Funder looks to buy firms’ disbursement books

Din: Offer allows partners to take capital out of the business

Doorway Capital – which is establishing itself as a significant funder in the legal market – is now offering litigators the chance to sell their disbursement books outright, at a 20% discount.

Doorway, which owns national law firm Simpson Millar, said it has already begun to purchase disbursements, freeing up funds that can either be invested in more profitable pursuits, or returned to equity partners.

It would normally look towards paying up to 80% of the face value of a disbursement book, depending on its age and composition.

The minimum book that Doorway will look at acquiring is £1m and the maximum about £50m.

The company argued that the interest on loans secured over disbursements – as many law firms currently use – were “all too often” very high.

“As caseloads have grown and outlay on items such as court fees have risen, the financial strain has also increased, limiting the amount of capital available for essential investment and, in some cases, requiring injections of capital from partners or from an external lender.”

Doorway founder Steve Din said: “Many capital-intensive businesses – including aircraft and car manufacturers, mobile phone network providers and now litigation businesses – can improve the efficiency of their balance sheet by disposing of capital assets, at least if their return doesn’t cover their cost of capital, and investing the proceeds back into their underlying core business.

“Until now, this hasn’t been an option law firms have considered, but we expect this to be an attractive way for firms to free up much-needed capital in order to invest in the future of their business at a time when the market is changing.

“Would law firms rather invest their partners’ capital in paid disbursements or in something different?”

Whilst the proceeds of a law firm selling its disbursement book could alleviate working capital pressures, he said the decision to structure the financing as a purchase rather than a loan was designed more to give equity partners the ability to take the capital out of the firm, possibly as a one-off distribution.

He continued: “For most firms, disbursements represent assets of the equity partners so, logically, the proceeds from disposing of these disbursements to Doorway should ultimately benefit these very partners.”

Mr Din said the move was prompted by the recent decision by mobile phone giant Vodafone to explore the sale of its mobile phone masts.

“A capital-intensive business with limited capital resources will typically invest in assets that generate the highest NPV (net present value), which means certain assets are best financed through a sale-leaseback, securitisation or outright sale,” he said.

“Law firms are increasingly using NPV and other financial metrics to understand how to optimise their balance sheet so it makes sense for us to assist these firms as best we can.”

He received an endorsement from Martyn Jennings, CEO of costs and pricing specialists Burcher Jennings, who said: “I expect the market will be receive this well, giving law firms the chance to focus less on paying back loans with high interest rates, and more on investing their capital back into the firm.”

Disbursement funding is gaining ever more attention – last month, SpectraLegal unveiled new backing of £100m so that it could expand its offering, and Sparkle Capital also unveiled a new product.

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