Burford One-Pager

Burford was founded in 2009 by Jonathan Molot and Christopher Bogart, both of whom lead the company and own a combined 10% share. They raised capital in response to a mismatch in the desired methodologies for payment between corporations and law firms. The former wanted to pay on a contingency basis while the latter preferred to charge per hour. Given law firms’ cost structure, they had, and have, no alternative. Litigation finance companies bridged this gap.

Burford pays for companies’ legal fees in exchange for a share of the proceeds the underlying case might generate. Legal fees flow through the p&l, diminishing earnings and hence businesses’ market value. Litigation finance has the positive side-effect of countering this. Additionally, the market assigns no value to ongoing litigations companies have, although they may generate cash in the future. Burford offers corporations to monetize these claims, paying upfront in exchange for a portion of the proceeds, converting an intangible award into actual cash. Legal finance is a tool that allows management to allocate time and capital in business-related activities, where their circle of competence resides.

The company has a 4.8bn dollar portfolio and manages 2.3bn through private funds. Three elements have allowed Burford to scale, all of which were consequential to management’s proactivity, namely: (i) portfolio of claims; (ii) monetization of claims, without which a natural ceiling is reached in single claims, imposed by legal fees; (iii) claim families.

Litigation claims are unique in that the underlying asset is idiosyncratic. Courts operate independently, providing Burford with uncorrelated returns. Historically, Burford has deployed 1.48bn into concluded cases and has generated 2.7bn in cash realizations. Importantly, most cases settle, removing a great part of the risk and positively skewing returns.

Burford is the most well-known legal finance business and has provided capital for Fortune 500s. Brand recognition granted them a place at the high-end of the industry, one which I think they’ll retain. In consequence, their average deal size has increased significantly since inception. Incidentally, bigger cases have been reportedly generating higher returns than smaller deals. I suspect this will continue to be the case due to the impossibility of an auction-style competition and claim families. Finally, litigation finance carries an initial binary risk, with tangible possibility of total loss, making this capital very costly. Financiers, such as Burford, will most likely always demand a premium for their capital.

Link to all of my research on Burford: Burford equity research.