Litigation financier Burford Capital has lived up to its self-description as “the legal profession’s investment bank” by taking a minority stake in a London law firm in return for providing finance.
It now has a 32% stake in PCB Litigation, a boutique commercial litigation firm with particular expertise in civil fraud and asset recovery, as a way to both finance its portfolio of cases and provide capital for growth.
PCB has converted to an alternative business structure (ABS) as a result. It is already growing rapidly, with turnover over from £4m last year to £6.5m this.
The notion of third-party funders investing in law firms has been mooted since ABSs were first allowed in 2011 – and Burford’s 2015 annual report specifically raised the prospect of the company doing it – but this is the first time it has happened.
However, David Perla, Burford’s co-chief operating officer, told Legal Futures that the company viewed the arrangement more as “an innovative legal finance deal than an investment in a law firm”.
He said the move did not reflect “a broad strategic change” on the part of Burford. “We’re very comfortable with investing in firms for growth,” he said. “We have capital invested in law firms that are secured by all sorts of things.”
In this case, the availability of the ABS model made it a straightforward option.
It could be replicated with other firms, but Mr Perla would not say if any more deals were on the table: “It depends on firm’s growth goals and our comfort level with the firm’s strategy and the types of cases, but most importantly its talent base… We talk to dozens of law firms a month about different capital structures.”
Burford has its own small ABS, launched in 2016, to assist clients with enforcement and asset recovery, but Mr Perla said there was no conflict with PCB’s work in the area.
Chris Bogart, Burford chief executive, added: “This structure continues Burford’s history of innovation and takes the legal industry a step closer to conventional financial structures.
“In many other industries, it would be entirely common for a financing provider to take warrants or equity as part of a financing transaction, and Burford and PCB have figured out how to adapt such a structure to the particular needs of the legal industry.”
Anthony Riem, PCB’s managing partner, said Burford’s involvement was more than just a financial contribution – it meant the firm has the “multi-disciplinary skills” needed to offer products to clients “that enable them to monetise their claims or share in the risk of recovery”.
There were a variety of structures available, but they chose the ABS “because we wanted a long-term relationship. We see funding as being absolutely critical to the market moving forwards”.
Mr Riem said PCB worked with other funders and expected that it would continue to do so as the choice of funding and funder remained with the client.
“We will only ever act in the best interests of our clients. Its horses for courses. Burford will want to undertake some kinds of risks but not others.”
He added that Burford’s money was not just to finance case. “There is an understanding that we want to grow the firm together and that may well involve future investment.”