Trend Alert: Litigation Finance to Help PE Firms Maintain Deal Flow Despite Decreased Capital Inflows from Traditional Sources

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Among trends predicted to affect private equity (PE) in 2018 is a potential drop in the number of third parties actively investing in U.S. PE firms. Gretchen Lyn Koehler, Chief Marketing Officer at Bentham IMF, explained in an article recently published by The PE Hub Network how private equity firms can use litigation finance to maintain deal flow despite (and perhaps even regardless of) decreased capital inflows from traditional sources.

As litigation finance is a relatively new tool in the U.S. legal marketplace, PE investors have historically overlooked the co-investment opportunity it presents, even though it could save them millions in initial capital outlays. Koehler explains in the article, “Where a PE firm would be unable to value the [target company’s litigation] claims and offer them as collateral for co-investment, a funder makes the transaction possible while paving the way to an enhanced overall value of the acquired company.”

She also points to the benefit of partnering with parties that take passive roles in the investments. “Funds provided by a litigation finance firm can reduce the cost of acquiring a company without the burden of co-investing with a party that wants to play an active role in managing it,” she explains.

The article describes several examples of how litigation finance adds value for PE firms, including:

  • The ability to monetize litigation as an asset, thereby adding value to the target company;
  • Lowering the liabilities of the target company;
  • Decreasing initial outlay of investment by PE firms; and
  • Gaining access to the expertise of litigation funders in assessing the true value of a company’s litigation assets.

Read the full article here for an in-depth look into how litigation finance can enhance the value of private equity deals.

If you are interested in learning more about incorporating litigation funding into your private equity deals, contact us for a consultation.