint. So for TL in our, what I call our main market, we write deals in the low and mid market. And I said a sweet spot is deals with an enterprise value of about $200 million and under. And so what we thought of trpa is, it’s really just a natural extension. Beyond that lob in market into the SME micro segment and the pivot, I mentioned about CSCs, we are already a very key SME insurer, both on cyber and other lines. So now we’re always a little bit displaced in tail only writing that log in market without writing the SME. So it’s a nice, I guess, return to CSCs roots being a key SME insurer.

Patrick: Well, you had mentioned once when you were rolling out, DLP, what was the average deal size enterprise value were reppin warranties purchase?

Angus: So it sort of depends on who you ask. But I think it’s it’s probably fair to say across the market, it’s about $352 million.

Patrick: Yeah, $354 million, is your average deal that gets insurance. And they may only get, you know, 10 $15 million dollar policy. But I mean, and there are 1000s of those deals happening every quarter that blew me away when I first got into m&a was I didn’t realize how many of these things were happening man in typical for most people that are involved in m&a because they’re just looking at the Wall Street Journal, the news, and all they see are the multibillion dollar, you know, Whole Foods being bought by Amazon, you know, and so that’s, that’s their perspective. 

And what really I found great was that, you know, as rep and warranty has been coming down market where they were, their threshold was $100 million dollar transaction value down to 15 million down to now they can do as low as 10, there’s been kind of that hard floor for the markets, they will make an exception from time to time to entertain a deal. But then you’ve got the converse issue. And the limitation with rep and warranty is the amount of diligence is required, in order in order for a deal to even become eligible, and you’ve removed all that. And so now we’ve talked about your thinking behind this vast market, and you’re ahead of everybody else, because I’m sure everybody else right now is busy with what they have. 

I mean, that’s, that’s the interesting thing. And I appreciate the innovation of CFC is, rather than being, you know, having lack of bandwidth, let’s look at some other place where we can be real efficient. I think that was one of the focuses you hadn’t. Let’s talk about some of the things that are going to enable you not only to enter this market, but to sustain it because you talk about, you know, making sure that you have a real streamline application processes submission process. How are you going to do that? What are your plans that way?

Angus: Yeah. So, I mean, there’s, there’s a lot of Next question. Let me start by just trying to identify some of the things that we knew we had to get right in order for this product to work. And you’ve already mentioned a couple. But you know, this is the context, right? So reps and warranties is currently Wall Street, and we want to make it mainstream. And we did that by saying, Okay, so what are the pain points for current reps? And how do we change that four TLP pain points are, the process was too long, the cost was too high. And I’m talking in the context of SME, of course, the cost was too high for SME because of that minimum premium interaction. 

The third point is, you know, it’s not just the cost of the policy, it’s also the cost of the additional diligence required in order to have a policy underwritten in a conventional sense. So if you if you read that altogether, it’s going to be a compelling price point. It’s got to be speedy in underwriting and the third point i think that’s that’s really key. It’s got to be simplistic and and that’s really because we’re talking to a much larger distribution community and there’s always been this I guess, this missing Stick around reps and warranties insurance that it’s insurance by name, but not really by nature. And where you go with that is, you know, there’s no application process, the underwriting is kind of inverted as compared to other insurance products. 

There’s not a high volume, there’s this prevailing view that you have to be an m&a lawyer to understand it, and to be able to broker it. And so there’s always been this natural resistance from insurance brokers to want to even venture into the world of m&a. And what we’ve really tried to do is not just achieve the speed and the price points, we also wanted to simplify it so that we could have as broad a distribution community as possible, feel confident that they can both recommend this product to their clients, but also place it from a technical standpoint.

Patrick: Yeah, absolutely key because I can tell you the challenge that I see out there for brokers is brokers will not discuss a product or an offering with prospective clients unless they really are comfortable with it. Because I mean, human nature, they just don’t want to look uninformed. And they want to be able to answer client questions. So if they don’t understand they’re not going to talk about. But let’s talk about TLPE just in the basics, and we’ll talk about how it’s different. And most of our audience is familiar with the traditional rep a warranty policy. So let’s go step by step on a couple areas. Okay, how’s TLPE different number one? You know, let’s go over this and explain this. Okay. It is not a buy policy, this is a sell side policy exclusively? Talk about that Gus.

