It’s always exciting when acquisitions occur as it is a gauge of the maturity of an industry. The eDJ Group analyst team believes that consolidations in the eDiscovery and legal technology space will accelerate over the next three to five years and we are continuing to track these events as they unfold. Would there be a roll-up of smaller companies? Would an 800 lb gorilla begin to acquire smaller companies for market share in particular regions? Will technology companies purchase service providers or vice versa?
There were several acquisitions announced over the summer between service providers as well as a few technology acquisitions such as the recent acquisitions of Digital Reef by Transperfect and LateralData by Xerox Legal Services (XLS) that really provide an insight on the emerging trends.
The first acquisition of Q3-2012 was Deloitte’s acquisition (of the assets) of IE Discovery on June 25, 2012. I spoke with Craig Freeman, the Leader for Deloitte Discovery, to discuss the details. Mr. Freeman related how the Austin, TX based IE Discovery developed a strong practice working with Federal government agencies over the years that dovetails nicely with Deloitte’s commercial practice. He also mentioned there was a strong cultural fit between the two organizations which is something that is often overlooked when combining service organizations. Acquisitions in any industry are difficult at best and in my opinion most of the failures can be attributed to clashing cultures.
The larger consulting companies seemed to be taking the lead as the aggressor in the marketplace when Huron Consulting Group announced the acquisition of AdamsGrayson, a managed review and legal staffing firm based in Washington, DC. Barry Murphy and I spoke with Shahzad Bashir, the executive vice president of Huron Legal, after the announcement in June and he acknowledged the primary drivers for the acquisition were AdamsGrayson’s strong market position specifically in the Washington, DC market while simultaneously expanding Huron’s subject matter resources in the eDiscovery business process.
D4 Discovery has been making some interesting waves on the service provider side this past year with a couple of acquisitions: the Phoenix-based On Target Litigation and Detroit Legal Imaging. When I spoke with John Holland, CEO and founder of D4, in August, he said that D4 was making targeted acquisitions that focus on expanding with providers in a particular region that also have a strong cultural fit.
The key theme when speaking with these service providers that are combining forces, seems to be culture. Company culture cannot be understated when thinking about bringing two companies together, especially for service providers that may have different approaches to project management, customer service, and technology (e.g. the 2007 acquisition of Stratify by Iron Mountain) . Investment and venture firms considering the eDiscovery space should be aware of the possible cultural issues if they are considering doing a “roll-up” strategy. It is my experience that eDiscovery folks tend to be adversarial while simultaneously seeking ways to compromise. This is a delicate balance that sometimes doesn’t mix well personality-wise even if the numbers on paper look good.
The acquisitions of Lateral Data by XLS and Digital Reef by Transperfect re-emphasize the trend I’m seeing of the expansion of the role of the service providers in the eDiscovery market. A few years ago, the thought was that corporations were going to bring technology behind the firewall along with project managers, but now we’re seeing a re-emphasis of utilizing the subject matter expertise at the service bureaus.
Many of our corporate clients have asked us over the past year to help them differentiate between service providers. We often get questions like:
- How can I measure project management expertise?
- Do geographic locations matter any longer when selecting a service provider?
- Should I pick a service provider that can do everything or should I pick niche providers that focus on a specific area (collections, managed review, etc.)
- Does the service provider need to have their own proprietary technology or can they be a best of breed provider?
- How reliable is “all in” pricing?
- Should I rely on my law firm(s) to select service providers?
These are excellent questions and are deserving of answers. The eDiscoveryMatrix now goes beyond technology providers and includes service providers (as well as hybrid providers like XLS and Transperfect). Our goal is to create an approach for consumers to evaluate and measure service providers based on the criteria of their buying habits. Babs Deacon and I will be focusing on the service provider space and will have research coming out throughout the year.
What are your thoughts on the latest acquisitions in the eDiscovery market?
Author Note: One of the resources I utilize to track the various acquisitions in the eDiscovery market is Rob Robinson’s blog listing all of the acquisitions over the past ten years (click here to visit the site) . Not only is this a stroll down memory lane, but it’s an excellent source of information.