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Will new float Manolete be the next Burford Capital superstar stock?
Investors who missed the 18-fold rise in Burford Capital’s (BUR:AIM) share price between March 2014 and October 2018 may be interested to know there will soon be another litigation finance company on the stock market.
Manolete Partners is hoping to float on 14 December, raising £16.3m in new cash plus a further £13.1m for selling shareholders. The new money will be used to invest in new and higher-value claims in order to generate greater returns.
The business, to be valued at £76m upon listing, focuses solely on buying or funding insolvency claims in the UK, unlike sector peer Burford which is a global player.
Every year there are over 14,000 corporate insolvencies and 40,000 bankruptcies yet just 7% of claims are bought or funded so the scope to expand is clear.
Since 2009 Manolete has invested in 249 cases generating gross recoveries on 173 completed cases of almost £28m. In the last five years profit on completed cases has averaged two to three times the firm’s investment.
Litigation is risky and costly, and even when a case looks strong a lack of funding can prevent it from being heard. Even if solicitors can be persuaded to work on a ‘no-win, no fee’ basis there are court costs and barristers’ costs to pay.
Manolete has relationships with 280 insolvency practitioners which act as lead generators. Its in-house solicitors then review and select the cases.
Once a case has been chosen, the insolvency practitioner chooses its own lawyers and Manolete bankrolls the process, buying or funding the case and taking on all the risk for a pre-agreed share of the net proceeds.
This frees the insolvency practitioner from all costs, including those of the defendant if the case is lost, leaving them to concentrate on getting a successful outcome. The majority of completed cases have taken less than a year to settle.
The UK insolvency market is unique in allowing litigation firms to buy cases. By buying rather than funding a case Manolete gets greater managerial control and the upside tends to be greater.
One of its better-known cases was against two directors of manufacturer Cobham (COB) who were sued in 2016 for £2.3m over the collapse and closure of one of its subsidiaries. Other examples include cases involving breach of contract, misfeasance (e.g. managing a business where there is an unfortunate result through carelessness) and illegal distribution of capital.
Manolete is highly regarded in the industry but for founder Steve Cooklin the biggest accolade is the fact that 60% of cases are repeat business from its insolvency practitioner partners.