Australian funder hits town as Manolete unveils strong results

Rowles-Davies: Targeting corporate clients

Australian third-party funder Litigation Capital Management Limited (LCM) – which has taken over London funder Chancery Capital – made its bow on AIM yesterday.

Its share price rose from 52p on opening to close on 59.25p, and has continued to rise today.

As we reported last month, LCM is delisting from the Australian Stock Exchange to join AIM, with the goal of accessing new equity capital markets and broadening its shareholder base.

It raised £20m from the listing, giving the company a market capitalisation on admission of around £56m.

The six-strong team of Chancery Capital – led by Nick Rowles-Davies, a well-known figure in the UK funding world – is forming LCM’s new London office, and Mr Rowles-Davies has been appointed a director of the enlarged business.

He told Litigation Futures that joining LCM was “an opportunity I couldn’t really turn down”. He explained: “We always had ambitions to be global and this was a good way to achieve that in a short time.”

Mr Rowles-Davies said LCM would maintain Chancery’s focus on dealing directly with corporate clients, rather than lawyers, to help them see the value in their litigation portfolios as assets and then finance them.

This is an unusual approach in the litigation funding market, although LCM is looking at backing law firms’ portolios too.

“We don’t just sit there waiting for lawyers to come to us,” he said. “It puts us in different position in chain – we’re not just service providers…

“It leads to a different dynamic – we are looking at a company’s litigation and showing them how to raise cash or take it off their balance sheet.”

The problem with funding one-off cases was that the majority were “distress purchases” or because the client did not want to pay for it themselves. He characterised this as “funding by necessity, not choice”.

By contrast, Mr Rowles-Davies continued, his clients were funding by choice and the approach provided access to disputes that otherwise would not go to market.

LCM has recorded a cumulative return on invested capital of 138% over the last seven years; 88% of settled cases have been profitable and took an average of 27 months to complete.

It has a pipeline of 49 projects with estimated investment value of approximately £206m. “The company believes it is imminently scalable through a team that can take on a substantial number of additional projects without significantly increasing corporate overheads,” it told investors.

Meanwhile, insolvency litigation funder Manolete – which listed on AIM earlier this month – revealed that its profit after tax was up 57% to £2.2m for the six months ended 30 September 2018.

Investment in cases was up 75% to £13.9m, and revenue up 31% to £6.5m.

Manolete invested in 31 new cases during the period – compared to 21 in the same period in 2018 – and realised 12 investments, generating gross proceeds of £5.5m. The average money multiple was 3.6 times for those cases.

Manolete is also growing its in-house legal team to help generate, review and process cases, adding regional appointments in the North-West, South-West and Southern regions.

It has also signed a three-year contract to be the sole litigation funder sponsor for the Institute of Chartered Accountants in England and Wales’s restructuring and insolvency community.

Chief executive Steven Cooklin said: “This strong set of results is the latest milestone in our track record of delivering profitable growth, underpinned by our core ability to source and price complex legal risk…

“We look forward to working with many more insolvency practitioners and their lawyers, as we deploy the proceeds of the IPO, as well as the enhanced debt facility with HSBC, to accelerate our growth plans through financing more and larger insolvency cases.”

Manolete’s shares are also performing well. Issued at 175p, they closed yesterday on 196p.

At the same time, one of the first funders to list, Juridica, has completed its journey as its long-planned winding-up has now begun. Liquidators were appointed and the company has now delisted from AIM.

Finally, research by City law firm RPC into the annual accounts of the 30 largest UK-based funders has shown that the value of their ‘war chests’ rose 31% to £1.3bn in the year to 31 March 2018, providing them with the “problem” of how to deploy the money they have.

This also fails to take into account financing that has come on stream since then, such as the extra $1bn announced just yesterday by Burford Capital.

“Too rapid a deployment of funding or different litigation funders competing to fund the same case creates the kinds of risks to performance that are familiar to any fund manager,” RPC said.

As a result, funders are looking further afield to deploy their capital, both geographically and the types of cases they are backing.

RPC partner Geraldine Elliott said: “One of the big challenges for the sector is deploying the huge amounts of capital waiting to get into the sector without sacrificing returns or taking too great a risk by investing in speculative cases.

“In order to satisfy that demand for cases litigation funders and law firms are beginning to build those legal claims from scratch – locating an area where large financial damages can be shown and then marketing to potential claimants to join a group action. It is an approach that was previously largely restricted to the US.”

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