On December 14, litigation funding giant Burford Capital (LON: BUR) announced they were finalized the purchase of Gerchen Keller Capital (GKC) for USD $160 million in cash, shares and loan notes. GKC also has an incentive to receive an additional $15 million based on performance.
Burford stock price saw a one day 18% rise in price from £480 GBP to £565 GPB per share. Burford did add an additional ~3.7 million shares onto the LSE (GBP £1.7 Billion / USD $2.2 Billion in value)
Unlike most other companies that issue a single page press release, Burford’s release was a 10 page detailed document filled with facts, business strategy, financials, and justified their purchase with 3 main reasons.
- They view market demand for litigation finance having a voracious apetite, rising substantially. Burford saw a limitation of its ability to scale further.
- They required investment management arm, which GKC had.
- GKC specialized in Intellectual Property, an area where Burford was lacking.
Burford Capital now claims to have over USD $1.2 Billion in current investments. The company now has 86 employees, 40 of which are attorneys. GKC had 20 employees.
The sale is about 10X earnings, with GKC reporting income of USD $15.4 million for the year of 2016. Their profit margin ran at about 60%. About USD $95 million of the $160 Million sale was cash. GKC’s principles remain at the company for the next 3 years. Adam Gerchen is now the President at Burford.
GKC also has 4 active funds they use for investment. They charge fees for those funds. Revenue from those fees range from 1.4% to 20%, depending on the structure.
Burford Capital’s acquisition illustrates an industry with strong market growth and high profit margins. The purchase also sets expectations among the industry for a 10X earnings valuation of existing litigation finance firms that show high profit margins.
Original Press Release: (PDF)
Summarized by Marc Lesnick