Tuesday, June 03, 2008

E-discovery Software Company Acquisition Opportunity

This investment opportunity was sent to me by a business broker representing a west coast electronic discovery software company that is looking to sell the business. The company believes they would be a good acquisition target for an email/data archiving company or a national litigation support/e-discovery provider that would like to have its own e-discovery processing/production and review platform. Currently, they are open to acquisition by a larger company that would provide sales and support infrastructure or a strategic investment that would allow them to build out their own infrastructure. The technology fits into the Processing, Review, Analysis and Production phases of the Electronic Discovery Reference Model(EDRM). The following link is to a previous post linked to an article about merger & acquisition trends in the BPO and litigation support markets

Summary
New regulations in corporate compliance, Rules of Civil Procedures and shear volumes of electronically stored information have completely changed the nature of how communications and other electronic information are managed through the discovery process. E-discovery, which has grown rapidly to a $4.2B business, has created a revolution by applying new technologies to what has been a paper driven, manual process. Software product penetration is still considered low as many medium and large organizations are now considering bringing e-discovery products in house to control their litigation costs. Law firms, who have historically relied on service bureaus for e-discovery projects, are also waking up to the need to have e-discovery technology in house. These markets present an extraordinary opportunity to providers of e-discovery software. Our client’s e-discovery software product has been received by users as a breakthrough in its ease of use, efficiency and completeness for collection through production phases of e-discovery.

The Product
This software suite is a complete software package that interfaces seamlessly with upstream applications and manages all file types through the collection, preservation, processing, analysis, review and production phases of the Electronic Discovery Reference Model. In addition to its own technology, the suite incorporates best of breed modules (e.g. Stellent for native document display) into its framework to leverage the power of these tools for legal teams or those tasked with in depth management of an organization’s electronically stored information be it email, specifications, or images.

Product Validation
This product has been selected by several law firms and judged to be easier to use, more complete and more efficient than competing products. The company’s team has members who have database backgrounds, IT experience and have run litigation support service companies. This rich experience has been expressed in the product feature set and the overall usability. Although built for litigation support by litigation support experts, this product is applicable in broad compliance applications or other areas that require data be mined and analyzed.

The Market
As noted above, the litigation support side of the e-discovery market is estimated to be $4.2B today and is expected to grow more than 20% per year. Data volume and the current regulatory environment ensure this growth. A relatively new growth engine for software sales is the trend of bringing these capabilities in house both for law firms as well as corporations. With the number of electronic files increasing and the file sizes growing, the enormity of the task of a single discovery project is growing daily. Litigation cases today involve discovery projects that typically involve 100 – 400GB of data. With service bureaus normally charging between $1,000 and $1,500/GB to process that data, the cost per event can quickly consume a legal team’s budget. SOX, recent changes to the Federal Rules for Civil Procedures (FRCP) and expected changes at the state level have added extra demands on legal teams to produce more relevant information in less time. Legal teams are desperate for solutions that will allow them to work closely with their IT departments to minimize the disruption to ongoing business.

This product is targeted for several markets and delivery mechanisms. Using this product suite, law firms can provide fee-based services to their clients instead of out-sourcing to service bureaus. Corporate in-house legal and compliance teams can achieve almost immediate positive payback by performing their own discovery. Service bureaus can sell services based on the product for those law firms and clients that do not have the capability in house or to cover peak demand periods. E-discovery capabilities based on this software can either be delivered as an enterprise application or delivered on a software-as-a-service (SaaS) basis. In addition to litigation support, organizations can use the software to provide compliance support or support any application that requires analysis and processing of electronically stored information.

Competition
In customer evaluations, this product competes favorably with similar e-discovery and native review solutions that are currently available on the market. This product is generally broader in capability and far easier to use according to customers who have reviewed many competing products. For more information on competing products you can visit the following link to a previous post regarding the Gartner MarketScope for E-Discovery and Litigation Support Vendors, 2007.

Strategic Acquisition Opportunity
This company is at a critical juncture and is exploring several strategic alternatives. As a young company they have focused on building out a complete product, which is now in use at a small number of customer sites. At this point they are open to acquisition by a larger company that would provide sales and support infrastructure or a strategic investment that would allow them to build out their own infrastructure.

Miscellaneous
End User Testimonials (Complete Law Firm Case Studies Available)
"Production with [the product] is robust, we were able to produce native formats, and image formats from review sets that were categorized and tagged, and we could produce by designation within any review set. We are a small firm with big cases and we needed something that could process difficult file types, and get us up and reviewing quickly and [the product] filled the need perfectly.” Patent Litigation Attorney

"[The product’s] functionality allows for document processing, web-based confidential/native document review, and document production (multiple formats). A perfect example of [the products’s] incredible processing capability is its robust processing function, which allows the opening and viewing of all file types from legacy documents to today’s current web content." Attorney

Technology Highlights (Complete Performance Testing Report Available)
Code Size: 650,000 lines
-Language: C #, ASP.Net
-Database SQL Server 2005
Code Status: In Production

Configuration Options
• Hosted (SaaS Model), Or
• Enterprise Installation

Product Highlights
• Complete audit trail for every file with who, when, what information for each ‘touch’
• Granular access control to protect confidentiality
• Security of original data guaranteed with “locked” tamper proof copy for further audit support
• Culling and de-duplication support to minimize data movement and increase performance
• Advanced search capability to find relevant information based on words, phrases, wildcard, fuzzy, proximity, Boolean and concept searches in both data and meta data over both parent and attachments in email.
• Native file review to simplify display, speed review and increase productivity
• Support of sophisticated manipulation during review such as tagging and redacting
• Intuitive user interface modeled on MS Outlook to minimize training time and support burden

For More Information: Contact Brad Jenkins, jenkins.bradley@gmail.com or 832-349-3000.

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