Angus: Yep. So the main reason why we can expedite underwriting and also reduce the underwriting costs is we’re relying a lot on the knowledge of the seller. And if you play that through, in the SME micro market, the seller is often the manager of the business. And this plays into what is the basis for pretty much every other insurance product, and that is your insured is telling you the truth. If they don’t, then, you know, coverage is far more limited. But we relying on their knowledge and their integrity in buying insurance. And what we do with an application process, which is really the pinnacle or the center of our underwriting. The application process captures that knowledge and tries to tease out some of the more material issues that might be relevant to a transaction. This is all in the context of our theory. And our philosophy when it comes to micro and SME is we need not apply the same underwriting process to this end of the market. 

Because these businesses, there is some complexity, but it’s nowhere near as complex as your multi billion dollar deal that gets insured in the main market. So it was inappropriate for us to adopt the same very interventionist type of process that aims to kick every single, little tire. In company, we wanted to make an application based underwriting can be achieved in but we can get a policy to insert within three days. And another point I’d make is there’s no underwriting fee. The underwriting fee is often charged on the main market, we don’t have that and we don’t need it. And we didn’t want it because that was just another barrier to accessing this part of the market with a new product.

Patrick: Yeah, you just you just carved out 35 to $50,000 in costs off the top with that, I’ll comment on just on your application. Again, you can reach out to me or to Gus, but we can get you the application Rubicon M&A Insurance Services, has his application ready to set out on demand for anybody that asks for it. It is it is intimidating in terms of an application if you compare it to other insurance applications, but it is absolutely market for a due diligence checklist. Mirrors that. There are a lot of sections that don’t apply. But it is one of those things that is available out there. And it’s nowhere else in the market. Let’s talk about just because TLPE as great as it is not for everybody. Let’s talk about their particular industries that you like, let’s focus on the ones that aren’t eligible and why they’re not eligible.

Angus: Yeah. So some of the industries that are ineligible for TLPE would be U.S. healthcare, pharma, financial institutions, excluding insurance brokers. So that is inappetite, but everything else is out. Now.

Patrick: There’s a robust market for insurance brokers acquisition.

Angus: There absolutely is, which is why we carved that back into appetite because, well, there’s there’s various reasons we can go into on that, but, you know, just sort of thinking about those out of appetite industries. I would say that the one that is practically relevant, and therefore, I guess material to the market would be that there are a lot of healthcare deals on a 10 mil. And healthcare has its own, especially in the US has its own risks and exposures which generally don’t lend themselves to a streamlined underwriting process. Financial institutions that I mentioned as well, I consider that to be somewhat academic as a kind of exclusion, or out of appetite sector primarily because we don’t expect to see many financial institution businesses at under $10 million. 

So look, we include it for completeness, but as I said, not not hugely relevant, perhaps the easiest way to think about it is, is trying to think about the quintessential or kind of target. In short, it’s mom and dad, entrepreneurs who build a livelihood through a business, or a variety of connected businesses, and they want to retire. That’s a really cool market currently. And it could be anything from a chain of restaurants to a consulting practice to a construction firm. As I said, it’s kind of you know, what’s on Main Street. And that’s it’s pretty much 99% of what’s on Main Street is in appetite.

Patrick: Let’s talk about a clarification you have for technology, because technology is all over the place. And then we’ll talk about a case study with a technology firm, but distinguish eligible tech from ineligible tech.

Angus: Yeah, so I think it broadly breaks down like this, that a technology being sold pursuant to an asset purchase agreement, we can get our arms around. I think when you’re dealing with a acquisition of shares of a tech company, that doesn’t mean that it’s out of appetite. But what we’ll often see with those deals is a very, very high, multiple evaluate. And when we can’t reconcile the economic basis for a business, we find it difficult to provide an insurance solution. Whereas when it’s an asset deal, you don’t have necessarily that EBITDA valuation issue that we often encounter on share deals. 

