YTD 2015 eDiscovery Observations

2014 was a year with robust M&A activity and the first quarter of 2015 is proving the pace of consolidation in the eDiscovery industry isn’t slowing down any time soon.  Recently Inventus Solutions, Inc., a portfolio company of Clearlake Capital Group, announced it has acquired London based Unified OS Ltd.Unified OS describes itself as a leading provider of eDiscovery and managed review services to Fortune 1000 corporations, global law firms, and government agencies operating across Europe.  Note that Unified OS mentions corporate customers before all other types of customers including law firms.  While this is subtle, it is very important.  Demand for eDiscovery is rapidly growing but the industry faces pricing pressure and demand can be lumpy.  To manage this dynamic, companies are racing to win the hearts of corporations which typically provide more stable revenue streams, are more loyal to vendors who perform, are not as cut throat about pricing, and are increasingly dictating which eDiscovery vendors their law firms must use.

Based on our conversations with dozens of players in the industry there are few pure play eDiscovery companies that have successfully penetrated the corporate customer segment and are generating most of their revenue from this coveted customer base.  The ones that have will attract the most attention from strategic and private equity buyers as well as command premium valuation multiples.  Our recommendation for CEOs looking to enhance their businesses’ enterprise value is to provide extra incentives for the sales team to hunt for corporate clients, even if it lowers margins in the short term, and assign business development professionals dedicated to securing corporate accounts.