PE Opportunity In Litigation Financing

Litigation financing has quickly grown from a fledging concept into a robust industry. The concept is simple: in exchange for a share of any proceeds, a financing firm agrees to pay all or a portion of the plaintiff's legal fees. The industry focuses on corporate claims, and the range of subject matter of the underlying cases is wide, from intellectual property disputes to standard breach of contract matters. Deal structure and sizes vary, particularly with regard to parameters around the percentage of recovery and the amount of the total fees contributed (including caps).

There are at least four different opportunities for PE firms in this area. First, PE firms have invested in litigation financing companies. Second, PE firms can arrange for a financing firm to back a litigation for one of its portfolios companies, thus resulting in significant cost savings. Third, a secondary market is emerging in which the financing firms sells shares of a particular investment or