Now, I know there’s I sort of refer to a don’t mean this to sound pejorative at all, but it’s kind of like the after after market. In California, for technology, where a lot of companies of use, a lot of companies have failed, but they still have valuable technology that they want to try and realize some value for, and they sell that as an asset. That to me is a perfect fit for TLPE. Along with, you know, the mom and dad entrepreneurs that I mentioned earlier.

Patrick: We can’t talk about TLPE without talking about cost. Okay, one major savings right now, there’s no, excuse me, there’s no underwriting fee, which is fantastic. Let’s talk about the pricing. And I because I’ve done this too is let’s compare, you know, a $5 million TLPE versus a $5 million limit, that’s to the full transaction, by the way, a TLPE versus a rep warranty policy.

Angus: Yep. So average rate online range is between one and two. But I think really, it ends up at 3%. So it’s between one and 3%. Now for the non insurance, audience rate online is just an expression of premium over total limit bought under the policy. So between one to 3% and just some of the factors that influence that rate. So a lot of it comes down to what the naic is the North American industry code of the target business is. That sets the initial rate. And then there are positives and negatives to that rate based on the responses to the application. 

And also importantly, based on the percentage of the policy limit relative to the enterprise value. So the more limit you buy relative to EV, the cheaper the policy becomes as a rate online percentage. So let me just let me just bring that to life that if you’re buying 10% of the total enterprise value, you’re rate online for argument’s sake, maybe 2%. But if you’re going to buy 100% of the enterprise value as a policy, then you’re rate online, will probably come down to about 1.2% for illustrative purposes. So it gets cheaper, the more you buy is the bottom line there.

Patrick: But the bottom line is the price is determined not by the transaction value, but by how much insurance you buy. And then it’s a matter of, okay, well, you know, we’ve got a $5 million sale do we want to sell, you know, two and a half million dollars worth of insurance to insure you know, the full five, and then just you make a decision from there?

Angus: Yes. Yep. And so that’s certainly one factor. And I think, interestingly, for the reps market, certain responses in the application may reduce your premium. So to give you an example, if you use, say multi factor authorization to control your cyber network, well, that would be a credit to your premium. If you buy cyber insurance. Again, that’s a credit. So you know what we’ve constructed the application not just to try and elicit information, but it also informs what the total price is.

Patrick: The bottom line is, as you’ll see this, this can all be played out, you know, in a matter of a day or two with the application and so forth. When we get into this, and we remember now, as a sell side policy, unlike a buy side policy rep and warranty where a buyer experiences a breach, suffers a financial loss, they go right to the insurance company. Okay, with the sell side, what happens is that, in the event of a breach, the policy is specifically written so that it is triggered when the buyer comes back after the seller. Let’s talk about that real quick I just the dynamics of how this policy works.

Angus: Yep. The seller gives reps to the buyer, the buyer discovers an issue, that issue constitutes a breach of the rep, the buyer brings a claim under the terms of the agreement against the seller. At that point, the seller has a claim under the TLPE policy. And the insurance will indemnify the seller in respect of the buyer’s claim.

Patrick: I mean, it’s one extra step, where under rep and warranty buyer goes right to the insurance company, under TLPE, buyer approaches seller, which is no different than if there’s an escrow and the buyer is notifying the seller, hey, you know the funds in escrow, we’re gonna have to claw those back now we need to return. The difference is negligible. So this is a big departure. And so now you’ve got ask sellers, you have the protection that the rep and warranty policyholders have. So it is very helpful in that way.

Angus: And one on that is the buyer can know about the insurance. In fact, the buyer can recommend to the seller take out insurance. And the dynamic there that I think is is quite attractive is if the buyer ordinarily is demanding an escrow from the seller, the seller can come up and say well, I’m not going to give you an escrow. But I will have insurance, which should give buyer comfort that there’s something that backstops any type of potential issue that that comes up in the future.

Patrick: Yeah, I hate to interrupt but that mean, that’s the other issue that comes in here. Apologies, my lighting over here. But the other issue that comes up with in the micro market where rep and warranty is not available. The buyer’s major segue is a major escrow and they require the seller to carry a D&O tail, because there’s at least a policy and the buyer can say well, I’m gonna go make a demand because there was a misrepresentation. You know, is a contractual breach the D&O policy, we’re getting too into the weeds with insurance. But there are problems with that, but it’s better than nothing. Well, now you’ve got this product is designed specifically for these buyer clients.

