Getting exit ready: How can dispute resolution create value in PE portfolio companies?

Companies going through a change of ownership structure, including taking investment from Private Equity, often face a range of legal and commercial challenges

The deal process usually includes a significant due diligence exercise looking at all aspects of the business. Post deal-priorities often include integration of the acquired business into a group, and retention and integration of people. Medium to long term though, the business will normally be formulating its exit strategy, focusing on creating value and maximising a return on its investment.

As such, PE-fund and portfolio companies should view Dispute Resolution tools as part of their overall value creation strategy.

Using disputes as a tool to drive margin

Disputes are often viewed as a cost for a business; however, where an organisation has become locked into long-term and unprofitable contracts, using contractual levers to try to add value could be part of a value creation strategy within the business. Businesses should consider the risks and benefits of agreements, with the view to vary, claim for breach and/or ultimately terminate a contract. Our aim is to help you turn contracts into active tools that not only protect your bottom line, maximise value, and uncover new opportunities for growth but also provide leverage to enhance commercial outcomes and mitigate disputes before they arise.

Dispute progression

A DD report will often have a section on ongoing disputes and recommended next steps.  Grappling with disputes can unlock value for the business.  Our philosophy is that dispute resolution is a tool to drive strategy, not an end in itself. Disputes can be accelerated, slowed down or settled to drive that strategy.  We can review disputes and determine whether an early resolution is recommended. This may be beneficial from a cost perspective as well as reputationally - considering the business' future relationships with its partners, suppliers and competitors. Investors or new owners may take a fresh perspective on bitterly contested disputes. In our experience, it can be better to be able to present a clean bill of health from an exit perspective as opposed to passing on old and potentially unattractive arguments to new buyers.

Is a dispute consistent with the nature of the business?

When thinking about exit strategy, it is useful to consider disputes or trends or themes of disputes from the perspective of a future buyer.  A potential buyer will consider the narrative of the dispute in their due diligence process and whether it is "business as usual".  Disputes will happen as part of any business and shouldn’t be a surprise unless it is a "red flag" risk. The process of getting exit ready is a good opportunity to take stock and seek to resolve disputes which are not in tune with your current business model, or which may pose a reputational or commercial risk. We can help you try to unlock difficult situations, which can factor into the value of the business as well as its appeal to potential buyers.

How can we help?

Please reach out to our disputes experts if you are considering ways to add value to a portfolio company and make its operation more profitable, through getting exit ready or otherwise. That can include considering your contracts before a dispute arises, helping to nip issues in the bud or helping with an ongoing dispute.  We are more than happy to help.