The eDiscovery world is consolidating at a rapid pace. May alone saw Morae Legal merge with Clutch Group, Xact Data Discovery acquired by F1 Discovery, Discovia merge with Lighthouse eDiscovery, and Altep bought up by Advanced Discovery. That’s four notable eDiscovery M&As in just a few weeks—and that’s just the most recent history. A database of eDiscovery deals put together by Complex Discovery shows well over 200 M&As over the past several years, from billion-dollar acquistions to small mergers. Given the increasingly thin margins by which vendors are operating due to increased cost pressure from clients and a glut of supply (newsflash: we didn’t need 200 vendors in the first place), the rate of consolidation will only accelerate from here
So, what happens when your eDiscovery service provider is acquired? No, seriously, we’re asking -- because there doesn’t seem to be many clear answers out there.
3 Questions to Consider When Your Vendor Gets Snapped Up
What Happens to Your Vendor Contacts?
Given the rate of consolidation, there are a few M&A areas of concern all eDiscovery customers should be thinking about. The first relates to people. In the managed services model of eDiscovery, project managers often play a central role in the discovery process. They’re the ones who create your discovery workflow, manage data ingestion, assign hibernated subcollection fees, and the like. Some take a hands-on role throughout the process, some limit their involvement to mostly administrative matters, but all are more or less essential. Keep in mind that the value of the project manager is generally proportionate to the complexity of the tool. This is, after all, how vendors get you: sell you the technology and then sell you the person who can work it.
So, if your vendor merges with another company, what happens to your PM? She may be out the door. The same could be true of your account executive. According to Pete Smith, VP of business development at TRU Staffing Partners, there’s “no doubt” M&As result in “duplicative roles… specifically at middle management levels and in sales.”
“Those are the two areas at greatest risk for attrition and lay-off during this period of consolidation that we live in today,” Smith recently told Corporate Counsel. Those who aren’t made immediately redundant may seek out more secure opportunities elsewhere. “Mergers usually lead to speculation and uncertainty about future job security, culture change, and status for those in the rank and file,” according to eDiscovery vet Kristopher Wasserman.
If a M&A sends your PM packing, will your discovery workflow be left in the lurch?
What Happens to the Tech and Pricing?
Two more areas that should be top-of-mind post merger are tech and pricing. eDiscovery pricing is already notoriously opaque. Peeking into the world of eDiscovery pricing is rare; vendors often treat their pricing as trade secrets, leaving buyers in the dark as to how their cost structure compares to the rest of the market. As a result, many pricing schemes in the eDiscovery services industry are based not on the value provided, but the max clients are willing to pay. This lack of market transparency leaves many clients unfamiliar with what’s a fair rate -- and slow to recognize when they’re getting a bad deal.
Add to that the unpredictability of many eDiscovery costs. As the document production expands, fees pile up, and reviewing hours grow, eDiscovery costs can easily outrun early estimates.
All in all, it’s a lousy situation. A vendor merger or acquisition adds even more uncertainty and ambiguity into the mix. After a merger, will your pricing change? Likely. Will your old deals be grandfathered in? Maybe, maybe not. If you have to migrate your matters and ESI, who’s footing that bill? Possibly you.
And what about the vendor’s technology, upon which you based your estimates about productivity and cost? What kind of eDiscovery software stack will the merged entity use on your data? How long will your current tech be supported? What, if any, benefits will the technology from the acquiring (or acquired) company bring to the table? Will it be a proper fit? What we can say with some certainty is that the costs associated with supporting and maintaining the acquired technology will almost certainly go up, or maintenance will be abandoned altogether. This is common with legacy solutions that have been acquired and made up with new lipstick. When the acquiring company realizes they bought a pig, it phases the pig out.
It is also important to consider whether the acquiring company will operate at the same level or toward the same ends you’ve come to expect.
In a recent webinar for ILTA, Greg Buckles, founder and principal consultant of the eDJ Group, and Duane Lites, director of litigation support at Jackson Walker LLP, noted that eDiscovery products have a history of “vanishing” into information governance solutions that are no longer focused on the legal customer. (Remember Equivio?) Some may disappear entirely, while others may continue to be sold but without the same level of investment and development. Key indicators that an acquired technology might be moving from cutting-edge to completely ignored include a lack of new releases and disappearance from the competitive market.
Even when support remains strong, customers may be overlooked as a service provider consolidates. “Customers become step children in the wake of M&As,” as one eDiscovery customer characterized it for Buckles and Lites.
What Happens to Your Data -- and Who Has Access to It?
Finally, and most importantly: what happens to your data? The discovery process involves collecting volumes of valuable, highly sensitive data, be it personally identifiable information, lucrative trade secrets, or insider corporate info. Making sure that data is secure and protected is paramount.
Questions to consider when your vendor gets acquired include:
- How do the acquiring company’s privacy policies and safe harbor provisions compare to those of your vendor?
- Where do their data repositories reside and are those locations compatible and lawful with your business?
- What security provisions does the acquiring company have in place? Are employees of the acquiring company bound by the same restrictions your vendor had in place or do they have access to sensitive materials?
- What credentials and certifications does the security regime of the acquired company have? Is it rigorous enough to withstand escalating risks associated with data breach and hacking?
- How will the transition of systems and personnel affect active matters and the deadlines to which you’re bound?
These aren’t easy questions to answer, and they’re probably ones you won’t be excited to confront, should that day come.
In sum, the security of your data should be something you obsess over even in the best of circumstances. M&As add another layer of uncertainty to the mix.
If you’re alarmed by the rate of M&A activity or are thinking maybe your vendor’s next, it’s time to have a candid conversation with your team to address these issues. Make sure you have a contingency plan and redundancies in place. It is also imperative to talk with your vendor, if you haven’t already, about what’s on its short and long-term roadmap and about its vision for the future. What’s your vendor’s differentiator? How well is it capitalized? If these are questions it isn’t capable or willing to answer, you should be skeptical. These are increasingly turbulent times. The companies who continue to grow, innovate and put their customers first are in the best position to thrive.