eDiscovery: a race to consolidate

A heady combination of a growing demand among clients for global eDiscovery capability, the demise of safe harbor and a good dose of healthy competition between Silicon Valley venture capitalists is proving to be a powerful mix, as merger and investment activity in the eDiscovery sector in January notably spiked.
Advanced Discovery furthered its global footprint in January with the transatlantic acquisition of Millnet, while in the same month Xact Data Discovery expanded its US coverage by taking over Salt Lake City-based Orange Legal Technologies and Everlaw closed an $8.1m series A funding round led by Silicon Valley fund Andreessen Horowitz.
This flurry of New Year announcements followed the notable acquisition in December of Huron Legal by Consilio, in a month that also saw RPX Corporation acquire Inventus Solutions.
Transatlantic Deals
First up Millnet, the largest and longest established UK-headquartered eDiscovery, litigation support and legal document services firm, which also became the latest UK eDiscovery vendor to be acquired by a US outfit.
The acquisition was said by Advanced Discovery to support its strategy to meet clients’ growing global eDiscovery needs and give them access to services across the US, Europe, Middle East and Asia.
Perhaps of more interest, however, was the weight placed on Millnet’s ISO 27001-certified data centre in the UK. After the recent demise of the US-EU Safe Harbor agreement, which gave qualified US companies a safety net under EU data protection laws to move personal data across the Atlantic, many US companies are considering keeping eDiscovery data in Europe. Millnet’s certified data centre in the UK was said to give Advanced Discovery customers the option to leave data in the EU as data protection legal requirements emerge in the coming months.
The deal has inevitable parallels with Consilio’s transatlantic acquisition of Huron Legal in December, designed to give it a stronger global presence. That deal came in the immediate aftermath of Consilio’s acquisition of UK-based eDisclosure and forensic consulting services provider and Relativity partner, Proven Legal Technologies. Consilio, which in August announced a new partnership with Los Angeles-based private equity firm Shamrock Capital Advisers, has offices throughout Europe and in Hong Kong and Tokyo, with a far more limited reach in the US, albeit it has offices in Los Angeles, New York and Washington, where it is headquartered. Huron Legal, on the other hand, has operations primarily in the US.
Speaking to Legal IT Insider about wider consolidation across the sector, Consilio’s managing director Drew Macauley said: “Our shared view is that the consolidation in the market reflects the need of multinational corporations for service delivery in multiple countries, across larger volumes of data and across multiple phases of the electronic disclosure process. As corporations start to litigate and be investigated in multiple countries or the disclosure required for a matter originates in multiple countries, the pool of providers able to handle these matters “from end to end” shrinks rapidly.
“As a response, US domestic market providers wanting to service these large global corporations (because it is generally a more effective business model to have a smaller number of larger clients than a large number of smaller clients) are executing transactions that give them these additional global points of presence in key growth markets such as the EU and Asia, or additional service lines such as document review. Smaller (typically single market) providers are keen to sell their businesses before the continuing commoditisation of the market sees their valuations fall.”
Domestic US Deals
Xact Data’s more recent domestic acquisition of Orange Legal Technologies, meanwhile, will give it immediate growth on the West Coast, following its recent expansion into other major cities including Los Angeles and the San Francisco Bay Area, now totalling 16 locations throughout the US and two in India.
It follows the news in mid-December that Inventus Solutions had found a home within RPX Corporation, which acquired the eDiscovery provider from Santa Monicabased private equity house Clearlake Capital Group. Inventus, which over the last two years has expanded its footprint with acquisitions of US and London-based eDiscovery providers Teris and Unified respectively, will become a subsidiary of RPX, which provides patent risk management solutions.
Venture Capital Investment
However, it is Silicon Valley venture capital interest in eDiscovery providers that has caused most industry excitement, after Everlaw announced in mid-January that it has closed an $8.1m Series A funding round led by Silicon Valley seed, venture and growth-stage venture capital firm Andreessen Horowitz.
Andreessen Horowitz, which is an investor in companies including Facebook, Twitter, Airbnb, Box, Slack, Optimizely and Zenefits, has placed partner Steven Sinofsky – former Microsoft Windows President – on the Everlaw board as a director. Everlaw, which was formed in 2010 and named ‘vendor to watch’ in Gartner’s May 2015 Magic Quadrant for E-discovery Software report, provides software to law firms, corporations and government agencies.
Set up by chief executive AJ Shankar, the California-based company was one of Legal IT Insider’s startups of 2015. Everlaw does not look to be the last to receive the Silicon Valley greenback, with Cicayda’s co-founder Roe Frazer commenting on Twitter: “hearing another cloud-based #ediscovery provider soon to announce C-round of $20m in new capital (not @cicayda).”
While Frazer was unable to say any more, the investment is understood to be coming from another Silicon Valley big name. According to Frazer, the trend towards Silicon Valley investment was sparked by last February’s $125m investment in kCura, developer of eDiscovery software Relativity, by San Francisco-based fund ICONIQ Capital.
Frazer said: “The ICONIQ investment in kCura has created a feeding frenzy among Silicon Valley firms who are super-competitive.” He added: “There is a sense among these SV firms (besides Iconiq) that Relativity’s era of dominance in legal technology is beyond its zenith.” Other factors identified by Frazer include the growth of cloud-based eDiscovery solutions, a realisation that 80% of the litigation market is “grossly unserved,” and the increasing influence of general counsel, who are driving change with their insistence that work be done “faster, better and cheaper.”
This article was first published in the January Legal IT Insider