Where is eDiscovery Market Consolidaton Heading?

I had been meaning to comment on the excellent November 22, 2010 post on the eDiscoveryJournal site from Greg Buckles titled, "eDiscovery Market Consolidation".  However, I got distracted by Thanksgiving and therefore I am just now getting back to it.

In his post, Greg lists out the merger and acquisition activity over the past year and indicates that, "Merger and acquisition consolidation is a sign that eDiscovery is maturing and integrating into the larger corporate technology market."  I agree 100%.  However, I have to admit that I am completely puzzled by some some of the M&A decisions on both the go and pass side of the equations.

Autonomy is obviously on a buying binge.  However, you can't stuff 5 lbs of sausage into a 3 lbs casing and not expect it to break.  As such, it should be interesting to see what happens.  The EMC and Iron Mountain plays were interesting.  However, I am not convinced that they got what they thought they were buying and therefore will probably end up buying some more.  Integreon has also had an interesting year.  However, I am not sure that they ended up with what they thought they were buying either?  The PSS acquisition was interesting at best as I am not convinced that they had the best legal hold technology on the market.  However, I am sure that IBM will find somewhat of integrating it into their massive offering.  Finally, Thompson Reuters is up to something BIG and therefore it should also be interesting to see how THAT all unfolds.

Back to what Greg said, I agree that at the root of all of this M&A activity is the general paradigm shift of the market from service providers and law firms to the corporation with the assimilation of eDiscovery technology into the bigger IT infrastructure (I am a big Star Trek fan).   However, even given this eventuality, I believe that there is going to be a maturation of the market from where it is today to full enterprise integration and there will be lots of twists and turns along the way.  So, as everyone jockeys for position, the M&A activity will continue.

The full text of Greg's post is as follows:
My September post looked at the provider sponsorship of Legal Tech New York from 2008-2011 as an indicator of the how our industry has reacted to the economic recession. At the time, I noticed quite a few players who had either quietly disappeared or been acquired in the last couple years. Merger and acquisition consolidation is a sign that eDiscovery is maturing and integrating into the larger corporate technology market. I thought that it would be interesting to make a quick roll call of software or service providers that have either disappeared or been acquired since the recession put the squeeze on the market.

The first market sign that I recall was SPI Global Systems’ last second withdrawal from LTNY 2009 and immediate shut down of their eDiscovery operations. Onsite3 went through a fast bankruptcy and was gobbled up by Integreon. A quick check shows that Integreon has been taking advantage of the economic slow down with acquisitions of Grail Research, Datum Legal and CBF Group. It is interesting how one Knowledge Process Outsourcing (KPO) provider retreats from eDiscovery while another invests heavily.

MetaLINCS (i365) review platform was acquired back in 2008 by Seagate, but finally end-of-life’d the product when it could not get any market traction. Google jumped into eDiscovery with their appliance and then promptly dropped their eDiscovery marketing message when customers realized that not all search is eDiscovery ready.

So here is a fast list of the big acquisitions in the eDiscovery market:

Attenex by FTI
CTSummation by AccessDatCA’s governance unit by Autonomy
PSS Atlas by IBM
Trilantic by Huron Consulting Group
Daticon EED by Document Technologies, Inc
Serengeti Law by Thompson Reuters
eDirect Impact by IE Discovery
CaseLogistix by Thompson Reuters
Daegis by Unify
Mimosa by Iron Mountain
Kazeon by EMC
Interwoven by Autonomy (big fish)
Discovery Mining by Interwoven (little fish)
LitSoft LLC by Precise, Inc
Kroll by Altegrity
Discover ready by The Dolan Company
RLS/LIT Group by Scarab

As expected, the M&A has been primarily driven by the global software providers looking to add eDiscovery functionality into their enterprise systems. Basically, eDiscovery is slowly being recognized as a fact of life for corporations. If you cannot ignore it or make it go away, then you integrate it into your business process to gain efficiencies.

Labels: Autonomy, Consolidation, eDiscovery, EMC/Documentum, IBM, Integreon, IronMountain, Market Trends

posted by Charles Skamser @ 10:29 AM 0 Comments

The eDiscovery Paradigm Shift Continues

One of the aspects that attracked me to the eDiscovery market several years ago was the fact that it was in the midst of a "paradigm shift" and therefore was ripe for introducing new technology and services.  I wasn't wrong, I haven't been disappointed and the world's economic woes are adding to the excitement.

In a blog post on August 2009 online ABA Journal site by Barabara Rose titles, "Boom or Bust: eDiscovery industry seeing slower growth, more mergers", Barbara has some interesting observations about the eDiscovery industry.

She states the following:

1. A funny thing happened on the way to amending the federal Rules of Civil Procedure in 2006: That watershed event triggered a surge of investment in e-discovery software and services, fueling a mini tech bubble. The number of players exploded from a few dozen in 2000 to about 600 these days.

2. Commercial spending in this young niche is expected to increase this year by 20 percent to $4.05 billion, according to consultant George J. Socha Jr., who co-founded the Electronic Discovery Reference Model, an industry consortium that sets guidelines and standards.

3. But growth has slowed sharply from annual rates of more than 40 percent just a few years ago, according to Socha’s surveys. And it’s getting much harder to compete profitably in an industry that is coming of age during the worst economic downturn in decades. For one thing, clients no longer are willing to write open-ended checks for services that easily can exceed $1.75 million for an average case.

4. Gartner estimates that by the end of this year, one in four software vendors will be acquired, merge or exit the e-discovery business.

