Caveat Vendor: Award Monetisation

The monetisation of international arbitration awards is a hot topic right now but it has actually been around for a long time. I was involved in my first such transaction in 2001; that's 22 years ago. Not much has changed in the course of those 22 years in terms of the structures used and the pitfalls to avoid. There is one significant difference though. Today, the pool of potential purchasers is much larger and more proactive. Thus, holders of awards of any magnitude are very likely to be approached directly by funds offering various different "monetisation options" to them. Sometimes the approach is even made before the award is rendered.

At a conference recently, when the topic of monetisation came up, one participant (who unsurprisingly represented one of these funds) told the audience that there were really only three or four funds worldwide that could offer these kinds of solutions to award holders. That came as some surprise to me, given that our buy-side list is more than ten times that number.

Our internal data shows that award monetisation proposals received from spontaneous bidders are invariably below that which can be achieved in a competitive process.??In some recent examples of transactions we advised on, the final purchase price consideration, as compared to earlier spontaneous bids received, was higher by an average of 16% of the face value of the award.??In one case, the differential was 27%.??That is a lot of money to leave on the table.

Similarly, spontaneous bidders who were later added to a competitive process increased their own bids by an average of 11% of face value (and in one case 21%), although, even then, they were rarely the highest bidders.??Simply put, the funds that tend to approach award holders spontaneously, tend to do so in the hope of paying less than the current market value. ?

One part of our value proposition, therefore, is that we can ensure competitive tension for as long as possible and deliver better outcomes for our clients. This is often through the running of a competitive bid process. This type of approach can be particularly beneficial to award holders that have duties to their own investors to show that they have endeavoured to get the best terms available. ?