Despite the recent drop in share prices ($11.86 down to $2.47), public ASIC investigations, executive departures and now AFP raids, I still believe that last November’s bully Nuix IPO was a signal of the world market’s appetite in legal technology. It would be a shame if the two largest eDiscovery transactions to date both proved to have cooked their books. For those of you who did not live through the $11B HP-Autonomy acquisition scandal as a market analyst in 2012, the civil and criminal cases against Mike Lynch are still under way.
Aperion Law founder Mark Allen’s whistle-blower allegations of Nuix inflated financials give me deva vu moments. Back in 2012, Barry Murphy and myself wrote a rather critical early report on the acquisition based in part on several sources that would/could not go on record. That report evoked at least one threat of a UK libel suit. As we later saw, where there was smoke, the authorities subsequently found fire. The recent Nuix revenue write downs and executive exodus are eerily similar to HP’s $8.8B write down in late 2012 as they realized what they had bought.
Why is it that some forensic-eDiscovery startups seem to implode or disappear when they go public or are acquired by a public company? Maybe I am just seeing a more pronounced variation of the Founder’s Trap where innovative executives are tempted to cut corners or inflate value in pursuit of extraordinary exit multiples. After all, eDiscovery is still a very young market vertical (unlike some of us practitioners). I can remember when I personally knew a majority of the early legal tech developers/founders. Those days are gone, but their ‘built in the garage’ legacy may be still be influencing those founders. I have always asserted that eDiscovery needed transparent pricing and clear disclosure of service vs. tech costs. The vast majority of private eDiscovery service/tech companies keep their true revenue, customer count and other financial metrics close to their vests. They are happy to splash a brag slide with customer logos (mostly used without written permission) and proclaim massive year after year growth when pitching prospects, but trying to verify those metrics is difficult to impossible. I know because I have been offered lucrative engagements by providers and VC for market and competitive analysis if I could acquire those metrics. Early investigative research burst enough bubbles that we decided to stay out of that business.
I will continue to monitor the ongoing Nuix and Autonomy sagas. Let’s just hope that most of the eDiscovery consolidation buyers have been happier than Nuix’s new shareholders.
Greg Buckles wants your feedback, questions or project inquiries at Greg@eDJGroupInc.com. Contact him directly for a free 15 minute ‘Good Karma’ call. He solves problems and creates eDiscovery solutions for enterprise and law firm clients.
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