While most companies seek to become a market leader, others choose to create markets and build industries from the ground up. Tesla and Red Bull are popular exemplars of this. Not only did they satisfy an unmet need in the market, they also established a value proposition that was highly coveted by consumers.
Dissimilarly, companies that market themselves towards other businesses (B2B companies) often fly under the radar since their value proposition is less popular amongst retail investors. One such example is IMF Bentham who provide litigation funding for leading law firms who wish to pursue their legal claims off balance sheet to avoid incurring upfront legal costs.
IMF are currently undergoing a global expansion which is likely to increase their current client portfolio and their service offering as discussed below. IMF provide funding to individuals and companies who are unable to pursue claims with a high likelihood of success, due to financial constraints in handling upfront legal costs. You might be wondering, how exactly does IMF make a profit for solving this problem?
After IMF enter into a litigation funding agreement with a claimant, IMF provide capital (without recourse) to carry out legal proceedings. Following this, IMF receive a pre negotiated payout for a successful outcome (e.g. 35% of recoveries) and pay claimants a residual portion of recoveries.
Competition in the legal industry is heightening due to the rising use of “supplementary services” amidst an ever-growing commercial landscape according to IBISworld. Inevitably, the business of risk assessment, management and mitigation is becoming increasingly more lucrative, representing profit opportunities for businesses with a first mover advantage. As a well-established company, listed on the ASX in 2001, IMF has built a strong reputation for running class actions on a no win – no pay basis, and fully underwriting all costs. IMF also vouch to pay the other side’s legal costs if the class action is unsuccessful.
Consequently, they are in a unique position to not only build their business, but develop an entire industry based on their innovative business model which includes the recent opening of new offices in Hong Kong, Montreal and London. IMF is also expanding to provide “dispute financing options with corporates who are intrigued by the possibility of de-risking their balance sheet and monetising their legal claims” (Annual report, 2018)
Most importantly, the company’s continued increase in volume of applications throughout markets in USA, Canada, Asia and Europe demonstrate the companies’ recent growth, with FY19 on track to exceed FY18; demonstrating 5 years of consecutive growth.
Furthermore, unlike traditional investment opportunities, the litigation funding industry attracts institutional investors because returns aren’t positively correlated with markets and claims can increase in times of distress. This was exemplified in the aftermath of the global financial crisis which saw IMF’s share price increase by 240% in the 8 months following the collapse of Lehman brothers on the 15th of September 2008. ($0.81 on Sept 15, 2008 & $1.94 on June 8, 2009)
IMF have a 0.75 beta value, indicating that its stock price is relatively steady compared to most other stocks and less volatile than the market (<1). Hence, IMF’s low risk investment profile may be appealing to retail investors seeking steady returns over a long time horizon.
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