Legal finance for the manufacturing sector
High energy costs, supply chain disruption and labor shortages have all impacted the manufacturing sector. With ongoing global conflicts and increasing nationalization of raw materials, the industry faces delays in the supply chain, longer production times and lost revenues.
Against this tough economic background, manufacturing businesses will face pressure to manage costs as well as to maximize the value of their assets, including outstanding high value intellectual property claims, contract disputes and other commercial litigation and arbitration matters. Legal finance offers a potential solution.
Insights from recent research into manufacturing dispute dynamics
Burford recently conducted research into economic impacts on different industries and their litigation portfolios. For senior in-house lawyers and finance leaders at companies in the manufacturing sector, the key takeaways were:
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Finance and legal leaders at manufacturing companies prioritize legal innovation as an important way to contribute value to their businesses.
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By increasing certainty and predictability of legal costs, 68% of legal and finance leaders at manufacturing companies believe they can better manage their budgets and allocate resources effectively.
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Finance and legal leaders at manufacturing companies are the most likely to prioritize capital conservation as the most important benefit of legal finance.
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Nearly half (48%) of finance and legal leaders at manufacturing companies have not used legal finance but would consider doing so.
How legal finance is used in the manufacturing sector
At its core, legal finance enables businesses in the manufacturing sector to maximize their recoveries in commercial disputes and to ensure they can fully leverage their legal assets.
There are numerous ways manufacturing businesses can leverage legal finance to generate value from their litigation and arbitration assets—without impacting control of their disputes.
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Fund claims and recoveries: Burford takes on the financial burden of paying lawyers to pursue meritorious high-value claims, allowing businesses to pursue meritorious cases without incurring upfront costs.
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Eliminate downside risk: Legal finance provided by Burford is non-recourse, meaning that the investment and return are contingent on a successful outcome. This allows businesses to lock in guaranteed minimum returns and shift legal risk off their books.
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Manage cash flow: Burford can accelerate expected entitlements from pending claims and awards, providing companies with the flexibility to time cash flows according to their desired schedules, enhancing liquidity and working capital.
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Identify opportunities: Leveraging proprietary data and industry-leading insights, Burford can assist legal teams in setting priorities for their commercial litigation and arbitration portfolios. This helps businesses identify the most valuable claims and allocate resources effectively.
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Manage exposure: Burford can provide a hedge for litigation risk in the company’s portfolio. This allows businesses to mitigate the potential financial impact of litigation and protect their interests.
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Enforce judgments: Through funded enforcement and asset recovery, Burford can help businesses transform unenforced judgments and non-performing loans into cash.
Worked Example: Managing budget risk while pursuing a valuable recovery
A publicly traded manufacturing company has a $70 million claim that will cost approximately $5 million to litigate. Its GC recommends moving forward with the claim, but the budget is already under considerable stress and the CFO is concerned about the negative impact of litigation spending on the company’s P&L and market value.
The company seeks financing for the entire $5 million litigation budget. It secures funding of these costs on a nonrecourse basis. In the case of a win, the funder will earn its investment back and a return, which is priced based on risk at 25% of the net proceeds. The CFO compares the cost of proceeding without financing and the cost of proceeding with legal finance. Ultimately, the CFO determines that he prefers to give up some eventual potential upside in exchange for shifting the entirety of its budget burden to a third party.
Without adding any budget risk, the company can pursue a valuable legal claim that will potentially bring a significant sum of cash into the business.
