Immediately earnings accretive transaction will create the global leader in finance for law
Gerchen Keller’s $1.3 billion AUM to enhance Burford’s significant scale and bring attractive recurring revenues
Burford Capital Limited (“Burford”), a leading global finance firm focused on law, announces that it has entered into a definitive agreement to acquire GKC Holdings, LLC (“GKC”), the parent of Chicago-based Gerchen Keller Capital, LLC, for $160 million in a combination of cash, Burford shares and loan notes and a further potential $15 million in performance-based share consideration. The acquisition will be immediately accretive to earnings per share.
GKC is a major and rapidly growing law-focused investment manager registered as an investment adviser with the US Securities and Exchange Commission. It currently has $1.3 billion in assets under management in private investment vehicles, raised from public pensions, financial institutions, university endowments, foundations and family offices.
Burford and GKC are the two largest litigation finance players in the world. Together, the firms have committed more than $2 billion to investments since their respective inceptions, and their current portfolios will, combined, total more than $1.2 billion in investment assets and commitments. The enlarged business will have more than 80 staff, including 40 experienced lawyers, with the GKC team joining Burford and GKC’s principals taking on senior roles in the combined business. Building on both firms’ strong relationships with leading law firms and corporations, the combined firm will be unmatched in offering its clients the widest range of flexible and innovative financial solutions, as well as the world’s most experienced and expert legal finance team.
- By combining the complementary operations of the two largest litigation finance firms, the enlarged business expects to capture benefits of scale. 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 expects the enlarged group to benefit 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.
- Burford’s integrated global platform offering public and private capital solutions will permit new innovation in the fast-evolving industry of finance for law. The ability to access private capital will permit Burford to continue to innovate and expand its products and solidify its client relationships while also managing balance sheet risk, including offering new financial solutions with varying risk and return
- $1.3 billion in assets currently under management with new $300+ million fund being raised
- 2016 estimated income of $15.4 million and operating profit of $9.1 million
- Management fees generally 1.0-2.0% per annum
- Performance fees generally 15-50%; litigation finance tends to provide high returns capable of generating potentially significant performance fees
- High-quality 20-person team based in Chicago
Transaction structure summary
- $160 million in consideration at closing to sellers – financial investors and principals
- $93.75 million in cash on hand, sourced from Burford’s strong cash generation performance this year
- $43.75 million in three-year notes
- $22.5 million in Burford shares (3,692,524 new shares, all but 177,605 subject to three-year lock-up)
- $15 million in contingent Burford share consideration vesting only upon GKC’s contributing $100 million in income
- GKC principals subject to three-year lock-ups and multi-year non-competes
Full details of the transaction structure are provided below.
Burford’s CEO, Christopher Bogart, commented: “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. Gerchen Keller’s investors will benefit from expanded investment opportunities through the addition of Burford’s experienced team and our extensive track record. And our clients – companies and law firms around the world – will benefit from having a capital provider with tremendous financial resources across both public and private capital markets able to meet all of their legal capital needs and innovate with them. We are thrilled to be partnering with the Gerchen Keller team and look forward to the continued acceleration of our joint business.”
GKC’s CEO, Adam Gerchen, added: “We are excited to be joining with the Burford team to lead our industry into the future together. Our firms share similar cultures and ambitions, and we are looking forward to all of the exciting things we can do together for the benefit of all of our investors and clients.”
Burford will host an investor conference call with Messrs. Bogart, Molot and Gerchen at 11am London time today, 14 December, to discuss the transaction further and respond to shareholder and analyst questions. The dial-in number for the conference call is +44 (0)20 3003 2666 / +1 866 966 5335 and the password is ‘Burford’. An accompanying presentation will be available on the Burford Capital website: http://www.burfordcapital.com/investor-relations/. A replay facility will be available until 21 December 2016 by dialling +44 (0)20 8196 1998 /+1 866 583 1035 with the passcode ‘9437862#’.
 Before one-time transactional expenses.