Private Equity: Using Litigation Funding's Smart Capital

April 08, 2019

Private Equity firms and their advisors are increasingly recognizing the value of partnering with experienced litigation funders. 

Whereas PE managers have the expertise required to assess investment opportunities and to maximize the value of a portfolio company, they may not be positioned to properly value litigation assets within those portfolio companies.  Even when the value of a litigation asset is recognized, a PE manager may face capital constraints, giving rise to difficult decisions on whether to pursue a claim and whether to retain preferred counsel.

Enter litigation funding and Bentham IMF.  Our team, comprised of former litigators from top-tier law firms, are experts at analyzing litigation assets. Based on these insights, Bentham IMF provides clients with non-recourse capital investment enabling them to pursue meritorious litigation.

Litigation funding can assist PE firms and portfolio companies in a variety of ways.  For example:

  1. Improving the financial condition of portfolio companies.  Legal spend can be a drag on a portfolio company’s bottom-line.  Partnering with Bentham to fund a litigation claim moves those legal costs off a company’s balance sheet; the costs become ours.  If a claim is successful, the portfolio company can record revenue, typically as an exceptional item, with a portion of the recovery going to Bentham.  As a further benefit to the portfolio company, the risk of an adverse cost award against the portfolio company is typically borne by Bentham.
  2. Leveraging litigation assets for working capital.  Litigation funding can be a source of capital for a portfolio company’s business purposes.  In a hypothetical scenario, a portfolio company that manufactures medical equipment requires some operating capital while a key product obtains regulatory approval.  The same company is the plaintiff in a case with a strong claim for breach of contract against one of its suppliers.  Litigation funding may be available from Bentham to advance the claim and also provide an infusion of working capital. Whether the additional capital is used to meet operational needs, address short-term debt obligations or retain key employees, it could make the difference between a successful or failed investment.
  3. Unlocking litigation assets during bankruptcies and insolvencies.  As with any business, bankruptcies and insolvencies can be a reality for portfolio companies.  In these situations valuable claims may be left dormant or may simply not be pursued where there is no appetite to devote resources to advance the claim.  A better outcome can be achieved by partnering with a litigation funder.  Bentham IMF can provide non-recourse capital to pursue meritorious claims where a receiver or restructuring officer may not otherwise have the resources to do so, to the benefit of the distressed company and other stakeholders.  

  4. We know business litigation.  Partnering with Bentham can provide comfort and clarity for those who must make difficult decisions before and during litigation.  During our careful due diligence, it is our priority to add value for clients – sharing insights, obtaining outside opinions on technical issues, asking questions and providing a second set of eyes – regardless of whether we decide to fund the case.  In addition to acting as a helpful second opinion at the start of litigation, we remain available as a strategic sounding board after a case is funded.  In this sense, when you partner with a litigation funder you partner with smart capital.

Bentham and Osler, Hoskin & Harcourt LLP are currently preparing a more comprehensive thought piece on how litigation funding can assist those in the PE market.  Click here to receive a copy of that discussion paper when it is published.


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