Migrated from eDJGroupInc.com. Author: Barry Murphy. Published: 2012-10-10 05:00:30Format, images and links may no longer function correctly. Last week, TransPerfect Legal Solutions acquired eDiscovery software provider Digital Reef for an undisclosed amount. Traditionally, TransPerfect has been known for its legal translation solutions, giving the company presence in multi‐language court cases. The company also has eDiscovery and court reporting services. Digital Reef provides software for collection, processing, analysis, and first‐pass review of data.

From a distance, it is easy to understand the logic behind this acquisition.  TransPerfect claims to have worked with every single Amlaw 200 firm providing translation or eDiscovery service, and to have many Fortune 500 clients; in theory, TransPerfect will be able to sell Digital Reef technology to those clients. In reality, things might not fall into place so easily. TransPerfect has several software products, but none of its own in the eDiscovery space (though the company is a large provider of eDiscovery services and is an orange level Best in Service partner for Relativity). Everyone in the eDiscovery space knows that a software sale is complicated and can have a very long sales cycle. Digital Reef knows this better than most – the company struggled to gain significant, sustainable traction with law firms and corporations for the better part of four years before turning its attention to focus on SaaS delivery and the service provider channel..

Digital Reef claims that its current service provider channels, including Ricoh and RenewData, are happy about the acquisition by TransPerfect. Only time will tell if that is true. The eDiscovery market will tolerate a certain amount of co-opetition, but only so much. With TransPerfect ‐ which has data centers in New York, Philadelphia, Newark, DC, Vienna, VA, San Francisco, Hong Kong, London, Shanghai and Pune – as a service provider with its own software, other service providers may look elsewhere for software providers. The fact that RenewData just announced a partnership to resell Digital Reef competitor Clearwell could indicate that Renew is ready to move on from Digital Reef (especially considering the fact that there is no mention of Digital Reef on RenewData’s current website).

The go‐forward plan is for Digital Reef to operate independently as a “TransPerfect company,” reporting in to Jim Iseman, Transperect’s VP of Discovery Services. For Digital Reef, the next step is to return to an increased focus on the software licensing business and get back to being a software provider for law firms, corporations, and the service provider channel. Software will be available on-premise, SaaS, and mobile (as part of TransPerfect’s forensics practice).

Digital Reef does have a respected software offering, but has not been able to gain substantial traction to date. The TransPerfect acquisition allows Digital Reef to shake off VC investors that were likely putting a lot of pressure on management to grow more quickly than possible in the eDiscovery market. It is unclear whether investors will recoup the initial investment over $30 million in VC funds, but it would be highly unlikely that they would.  The terms of the deal were not disclosed. While others think this makes Digital Reef a formidable player in the eDiscovery market, I think the combined entity has a lot to prove before it can be considered formidable.

Success will boil down to if whether the current TransPerfect salespeople can sell Digital Reef or not. As we all know, eDiscovery can be a very different kind of sale and we have watched other companies struggle with similar strategies (e.g. Thompson with LiveNote).

Only time will tell if this acquisition will pay off for TransPerfect. In the near term, I expect to see Digital Reef competitors like Nuix and Clearwell go after the service provider channel heavily and emphasize the fact that Digital Reef is competing with the channel.

eDiscoveryJournal Contributor and eDJ Group Lead Analyst – Barry Murphy

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