Walsh: CFC doesn’t need a war chest for inorganic growth
CFC group CEO David Walsh has said his firm will not need to pursue inorganic growth via M&A with the additional firepower secured with the MGA’s buy-in deal with private equity houses EQT and Vitruvian.
Insurance Insider broke the news last night that CFC had signed a deal with the PE duo, which valued the business at a huge £2.5bn ($3.5bn), equivalent to north of 40x Ebitda.
Sources have suggested the multiple, which is around 3x as high as insurance industry benchmarks, also reflects the perception of some bidders that CFC’s tech capabilities make it as much a technology play as an insurance one.
Speaking to this publication this morning following confirmation of the deal, Walsh said: “We don’t need to create war chests to buy growth. Our strategy is not predicated on M&A.”
CFC has an annual premium run rate in excess of £750mn and delivered an organic Ebitda compound annual growth rate of 35% over the last five years.
The MGA has a completely unique global insurance platform and can transact any kind of insurance from any local regulated broker anywhere in the world, from CFC’s base in London, Walsh explained.
“We are incredibly scalable, efficient and have enormous runway. We work with 2,900 broker offices globally. It’s a flywheel that delivers profitable business. We don’t need to force growth.”
Any M&A CFC conducts is likely to be bolt-on deals that deepen the firm’s capabilities and skill set to support organic growth, Walsh added.
The deal has meant the introduction of EQT to the investor roster, alongside Vitruvian’s reinvestment. The two take equal shares of a minority stake in the business, of which the rest is now owned by 300 CFC employee shareholders, up from 175.
EQT’s strapline of “futureproofing businesses” and investing in technology-led start-ups aligns well with the CFC vision, Walsh noted.
The PE house is also strong on ESG and social purpose, which is important for both CFC’s in-house ethos and employee base, of which 50% is under 30, Walsh continued.
“We also love to do these deals because we can re-cut the equity and get a larger roster of employees as shareholders,” the executive explained. “It also creates liquidity events for our existing investors.”
CFC CEO Graeme Newman said the CFC story was proof the London market can produce exciting start-ups.
“London is the Silicon Valley of insurance,” he noted. “And, of course, it is the home of fintech.”
He declined to directly label CFC as an InsurTech, but said the MGA was one of the first and only examples of fintech at work in insurance.
“I hope our story will attract more people to this industry,” he added. “And we [at CFC] want to invest and recruit high-quality talent, including in tech and data science.”
Walsh concluded: “We sit here every day with thousands of ideas, and we choose the ones that are going to be the most successful. The ambition of this business is led by staff and management.
“Growth is just a natural outcome of what we do for a living.”