General counsel looking for ways to bring money into their organization can tap into the market for remnant assets, particularly if they’re at a larger, older, geographically diverse company with lots of acquisitions behind them, specialists in the field say.
“It gives the office of the general counsel an opportunity to be more than a cost center,” Eric Linn, CEO of Oak Point Partners, told Legal Dive.
Remnant assets are intangible, non-core rights that are lying dormant, either because they’re buried in old contracts or are too specialized or low value to make it worthwhile for in-house counsel to find and monetize them.
“A common remnant asset could be intellectual property rights that exist from predecessors,” said Janice Alwin, Oak Point chief legal officer. “It could be oil and gas interests that exist from acquisitions made in the past, litigation rights, like the right to file a claim in a class action settlement, or it could be payment rights associated with old utility accounts, like a rebate that may have been retroactively enforced by a regulatory agency.”
Older, larger companies tend to accumulate these assets over the years as they grow through acquisitions.
“It depends on the industry, or the age of the company and the amount of M&A they’ve had,” said Alwin.
Bigger, older companies in the retail space are a good example. They tend to have locations throughout the country, and for each location there can be remnant assets attached to them.
“In each location they might have put down a water deposit with the municipality, or they might have put down a utility deposit for a region,” said Alwin. “If they’re in a rural area, they might be part of a utility cooperative and accrue patronage credits over time.”
Companies operating in the healthcare space might have big sums of money tied up in old payments that were never accounted for. “Healthcare companies are notorious for using addresses that aren’t current or using the physician’s address as opposed to the hospital’s address,” said Alwin.
For many companies, even those with large legal teams, it’s not a good use of in-house attorney time to identify and then go through the often complicated process of monetizing the assets, Alwin said.
In one recent case, an attorney in a large logistics company was asked to step outside his antitrust specialty to spearhead an asset recovery effort.
“He wasn’t getting additional resources and he didn’t have the employees or the time to determine what his company could have and what steps would be needed to bring that money back into the company,” she said.
By selling the assets to Oak Point, he was able to bring in cash upfront without having to assume the risk that the assets couldn’t be found or couldn’t be monetized cost effectively.
“We’ve done 2,000-plus transactions over 20 years, so we have a good sense that we can pay for these rights based on the demographics of the company and give them a purchase price based on that even though it may not be well defined what specific assets they have,” said Linn. “The larger the entity, the longer the history, the more acquisitions and more locations, the greater the value of the remnant assets generally. It’s all relative to the purchase price. We could still buy assets [of a company that doesn’t fit that mold] but might not pay as much.”
Companies that are already trying to monetize a class of assets can retain the rights to those while selling rights to the others.
“If they’ve been working on something for five years, we would buy everything that’s underperforming or just so different and complex that it would take them too much time to figure out the steps to bring in the value from it,” said Alwin.