Angus: Yeah. Look, it’s um, you’re absolutely right. And one of the questions that, you know, even though this product has only been been launched for just over a month now, one of the questions we often get is, well, why don’t I just buy D&O, run off? And this was to your point, Patrick? Yeah, I mean, up absolutely can but D&O genuinely excludes liabilities in relation to a breach of contract. So as much as it was the only thing available that gave a scintilla of peace of mind, it was so imperfect that I kind of questioned whether it was even worth the money. Yeah, if your objective in buying it is to protect yourself against a breach of rep in a contract. And TLPE fills that gap. 

So it’s there exactly for that reason. And that’s why we think that it’s it’s such a neat solution for the sellers. I should probably say, you know, the other question I’ve received a lot is, so why is it the sell side only and not not the buy side? And it’s a good question, because for those familiar with reps and warranties insurance, 99% of policies now are issued to the buyer. The key reason is, as I said in my remarks earlier, we really want to capture the knowledge of the seller, and offer only to the seller means that the underwriting required can be so much faster and so much more efficient. If we were to underwrite on the buy side, the cost would be higher, the and there would be probably an underwriting fee. 

And one of the reasons for that is we’d have to forensically go into every single warranty and rep and make sure that they’re market. Because the buyer, don’t forget has a direct recourse against the insurers and has the can leave the seller right out of it. So there’s that that kind of moral hazard that the seller doesn’t care, the buyer agrees, very favorable reps. And if we were to be so streamlined that we couldn’t pick up on that, well, you know, I don’t think we’d have a product very long.

Patrick: You wouldn’t be around. I mean, and this hasn’t happened in a vacuum. TLPE is not in a vacuum. And I can tell you, because we’re very proud that, you know, we do have a case study to talk about where TLPE brought a deal from the grave, and close within two weeks, and the situation is going to be one where we have a SaaS company. And a small $5 million transaction, they reached out to Rubicon and said, hey, you know, we just had our deal, you know, taken off the table, because we have a disagreement with the buyer and is specifically this, in the event of a breach of the IP reps, the buyer was going to go and pursue the seller, say, hey, you’re going to pay us any loss or damages as a result of IP reps. But we, the buyer, are going to retain full control of defense counsel. 

So if an IP rep does get breached, we’re gonna get our attorneys on and defended vigorously, and you’re gonna pay the bill. Okay, it was a very large Silicon Valley based buyer that was doing this. And the seller, quite frankly said, Look, that’s a blank check to you guys, for your attorneys fees, there’s no way and that was a line in the sand that both sides had, and the deal was dead. All sudden, TLPE is announced. We said wait a minute, there’s another way. We could insure the intellectual property reps in the agreement. In the event the the buyer suffered a loss, they had control on their attorney that they were going to go ahead and do because that’s their loss up to the policy limit. So they could spend as much as they want to it. But you know, the, you know, there’s only so much out there. 

But that provided that way that the two sides could bridge their disagreement. Deal closed. I mean, it actually took longer to get the bankers back in, get the finance realigned than it is to get the insurance. And that’s, you know, our role here, we want to be the conduits that are going to go and help deals close successfully. Because we got these owners and founders of these lower middle market companies, they create a great value from nothing. And they’ve got these small issues that you know, that can bridge that are a reasonable risk to take and, and that’s been, just a great, great avenue. And we see this happening more and more particularly out here in Silicon Valley. But you know, Gus, you know, you know, this deal. It was the first one you guys did any comments you have on it?

Angus: Yeah, I think just to pick you up on some of the remarks you made Patrick, what was pleasing is, you know, we pitched TLPE and we still could shoot as peace of mind to kind of mom and dad sellers. Not that, in this instance, our mom and dad sellers, it was a sophisticated company. But you know, it’s it’s originally pitched as peace of mind. But what was so pleasing about this deal is it can be a deal facilitator, so much more than we thought it would end up being, both from avoiding the need for escrow, but also unlocking or bridging the gap between negotiation expectations. 

