Globe Law & Business recently published the second edition of “Arbitration of M&A Transactions: A Practical Global Guide.” The guide addresses the increasing use of arbitration as a preferred dispute resolution method for international M&A transactions; it addresses fundamental legal questions of M&A transactions, and it includes valuable guidance and insights from leading experts in the international arbitration field.
Among these experts is Burford Vice President James MacKinnon, who contributed the chapter “Using legal finance for M&A Arbitrations” (with assistance from Sam Bendit assisted in the creation of this chapter). The chapter intends to assist those approaching legal finance for the first time and focuses on the commercial benefits and dynamics of using legal finance specifically in the M&A arbitration context.
The chapter answers the following questions:
- What is legal finance?
- Why use legal finance for M&A arbitrations?
- What can legal finance be used for in M&A arbitrations?
- What are the usual funding requirements for an M&A arbitration?
- How much does legal finance cost?
- What are the different types of funders?
- Do legal financiers control settlement of a dispute?
Arbitration is inherently expensive. When disputes arise from M&A transactions, companies must weigh the cost of bringing a claim against the potential recovery. Given that the company seeking recovery has already suffered a significant loss, its general counsel is often challenged to justify the affirmative position. To solve this cost dilemma, companies have turned to legal finance—an arrangement in which a company secures capital from a third-party funder to help unlock the value of litigation or arbitration, either to finance the dispute or for more general business purposes.
Legal finance allows companies to pursue recoveries without the added risk and associated costs. In its most common form, legal finance is provided on a single-case basis, for which non-recourse capital is provided to pay the legal fees and expenses associated with the dispute. But, as client demand grows and more capital providers enter the market, the industry has matured and responded with a variety of structure and pricing arrangements that best suit clients’ needs.
For companies interested in legal finance solutions, it’s important to remember there is no one-size-fits-all arrangement and legal finance providers vary considerably in size, experience, appetite for risk and areas of expertise. Therefore, potential users should evaluate not only the financing requirements but evaluate the merits of the provider who will serve as partner for the duration of the matter.