On the latest episode of the LFJ Podcast, we spoke with Erik Bomans, CEO and Executive Board Member of Deminor. Mr. Bomans discussed recent developments and trends in litigation funding in continental Europe, including what the total addressable market looks like and how that is expected to grow over time, how country-specific jurisdictions are differentiated, some of the main barriers to investing in litigation funding in Europe, and how the regulatory environment across the continent can actually be a benefit to funders.
Below are some key takeaways from the conversation, which can be found in full here.
LFJ: How big is the European market for funding? How do you assess the total addressable market?
EB: We have conducted our own research and have estimated the total addressable market in Europe at $1.8B, and that includes the UK. It is a small market, we estimate that it is 16% of the total addressable market of litigation funding. By comparison, we estimate that the total addressable market in the US is $9B. That is nearly 5x bigger than the entire European market.
When we say the total addressable market, we mean the potential for litigation funding. We get to these numbers by looking at the value of the litigation market, and we apply a percentage which is the penetration rate in that specific market.
LFJ: In terms of a country specific breakdown, I imagine most of the activity happening in Germany and France. Your company Deminor has offices in Belgium, Luxembourg and Milan, so there must be a lot of action in these other jurisdictions as well. Is that the case, is there a lot of activity across Europe?
EB: We are active in most European countries. The top countries without a doubt are the UK and Germany. We estimate the total addressable market in the UK at $800M. The other $1B is spread out over continental Europe. With Germany definitely taking the biggest part, nearly ⅓. . The Netherlands is the third most active country in Europe.
LFJ: What are some of the barriers to investing in the litigation funding market? Can you share some challenges funders find in this market?
EB: There are pitfalls, Europe is a highly regulated market in general. Litigation funding contracts come with mandatory rules with highly regulated rules such as consumer protection. In Germany and France, legal advice can only be provided by practicing lawyers.
One of the areas in Europe where litigation funding has been scrutinized most in Europe is antitrust cases, where some funders have used the assignment level to structure their litigation funding agreements.
LFJ: How does the EU’s regulatory environment provide opportunities for litigation service providers? I want to ask you specifically about Deminor. How does the regulatory environment provide your business with growth opportunities?
EB: Antitrust is the next big area of growth, with the UK and Germany taking the lead. With Italy and Spain becoming active in this area as well. Litigation finance is a risky business, but there are new areas of growth in new emerging areas of litigation funding. Definitely, there are new opportunities there for litigation funders. But it will be important for litigation funders to pick the right cases.
LFJ: What are your predictions for how the EU litigation funding market develops over the next few years?
EB: Litigation funding is strongly growing here in Europe. The business is volatile, and no matter how much you diversify, returns may always be volatile.
