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CFC and Vitruvian fire starting gun on stake sale

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The management team of CFC and Vitruvian have formally launched the process for the private equity house to divest its 40% stake, Insurance Insider understands.

Sources said the process for the London MGA was highly anticipated, given CFC’s specialist focus on cyber, high growth rate and well-respected management team.

Meanwhile, private equity interest in fee-generating insurance businesses is at a fever pitch. There has been a boom in MGA M&A in recent months as fears around tax increases, strong growth and increased faith in the resilience of the model intersect with reduced opportunities in broking and a huge amount of dry private equity powder.

This publication revealed in April that CFC and Vitruvian had set the wheels in motion for the PE house to sell out, with Evercore appointed to run the process.

At the time, it was reported that forward-adjusted Ebitda was in the £50mn-£60mn ($69mn-$83mn) range, which could point towards a valuation in the high hundreds of millions, or potentially around £1bn.

Vitruvian first bought into the specialist managing agent in 2017, in a deal that valued the business at £230mn – equivalent to a multiple of just over 15x forward Ebitda. The rest of the business is owned by CFC management and staff.

CFC has grown rapidly since inception, with organic growth thought to be around the 30% mark.

However, with specialist tech, expertise and a 40% portfolio weighting to cyber, the MGA is exceptionally well positioned to capitalise on the hard market in the class, where rates are up as much at 50%. Forward growth rates are therefore likely to be well in excess of historical levels.

The formal process is understood to be in the very early stages and sources said they expected suitors to be restricted to PE or financial bidders, rather than trade players. The process also leaves the door open to different possibilities for the remaining equity, such as a partial sell-down or recut of the stake.

CFC, led by CEO and founder David Walsh, is one of the largest and most successful MGA businesses in the London market. It runs a portfolio of 12 other specialty lines alongside its specialism in cyber, for which it is well renowned.

It has invested heavily in its own proprietary systems and platforms to improve service and efficiency, with the business perceived by some investors as a crossover between traditional insurance and tech.

The MGA launched a Lloyd’s syndicate in the summer as a vehicle to take some of its own risk and bring low-cost capital to back its underwriting. Ontario Teachers’ Pension Plan and ILS fund Stone Ridge Asset Management are two of the third-party investors providing Funds at Lloyd’s capital behind Syndicate 1988, alongside traditional reinsurers.

The syndicate not only works to provide a greater level of security around underwriting capital, but also allows CFC to take some of its own risk and create underwriting alignment with its capacity providers.

CFC declined to comment. Vitruvian was contacted for comment.

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