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Burford Capital Limited, which finances litigation for corporations and law firms, is acquiring its Chicago-based rival, Gerchen Keller Capital LLC, in a $160 million deal.
The combined firms have $1.2 billion in investments and commitments in the growing field of outside financing for litigation.
Law firms are turning more frequently to outside sources, according to a Burford survey of firms and in-house corporation counsel released in May. Partnership structures at law firms hinder investment in longer-term litigation, which can require costly improvements in technology or data security. Corporations trying to handle large-scale litigation are also hamstrung by tighter budgets, the general counsels said in the survey.
To gain more financial flexibility, law firms have been using outside lenders. Last year, Burford committed $30 million to the Hausfeld law firm to expand its presence in Germany, for example. Burford, based in New York, also said early this year that it was committing $100 million in financing for a group of cases at a large, unnamed law firm. Typically, law firms are private entities and disclose little about their financing arrangements.
Burford was founded in 2009 by Christopher P. Bogart, its chief executive, who is a lawyer and a former general counsel for Time Warner. The company reported revenues last year of $103 million, up from $82 million in 2014, with pretax profits of $67 million.
Gerchen Keller, a registered investment adviser, has $1.3 billion in assets raised from public pensions, financial institutions, university endowments, foundations and family wealth offices. Among its financing efforts is a major case in Britain challenging MasterCard fees.
This year, Gerchen Keller’s estimated income was $15.4 million and its operating profit, before one-time transactional expenses, was $9.1 million. The deal to acquire the firm is said to be a merger of cash, shares in Burford and loan notes, and the combined resources and expertise will help the resulting entity broaden its lending activity, which has largely been confined to the United States.
Other lenders in the field, including Grant Thornton LLP, provide financing to law firms to allow them to offer clients alternatives to the traditional, more restrictive hourly billing model, such as contingency financing. Law firms typically have had lower long-term investment in infrastructure because compensation for partners is tied to current profitability, providing an incentive to limit such investment.
