The food industry has been involved in significant disputes in recent years, including high-profile allegations of price-fixing among suppliers of beef, turkey, chicken and pork. Financing those claims enables companies to seamlessly and efficiently access millions in capital that can be reinvested in the business. Download the Quarterly to learn more.
Food companies have been among the hardest hit by the Covid-19 pandemic. Reduced operating capacity has left many restaurants facing unprecedented cash constraints and business pressures; meanwhile, food service suppliers have been dealing with the logistical bottlenecks associated with distribution disruption. And although service economies are beginning to reopen, one industry source predicts that US restaurant revenue won’t return to 2019 levels until 2023.
Against this background, liquidity and certainty are business imperatives for many in the restaurant and food industries. Consequently, many are seeking creative solutions to increase liquidity and contain costs on guaranteed terms—by unlocking the latent asset value of meritorious litigation and arbitration claims with legal finance.
Unlocking "invisible" assets in the food sector: Meritorious, high-stakes claims
The food sector is typically characterized by slim profit margins and high overheads, and Covid-19 further exacerbated cash flow and expense management concerns. As restaurants and food service suppliers face continued margin pressures, they should consider the potential value of an “invisible” asset: Legal claims.
The food industry has been involved in significant disputes in recent years, including high-profile allegations of price-fixing among suppliers of beef, turkey, chicken and pork, as well as business interruption insurance claims, supply chain contract disputes and food safety litigation. Many more food companies may have high-value legal claims and awards that are financeable assets. Financing those claims enables companies to seamlessly and efficiently access millions in capital that can be reinvested in the business. Moreover, legal financing offers a liquidity solution without requiring companies to take on additional debt.
Creative cash flow solutions benefit restaurants and food companies
Food companies with large litigation portfolios increasingly are leveraging their “invisible” legal assets to secure monetization financing, a cash flow solution that provides companies a sizeable, accelerated and guaranteed advance of capital tied to the anticipated value of a judgment or settlement. Companies value monetization capital, because it can be spent freely by the client, allowing dollars to meet a range of business needs and not be confined to covering only litigation costs.
To illustrate how this works in practice: A household name Fortune 500 company had a large meritorious opt-out antitrust claim against producers for anticompetitive collusion. Simultaneously, the company was looking to cut costs due to revenue generation pressures following a brief decline in profits. In 2020, Burford provided $29 million in upfront capital by monetizing a significant portion of the expected proceeds from the company’s opt-out claim, allowing the client to generate significant liquidity and to continue pursuing the meritorious litigation without incurring additional downside risk. The company was able to realize the value locked away in the contingent legal assets significantly in advance of a litigation resolution and was able to use the immediate cash injection for strategic business purposes on the company’s schedule when it was needed.
Cost management solutions that fund meritorious claims—and defenses
Companies must frequently balance the viability of bringing worthwhile litigation and arbitration claims against the realities of constrained budgets and the inherent uncertainty tied to litigation timelines, opponent tactics, case outcomes and collection risk. Indeed, recent research confirms that, despite having suffered harm from malfeasant activity, companies are often deterred from pursuing meritorious legal action due to cost: Over half of in-house lawyers say their company has chosen to forgo legal claims due to the impact of legal expenses on the bottom line, leaving millions on the table.²
Distinct from a monetization, companies can de-risk litigation costs by offloading to a financier the cost of litigation fees and expenses. Like other financing products, fees and expenses financing is provided on non-recourse terms whereby the financier assumes the risk of a litigation loss and the range of inherent litigation risk—offering the client both budget certainty and clarity. Financing can be used to cover the costs of a single legal claim, or across a pool of matters, enabling companies to preserve capital or use it to offset other legal department costs, including defense litigation.
Cash flow and budget management free up capital for competitive innovation
In addition to general and legal cost pressures, many food companies also face pressure to innovate to meet changing consumer demands. Industry players with a strong cash position and well managed expense line will inevitably gain a competitive edge—because it helps free them to invest in other areas of their business and stay nimble as customers and business conditions change, which the last 18 months have proven to be essential.
While there’s clearly serious money in food innovation (a Jeff Bezos-backed Chilean vegan milk startup is targeting a record valuation in its next funding round³), it comes at a cost. Any novel effort requires both a significant outlay of cash and effective budget management to move forward—putting many of the industry’s largest players at an advantage. For instance, as market preferences have gradually shifted towards plant-based, organic and sustainable foods, restaurant chains that historically have relied upon animal-based products are investing in research and development for new plant based options—and soon McDonald’s will be widely launching its McPlant burger.⁴ Likewise, Chipotle is now reaping the benefits of making a substantial investment in its digital infrastructure: After quickly pivoting and scaling up digital and delivery services to accommodate mobile orders early in the pandemic, online orders now account for 40-50% of Chipotle’s overall sales.⁵ As restaurants and food companies consider investing in research and development, securing flexible financing will be key. Legal finance providers like Burford can supply dynamic, bespoke solutions that can help enhance liquidity for investing in competitive product and infrastructure innovation, which could make all the difference for companies looking to outcompete in a post-pandemic recovery.
What we hear continuously from restaurant and food industry clients is this simple calculation: Money invested in the business will always yield a better return than paying for lawyers out of pocket. Legal finance is both a risk reduction and a liquidity enhancement solution. Regardless of whether food companies want to unlock cash tied up in litigation on their own timeline, need financing to cover ongoing legal fees and expenses or simply seek capital to pursue research and development efforts, legal finance can help them unlock value from disputes to positively drive business priorities in measurable and high-impact ways.
Suzanne Grosso is a Vice President with responsibility for assessing and structuring investments in highvalue commercial litigation matters. Prior to joining Burford, she was Associate General Counsel and Head of Litigation for TIAA, where she drove strategy and actively managed significant litigation for the Fortune 100 financial institution.