The results of a recent survey conducted by Marsh, a branch of the world's largest insurance broker Marsh & McLennan, suggest that the private equity sector is bracing itself for a substantial increase in potential lawsuits. According to the survey of 170 private equity professionals, 47% expect to face an increase in legal actions against private equity firms over the next two years. In contrast, only 6% predict a decrease in such litigation.
Notably, the survey also reveals changing expectations as to the likely plaintiffs in litigation against private equity firms. 83% of respondents expect government regulators to be the most likely claimants, despite the fact that regulatory actions currently account for only 2% of private equity litigation. At present, minority shareholders of private equity-owned firms represent 46% of claimants in U.S. actions against private equity firms. The survery also found that 51% of respondents feel increased media attention will be a major catalyst for the expected rise in lawsuits, while 42% believe that trade union pressures and government intervention will also play a significant role.
As most readers know, during the last 12 months, private equity firms have used increasingly greater amounts of leverage to finance the acquisition of public companies. Accordingly, if the wave of lawsuits which the firms fear materializes, it is likely that not only will the size of the claims be larger than faced before, but also implicate several different lines of liability cover.
Click here for a press release by Marsh on the survey results.