Recent Acquisitions Point to Continued Maturation of eDiscovery
Last week was a busy week for mergers and acquisitions activity, with transactions in multiple different – but related – markets pointing to continued maturation of the market. Simply put, these transactions corroborated four separate trends that continue to shape the eDiscovery landscape: 1) success in eDiscovery requiring commitment, differentiation and deep domain expertise; 2) expertise in the large law firm market being a critical component in eDiscovery; 3) search and categorization technology remaining a critical differentiator; and 4) eDiscovery continuing its evolution to becoming part of the core, enterprise information management infrastructure. But let’s take a closer look at exactly what happened before we circle back to these takeaways and how enterprises and outside counsel should respond to them.
Last week saw four separate transactions take place that are relevant to the eDiscovery and broader information management markets:
1. Marsh & McClennan sold Kroll Ontrack to Alegrity for $1.13B
2. Forensics consultant Access Data acquired/merged with Wolters Kluwers’ CT Summation unit
3. Dassault Systemes acquired enterprise search vendor Exalead for $152M
4. Autonomy acquired CA’s Information Governance unit for an undisclosed amount
Four separate deals, by different players in the space, each with their own needs, valuations and agenda. Interestingly, however, each deal points to a trend we have discussed many times before which are collectively reshaping not just the eDiscovery market but ancillary markets as well.
Trend #1: success in eDiscovery requires commitment and differentiation. In just a few short years, perhaps starting with Seagate’s ill-fated, astronomically valued acquisition of Metalincs in 2007, the eDiscovery market has become highly competitive for all vendors and downright commoditized for those vendors without differentiated technology or deep domain expertise. Marsh & McClennan’s divestiture of Kroll Ontrack at a $600M loss can be viewed as a capitulation in this competitive market – one in which Marsh was apparently unwilling to make a long-term commitment (perhaps ironically, Kroll Ontrack has long been viewed as a leader in the space and one of the highest-priced options available). Similarly, Wolters Kluwer was clearly willing to unload its CT Summation unit at a loss rather than continue trying to sell increasingly outdated products in such a competitive market.
Trend #2: expertise in the law firm market matters in eDiscovery. The Access Data/CT Summation merger (or was it an acquisition by Access Data?) shows the value of the law firm market, as upstart Access Data sought a footprint in this key “influencer” market, ostensibly to avoid being shut out of enterprise deals. As numerous other eDiscovery vendors are quickly realizing, when confronted with an eDiscovery challenge many – perhaps most – enterprises turn to outside counsel first; as a result, if law firms (especially the US’s largest law firms) do not present a particular vendor as an option to their enterprise clients, these vendors may never even know a customer is looking for a solution and will thereby be shut out of the process. Another relevant data point with this trend was Autonomy’s acquisition of Interwoven in 2009, which gave Autonomy a footprint and domain expertise in the critical law firm market, even if only temporarily. How much of each actually remains one year later will need to be the subject of another post…
Trend #3: search technology remains a critical differentiator with any information management-related offering (including eDiscovery). Most press releases announcing why a company acquired another company are riddled with hyperbole and smokescreen, frequently ignoring the real reasons the acquisition took place. Dassault Systemes’ acquisition of Exalead was an exception, as it made up for its hyperbole with a well-articulated explanation of why the deal was done: “The world of innovation is everywhere and information intensive”, said Bernard Charlès, President & CEO, Dassault Systèmes. “Everyone is looking for simplicity with intuitive applications…which value the rich information available inside and outside companies. With Exalead…we can provide a new class of search-based applications for collaborative communities.” Also likely not lost on Dassault was a strong desire to justify why it paid a premium multiple – rumored to be 8x trailing revenue, which was largely flat year-over-year – for Exalead. Lest one think this transaction too far removed to be relevant to the eDiscovery market, simply turn the clock back 12 months to EMC’s 2009 acquisition of enterprise search/eDiscovery vendor Kazeon for much the same reason. And one other point: any guess as to where two of the better-known vendors in the eDiscovery space (Recommind and Autonomy) started their lives and continue to do business today? That’s right, the enterprise search space.
Trend #4: eDiscovery continues its evolution to becoming part of the core (no, not that CORE), enterprise information management infrastructure. Along the same lines as EMC’s acquisition of Kazeon, enterprise search/eDiscovery vendor Autonomy is trying to package its stove-piped legacy eDiscovery offerings as a broader, “end-to-end” solution incorporating information governance and records management. In this way, Autonomy – which became a big player in the document management (DMS) space with its Interwoven acquisition, competing against giants like EMC, Microsoft and IBM – undoubtedly seeks to stem continued price and margin erosion by capturing more of each enterprise customer’s IT budget. It’s only a matter of time before these giants – and others like HP, Oracle, Symantec and Open Text – seek to join the fray by making their own moves into the eDiscovery space.
Where is the eDiscovery market headed? No one knows for sure, but the above trends are good indicators of eDiscovery’s future: a more systematic, expert-driven, information management-focused and differentiated future where powerful search and categorization technology is everywhere. The more important question is this: given the above trends, with which vendors should enterprises and law firms work today? A good place to start is with those vendors who not only understand these four trends, but have concrete solutions in use today by customers willing to be a reference. That remains the best way to get the true measure of any vendor.
Posted by: Craig Carpenter on June 15, 2010, 3:08 am | Permalink | Trackback
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