So it’s, you know, it’s pleasing to know that a deal got done that otherwise wouldn’t have done and that’s because of insurance. And I often joke, you know, people say the hardest thing about insurance is telling your parents you got into the insurance industry, but we’ve, I gotta say I’m to the market, we’ve done a great job, I think of creating a very valuable product for deal facilitation, risk transfer, and overall, M&A efficiencies. And, you know, I gotta say I’m chuffed to be part of it and chuffed to have brought this TLPE product and excited that you were the first broker to place the first policy. 

Patrick: Yeah, we’re looking forward to a lot, a lot more. The hardest, the first one is always the hardest one to get, and so forth. Give us your projections. I always ask my guests, you know, what trends that they see going forward? You know, what do you see going forward for for this, at least in 2021? And then from there?

Angus: Yeah. So what I’d say first of all, is, with any new product, it inevitably evolves. And there’s also inevitably competition. I mean, that, you know, there’ll be another insurer that comes out with a similar product. And that’s great. I mean, we welcome. We welcome that. That’s a market operating as it should. But, you know, in terms of projections, I think we’re going to see some pretty consistent demand for the next six months whilst brokers who probably aren’t familiar with with M&A insurance, understand that there’s a product now that services that lower end of the market. And then, we see consistent growth thereafter. I think an interesting point to note, from an M&A perspective is there’s far less of a cycle in the the SME market than there is in any other part of the market. 

And we like that, because we generally don’t have asset bubbles that affects risk in the main market for M&A insurance. And also, it allows us I mean, one of the big issues as you would no doubt have experienced Patrick, in the current M&A market is one of underwriter capacity, we are in the biggest M&A boom in modern history. And there just aren’t enough underwriters out there to service all the deals. So we think we’re TLPE we can have a fast, smoother resource allocation to service these deals. And, you know, what helps is CFCs long history in servicing 1000s of policies every single year that also renew every single year with a tech enabled platform. So that’s something that that we we bring to this product as well.

Patrick: What was the number of prospective businesses out there? Transactions like 230,000?

Angus: Yeah, that’s right. I mean, it’s it’s hard to accurately project or sort of private market addressable market, especially in the US with a lack of public disclosures required, unlike, say, the UK where some of your US listeners might be outraged to know that company accounts, even small companies are disclosed and available for free to everyone. That’s not the case in the US. And so it is hard to to assess the target addressable market, but based on various data points, we think there are about 230,000 transactions in the sub $10 million market taking to the US alone, that is so and there’s so much to draw from that right. But even if we’re only 10%, right, or we only get 5% of that market, that’s still easily more than what the the main market of reps and warranties insurance currently services.

Patrick: Yeah, it’s just a it’s a great, great opportunity. Gus, how can our audience members find you, find CFC, questions about TLPE?

Angus: Sure. So I think one of the key points would be, we have a webinar that was recorded, and then you attend it. And that’s quite a good point, just to run through some of the key parts of TLPE that’s available on CFC’s website. Look, I want to be found, I’m on LinkedIn, we’re on the CFC website, if you just jump on the CFC website, you’ll find my email address. Shoot any questions you have delighted to, to help, you know any M&A practitioners and lawyers and the like, understand what this product can do. But you know, equally we only engage and transact via an insurance broker. So Patrick, you’re you’re the first one to do it. That’s that’s worth a a deal tombstone, which aren’t often given away. But I think this warrants it. So I recommend that they get in touch with you first and foremost.

Patrick: I would say that that insurance is a regulated product, it can only be placed through an insurance broker and and this is circle slides is just another layer of complexity in regulatory stuff. So I would stress if anybody wanted information or the application just have a look at this. Reach out to me at You can look up, the M&A Masters podcast, you can check there and ping us and we’d be happy to go in and respond. We’ve got to get get a couple more things up and running on the site. But absolutely, I’m walking me out. Anybody for this. It’s great because this is where we’ve wanted to live is to really serve the entrepreneur. We really look forward to it. Gus, you came up with, you know, the better mousetrap that’s out there and I hope the world beats the path to both our respective doors.

Angus: Likewise, Patrick.

Patrick: Thank you very much for joining us, and we’re gonna be talking to you again.

Angus: Been a pleasure. Thanks, Patrick.


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