CFC expects transaction liability growth amid forecasts of M&A surge

By Aidan Gregory

Feb 7 - (The Insurer) - CFC anticipates significant growth in the transaction liability insurance market in 2025 as an expected wave of tax cuts and deregulation following Donald Trump’s return to the White House and falling interest rates fuel a wave of deal making on both sides of the Atlantic

"I believe this is true not only for the broader transaction liability market but also for us at CFC," Angus Marshall, head of transaction liability at CFC in London, told The Insurer in an interview.

"We anticipate an elevated year ahead, supported by some fundamental factors. The growing demand for insurance products driven by heightened M&A activity stems from conditions that are different from those we’ve seen in prior years. Historically, this has aligned with business confidence, interest rates, the available capital for sponsors, and the financial health of corporations."

In November, Trump’s election victory sparked a wave of optimism in capital markets ahead of what is expected to be a wave of tax cuts and deregulation now that he has taken office.

Shares in all the leading US investment banks have surged since the election due to the expectation that Trump’s arrival in the White House for the second time will provide a major catalyst for M&A and other deal making such as IPOs. As of Friday, 7 February, Morgan Stanley has surged by over 21 percent since the US election, while Goldman Sachs is up over 22 percent.

The winds of deregulation have also spread to Europe following Trump’s re-election in November, with EU governments and the UK examining ways to cut red tape and unlock growth amid underwhelming economic performance in the region, particularly in France, Germany and the UK, the region’s top three economies.

“Animal spirits are back, with high optimism in the business community,” said Anu Aiyengar, global head of advisory and M&A at JP Morgan, in the US bank’s 2025 M&A outlook report. “The 2025 outlook for debt, equity, and M&A markets is positive, driven by expected declining interest rates, a more favourable IPO market and a potentially easier to navigate regulatory framework.”

Last year was already a strong year for global M&A, with $3.5trn of volumes, up 12 percent from the previous year but still below historical averages, which indicates “room for further growth” in 2025, according to JP Morgan.

Alongside the upswing in M&A volumes, the transaction liability insurance market is also benefiting from the rapid growth of the secondaries market, where investors buy and sell their investments in unlisted private equity funds and other alternative investment funds.

A multi-year slowdown of the global IPO market has impaired the ability of financial sponsors to return capital to their end investors via successful exits and has led to a record amount of assets being owned beyond the normal life cycle of a private equity fund. According to JP Morgan’s M&A outlook report, the pipeline for sponsor monetisations is the largest it has been for over a decade.

In December, CFC launched the first-ever excess insurance solution designed for investors engaging in secondaries transactions, with an excess limit of up to $150mn.

The product covers investors against specific legal risks relating to the buying and selling of secondaries, and is a new solution designed to address a large and growing addressable market.

"The number of portfolio companies owned by financial sponsors is at an all-time high, which is a key reason why secondaries are gaining traction," said Marshall. "Investing in secondaries has emerged as a significant new branch of private equity that doesn’t rely on companies remaining unsold due to challenging market conditions.”

"Many investors have recognised the value of investing in mid to late-stage funds, and LPs are seeking liquidity before a fund’s natural life comes to an end."

Last year, global secondary market transaction volume hit a record high of $162bn, up 45 percent from 2023’s $112bn total, and breaking 2021’s record of $132bn, according to private capital markets data from US investment bank Jefferies.

In its global secondary market review in January, Jefferies said that the secondaries market is “well positioned for continued growth and innovation” following a record year in 2024, underpinning demand for transaction liability insurance and other solutions that help enhance liquidity.

“With an expanding buyer universe, increasing adoption of creative liquidity solutions and competitive pricing levels, we expect both LP and GP-led markets to continue to thrive,” Jefferies added in the report.