Burford Capital, the world’s largest listed litigation funder, has today moved to consolidate its position by spending $160m (£126m) to buy its main competitor, US-based Gerchen Keller Capital (GKC).
Together, the firms have committed more than $2bn to investments since their respective inceptions, and their current portfolios will, combined, total more than $1.2bn in investment assets and commitments.
GKC is also an investment manager and its estimated income in 2016 is $15.4m, with an operating profit of $9.1m, through investment management fees.
It adds 20 Chicago-based staff to Burford, taking the enlarged business to 86 staff, including 40 lawyers.
GKC has generally been US-focused, but has started branching out, and is currently financing the £14bn collective action against MasterCard, the largest legal action pending in the UK.
To date Burford has raised equity and debt capital, but GKC currently has $1.3bn in assets under management in private investment vehicles, raised from public pensions, financial institutions, university endowments, foundations and family offices.
In a statement to the stock exchange, AIM-listed Burford said the enlarged business “expects to capture benefits of scale”.
It explained: “In litigation finance, scale is important for portfolio diversification, market coverage and a deep bench. The scale and resources of the combined firm are expected to provide expanded geographic coverage in the US and globally, resulting in increased capital deployment for both public and private investors.”
Burford also saw the enlarged group benefitting from increased revenue diversification through the contribution of recurring private capital manager fees alongside investment income.
“The addition of GKC’s substantial business immediately launches Burford as a significant manager of private capital, with significant ongoing management and performance fee revenue, while also allowing Burford to continue to grow its lucrative on-balance sheet investing activity.”
GKC is involved in other areas of legal finance, in particular providing capital to clients and law firms after cases have settled but before the damages are actually paid.
“While this lower-risk and lower-return activity is traditionally profitable, it has been inconsistent with Burford’s on-balance sheet return aspirations but is ideal for a private fund structure,” the statement said.
Burford’s CEO, Christopher Bogart, said: “Burford and Gerchen Keller are widely regarded as the world’s two leading litigation finance providers. We know each other well and we approach the legal market in similar ways.
“The opportunity to combine the largest public player and the largest private capital manager is unique and will create the clear leader in this rapidly growing and evolving industry.
“Burford’s public shareholders will benefit from a larger, high-quality team generating a broader array of investment opportunities and the addition of a significant flow of predictable management and performance fee income.”