Burford Capital’s Acquisition of Gerchen Keller Capital a Positive or Negative Predictor of the Future of Litigation Financing?
In December 2016, Burford Capital, LLC, founded in 2009, purchased its biggest competitor, Gerchen Keller Capital (GKC) for approximately $175 million, becoming the largest litigation financing firm in the world. GKC engaged in this sale just three years after its launch in 2013. [i]
The sale came as a surprise to most, as the finance firm’s investments were roughly the same size as Buford’s and it was viewed as one of the market leaders. [ii] Despite the fact that GKC was a younger player when compared to competitor, Burford, GKC’s investments were developing relatively quickly providing tremendous potential for growth. Why would a leader in a new and growing field cash in? Was the sale GKC cashing in? Unable to wrap their mind around the sale, critics attempted to explain the transaction by theorizing that the sale was one of the main players in the litigation funding industry exiting a limited industry before it proved to be disadvantageous. Others suggested that Burford bought out GKC because it was limited in the way it could put its investments to use, also indicating that the litigation funding industry has a long way to go before it is fully developed in a manner that is successful and efficient. [iii]
Combating the statements made by skeptics and critics, Burford and GKC publicly explained that the sale was intended to better serve funding needs in an environment where funds are limited and to diversify its financial affairs. The acquisition of GKC by Burford may prove to be especially successful as Burford has an expansive network of law firm affiliations and both firms were involved in different areas of litigation financing. GKC’s primarily focused on intellectual property as well as transvaginal mesh litigation whereas Burford has been involved mainly in commercial litigation disputes.
While the sale has caused some to criticize the litigation funding industry, the evidence points to the contrary. The terms of the acquisition include employment agreements for the GKC co-founders and top management, as well as incentives to ensure that the current investments span out successfully.
Despite what critics of litigation funding may believe, consolidation is a sign of the litigation funding market maturing. Further, Burford’s acquisition of GKC illustrates that the litigation financing industry is becoming more common place in the United States and that a need for funding in a wide variety of scenarios exists. Also, the acquisition shows the progress of the seemingly opaque industry especially due to the confidence in the future of third-party litigation financing displayed by the top player in the litigation funding industry.
[i] Jonathon Bilyk, COOK COUNTY RECORD, Gerchen Keller, Buford merge, form largest litigation finance firm, point to expand, Dec. 15, 2016, 4:21 pm, http://cookcountyrecord.com/stories/511058431-gerchen-keller-burford-merge-form-largest-litigation-finance-firm-point-to-expansion
[ii] Ben Hancock and Ray Strom, THE AMERICAN LAWYER, With Buford-Gerchen Deal, Litigation Finance Comes of Age, Dec. 14, 2016, http://www.americanlawyer.com/id=1202774768260/With-BurfordGerchen-Deal-Litigation-Finance-Comes-of-Age.
[iii] Michael McDonald, ABOVE THE LAW, The 2017 Outlook for Litigation Finance, Jan. 3, 2017, 11:14 am, http://abovethelaw.com/2017/01/the-2017-outlook-for-litigation-finance/.
Tagged: Litigation Funding, Third-Party Litigation Financing, Burford Capital, Gerchen Keller Capital, Burford Acquisition
