Case Study
“We took the program to market prior to close and secured coverage. The cost was now quantified, the risk was understood, and the decision was informed rather than inherited.”
Products Liability
The Missing Products Liability Coverage
We were engaged by a searcher evaluating the acquisition of a small machine shop—about $2.5 million in revenue, 30 years in business—that manufactured precision-machined parts to spec for both government and non-government clients.
As is often the case with owner-operated businesses, the seller carried relatively scant insurance: minimum auto liability limits, basic property and business income coverage, and a general liability policy that did not include products liability.
How Our Diligence
Made A Difference
That last point matters. For most industries, products liability is bundled into the general liability policy—as the industry joke goes, “general liability insures just about anything, generally.” But for businesses whose products go into aviation or defense applications, products liability coverage is priced and underwritten separately, and it isn’t cheap.
We took the program to market prior to close and secured coverage for the non-government general liability, inclusive of products coverage. However, we found that the minimum premium to insure products going into aviation applications was approximately $15,000 per year. At a 3.5× multiple, that represented a $50,000 hit to enterprise value.
The searcher ultimately elected not to purchase the aviation products coverage—but the cost was now quantified, the risk was understood, and the decision was informed rather than inherited.
The Takeaway
A missing line of coverage isn’t just a gap—it’s an unpriced liability. Quantifying the cost of closing that gap gives buyers a concrete number to negotiate against or a risk to consciously accept.
Evaluating a deal?
We work with searchers, acquisition entrepreneurs, and private equity sponsors to independently evaluate insurance programs before close.