Christopher Bogart, Burford CEO

Burford Capital has bought a major stake in a U.K.-based litigation law firm, in the first example of an investment type that could become common across the industry.

The listed litigation funder is purchasing 32% of disputes specialist PCB Litigation LLP as part of a 'capital transaction' tie-up deal, it announced in a statement. In addition, Burford will finance a portfolio of matters on behalf of PCB.

To facilitate the deal, London-based PCB – which was founded in 1979 and has since gained a reputation in global civil fraud and asset recovery matters – has converted from an LLP into an alternative business structure—a mechanism introduced in the U.K. in 2012 to enable non-lawyer ownership in law firms. The transaction has received approval from the Solicitors Regulation Authority.

Burford CEO Christopher Bogart said in a statement that the deal "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. We believe that this is another first in the market."

The transaction is likely to be of interest to firms that are seeking new forms of financing during the coronavirus pandemic. Some litigation funders are marketing their funds as options to help firms cover costs.

In a call with Law.com International, Bogart indicated that the tie-up was "private equity meets law", saying: "We're morphing into a PE shop." 

He added that, given law firms "are not very complex structures", there has been an "increasing demand as law firms think more about capital, more solutions". He stressed that outside of law, it is "entirely ordinary for financing to include an equity component," adding that his firm "pioneered portfolio finance for law firms", but that now there was a "desire for something more."

According to firm managing partner Anthony Riem, PCB's turnover was for the year ending December 2019 was around £6.5 million, up from around £4 million the previous year.

He said: "We had very specific reasons for why we wanted to do this deal. We've got a strong relationship with Burford, and the ability to offer world class products to creditors where people are looking to ease the burden of recovery. There were compelling reasons to do deal.

"We believe [the tie-up] offers an integrated service—the ability to call upon Burford's expertise in financing, combined with our expertise in asset recovery and distressed debt, so we can offer an integrated solution to clients."

For Burford, the news provides a welcome diversion from recent coverage around the listed company, which in May again became the subject of an attack by short seller Muddy Waters. In its second assault – following its claim last year that the funder was in fact insolvent – the short seller accused Burford of manipulating its most recent financial results.

That same month Burford failed in its claim against the London Stock Exchange that it had been the victim of market manipulation, after its share price plummeted last year. 

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