5. Meanwhile, companies that once left e-discovery decisions to outside counsel and vendors are exerting far more control. Large corporations are bringing more work in-house, where general counsel team up with IT departments to cut costs and head off problems.

I agree with all of the observations and beleive that, with or without the weak economey, it is a natural progression in any industry going through a paradigm shift. And, in the end, it is all very healthy and will prove to yeild the right technologies from the right vendors at the right price.

Isn't the free market wonderful?

The full text of Baraba's blog post by is as follows:

A funny thing happened on the way to amending the federal Rules of Civil Procedure in 2006: That watershed event triggered a surge of investment in e-discovery software and services, fueling a mini tech bubble. The number of players exploded from a few dozen in 2000 to about 600 these days.

“It was almost like a gold rush,” says John Bace, research vice president of Gartner Inc. in Stamford, Conn. “People saw e-discovery as a quick and easy way to make money.”

With data and lawsuits proliferating, there still is plenty of money to be made in electronic data discovery. Look no further than the exhibit hall at ABA Techshow 2009, where e-discovery vendors were prominent.

Commercial spending in this young niche is expected to increase this year by 20 percent to $4.05 billion, according to consultant George J. Socha Jr., who co-founded the Electronic Discovery Reference Model, an industry consortium that sets guidelines and standards.

But growth has slowed sharply from annual rates of more than 40 percent just a few years ago, according to Socha’s surveys. And it’s getting much harder to compete profitably in an industry that is coming of age during the worst economic downturn in decades. For one thing, clients no longer are willing to write open-ended checks for services that easily can exceed $1.75 million for an average case.

“Growth has started to moderate and margins have started to decrease,” says Nick Baughan of investment banking firm Marks Baughan & Co. in Cornshohocken, Pa., which advised such deals as Applied Discovery’s sale to LexisNexis.

“There is real technology disruption,” he adds. Big tech companies continue developing tools to classify and store data in formats that permit more efficient archival and retrieval for litigation and regulatory review. “They can do it at a push of the button,” Baughan says.

SHRINKING FIELD

Gartner estimates that by the end of this year, one in four software vendors will be acquired, merge or exit the e-discovery business. Socha, founder of St. Paul, Minn.-based Socha Consulting, sees even more shrinkage over time; he estimates consolidation will reduce the number of service and software providers by about two-thirds to as few as 200. There will always be room for smaller service players, he says, but “the market truly cannot support this many vendors in the long haul.”

Players such as Autonomy, Iron Mountain and Symantec, to name only a few, have acquired smaller companies to build one-stop shops for e-discovery, from identifying data all the way through to pro­cessing, review and presentation. Mean­while, others are exiting the business.

Earlier this year, SPI Global Solu­tions substantially cut its e-discovery operation in Austin, Texas. In Feb­ruary, e-discovery pioneer Onsite3 simultaneously announced Chapter 11 bankruptcy and plans to be acquired by Integreon, a legal processing outsourcer based in Arlington, Va.

Churn is constant. Competi­tors who bought software and sys­tems several years ago now are stuck with higher legacy costs than new entrants at a time when profit margins are shrinking. And firms with good business, unable to borrow to cover temporary shortfalls, fall victim to the banking crisis.

“Many of the people in this space have for years talked about how it is somewhat recession-proof,” says Jason Derting, chief executive officer of Discover-e Legal, a 10-year-old company in Portland, Ore., with about 100 employees.

“I think this is the first test we’ve seen in a maturing space,” Derting says. “We’re certainly not immune to the challenges in the economy.”

His company continues to grow; Derting hired three sales vice presidents this year. Thanks to layoffs elsewhere, he has been pleased with the talent he found. “There are more qualified e-discovery sales executives available than I’ve seen,” he says.

At D4 in Rochester, N.Y., the economy’s nosedive played a role in the unraveling of the company’s May to December romance with litigation support services provider Ivize, which acquired D4 in June 2008. When D4’s owners bought their company back six months later, they assumed some of Ivize’s employees and expanded D4’s services. Now D4 is scouting for acquisitions.

“Our goal still is to have that national footprint,” says vice presi­dent Peter R. Coons. “We’re looking at opportunities that will help us move into different markets.”

TechLaw Solutions, a 25-year-old firm based in Chantilly, Va., also is expanding. “We’ve added staff at high levels for consulting and forensics and data collection” while investing in hardware and software, says president Mel Goldenberg.

Still, revenues are flat this year. “I think we’re lucky they’re flat given what I see going on in the marketplace,” he says.

POWER IN-HOUSE

Meanwhile, companies that once left e-discovery decisions to outside counsel and vendors are exerting far more control. Large corporations are bringing more work in-house, where general counsel team up with IT departments to cut costs and head off problems.

“We’re seeing them get involved, understanding the technology, making decisions about service providers, how data will be handled, what filtering will be used,” says Michele C.S. Lange of Eden Prairie, Minn., a director in Kroll Ontrack Inc.’s legal technologies division, which has 800 employ­ees worldwide.

Greg Swinehart, partner and national leader of forensic and dispute services at Deloitte Financial Advisory Services in New York City, says com­panies are paring their vendor lists. “There are a lot of providers, a lot of steps in the process, a lot of technologies,” he says. “This is complex and painful to manage. I’m seeing a trend to look for fewer professional service firms that can handle multiple aspects.”

So where is it all headed? Continued growth, fewer players and lower costs for clients. Says Swinehart: “I foresee a tremendous future of innovation and consolidation.”

Labels: eDiscovery, Market Trends

posted by Charles Skamser @ 1:58 PM 0 Comments