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Understanding the UnitedLex – LeClairRyan Deal: Interviews with Management

On October 30th, law firm LeClairRyan and legal services provider UnitedLex announced the creation of the LeClairRyan Legal Solutions Center, which involves the transfer of 400 people and physical assets to UnitedLex. On Wednesday afternoon, I spoke to both parties to learn more.  My first call was 30 minutes with Gary D. LeClair, a co-founder and the Chairman of LeClairRyan and David C. Freinberg, the firm’s CEO.  My second call was one hour with Dan Reed, the CEO of UnitedLex.

Both calls were on the record, arranged by a PR firm.  For LeClairRyan, I report the call as a Q&A.   For UnitedLex, I  grouped together related ideas to report a narrative.  I did not capture content verbatim so did not use quote marks generally; the text, however, reflects what I heard, not  interpretation or comment.   No one reviewed this post – if I made errors, I will correct them.  I start with background on the transaction.

Transaction Background

Quoting from the press release:

“The national law firm of LeClairRyan and UnitedLex, a leading global provider of legal and business technology and consulting services, [announced the creation of the LeClairRyan Legal Solutions Center, a collaborative venture, effective November 1].

It will provide a wide range of support services and incorporate best-in-class technology and quality control processes which will be uniquely integrated into the law firm’s litigation and transactional practice areas….

UnitedLex will assume responsibility for the operations of LeClairRyan’s Discovery Solutions Practice and will provide additional capital allowing the firm to have best-in-class, end-to-end litigation support for its practices and clients on a global scale. More than 400 attorneys and litigation support technologists will transition to UnitedLex, making this solutions center launch the largest of its kind anywhere in the world. The LeClairRyan Legal Solutions Center will be located in Richmond, Va.”

LeClairRyan

Question: Why did the firm do this deal?  What was the background and rationale?  Mr. LeClair answers:

In 2008, the firm acquired a sizable document review center in its merger with Wright Robinson.  Shortly after the merger closed, the economy crashed.  Clients wanted “cheaper, better, and faster” service.  At the same time, the volume of digital data exploded.  And firm found itself competing with non-law firm providers in e-discovery and document review .  Those providers have an advantage – they can invest capital in early case assessment technology, hosting, and processing.

In contrast, as a law firm, we face capital constraints; we can only raise capital via a partner contribution or retaining profits.  So we found that our e-discovery practice area was on the “post-golden age battlefield.”  We were being out-competed by players with capital, those who had better capabilities to manage an end-to-end discovery and review solution.

So we had to make a call with this practice area… will we invest in tools, developers (e.g., could we invest in 55 developers like UnitedLex has?), or do we collaborate with another entity?  We elected to collaborate with UnitedLex. We first studied many potential partners, talked to many people, and hired people to help us investigate options. Then we settled on UnitedLex as the right partner; we found them to be very  culturally compatible.

Our decision reflects the evolution of our industry, particularly the lack of capital to invest in a broad spectrum of services.  We saw that we could not make the case to do so on our own.  Now, with this arrangement, we can offer a broader and more integrated set of services, a single invoice for clients, and continuous improvement. It’s a vastly better solution for our clients.

We have over a half dozen other outsourcing relationships.  In forming these, we have benchmarked not just against law firms but also other markets. We are looking at other arrangements to respond to client demands and our capital constraint.

Question: What is the structure of this deal? Mr. LeClair answers:

This is not a de novo start-up; rather, it begins with 400 people and an ongoing revenue stream that keeps those people busy day one.  It also gets LeClairRyan as a sales forces.  Based on history, we can keep the pipeline full.  But UnitedLex can sell services of these personnel and the physical assets to other law firms.  And we get business for it from other law firms; in some matters, we are retained to take on just a portion of the case that works well in the center.

Of course, ethical compliance was critical in setting this up. We got the required legal opinions.  The ethics can be navigated if done the right way, as we have.  Consistent with this, we have an incentive to give the center business – but we are not obligated to. We can work with other vendors.

Question: Does your service level agreement (SLA) with UnitedLex require continuous improvement?  Does anything require deploying more technology?  Mr. Freinberg answers:

We have every expectation of a very high service level.  The initial focus is on e-discovery and capital investments in technology.  Competing with non-law providers is not restricted to litigation so we will also provide services for transactions, specifically due diligence support.

Nothing in our agreement specifically requires the Center to deploy new  technologies but there is every financial incentive on both sides to do so.  This deal was not about labor cost arbitrage move.  Richmond is fairly low cost already.  Technology will have to drive improvements.

UnitedLex

Introduction and Overview

Change in the legal market has been slow.  Now, however, we see “lift off” in how law firms and law departments think about the market.  We have conversations today that would never have occurred a few years ago.  More firms are evolving toward LeClair’s way of thinking about how they deliver services.

The LeClairRyan Deal, Similar Ones, and Our Assets

In this deal, 400 people became our FTEs and we took over space and physical assets such as computers.  The people who moved include equity partners and litigation technology personnel.  But this deal is more than just a migration.  It reflects a transition in how service is delivered.  We have huge emphasis on training our team and deploying technology.  And we have an ethical framework, built in consultation with many lawyers, including leading ethics experts.

To frame this, let me say that our deal with Goodwin Procter to provide insourced ediscovery and managed document review services was not as big as this one but it was just as important.  We also have several similar arrangements to Goodwin but we cannot disclose them.  Some with very prominent firms.  We also have big deals with some large law departments; for example, we are the primary managed document review provider to Pfizer.  It’s been a big shift in the last year that we have these deals.

And we have other important assets, including a document review center in Durham and one we are just building in Miami.  We also have an 8-lawyer review team in Israel that I expect will grow to over 100.

While  Goodwin and other deals are organization-dedicated, the LeCLairRyan one is not.  We will add seat count in Richmond because it is a very good place to do business.  In a few years, with growth and taking into account the ebbs and flows in LeClairRyan volume, that firm will probably constitute only 10 or 15% of the volume in Richmond.

Framing this Deal in a Bigger Picture: Becoming the Accenture of Legal

More and bigger news is coming.  I expect several  announcements  in January, perhaps February, that will be bigger and more profound than this.  They relate to how legal services are delivered.  Most corporate functional areas such as HR and finance have long faced pressure to operate more efficiently and at lower cost.  Legal was long immune from such pressure but that has changed with the economic crash.

So we have to change the way we think about legal services, to stratify and systematize delivery the way Accenture does. I view Accenture as one of best service companies in world; we want to be the Accenture of legal.  To date, general counsels and managing partners have not had access to the types of tools and processes an Accenture can bring to bear.  We will do that.  That requires a big balance sheet, which we have; no law firm has a balance sheet as strong as ours.

We want to this in a way that delivers high performance to and strengthens both law firms and law departments.  Law firms especially are  limited by partnership structure. But we will remain behind the scenes, nurturing and supporting a range of constituencies.

In our model, training and career development of our team is essential.  We are committed to growth of our people.  We provide much more than law firms typically can.  We can invest more in people,much more than law firms can or do. This is based on a long term view of the market.

Technology is also essential.  We we have three data centers, two US and one non-US data centers.  If we can’t do it with tech, we won’t do it. We are very disciplined about this: if we cannot infuse tech, we don’t do it. Labor arbitrage is not enough.

Competition and Finances

We do not have any direct competitors.  We compete in multiple segments but no one offers the same full line.    In document review we compete with Huron, FTI, and Navigant.  I do not see Pangea3 in the market since the founders left. Nor do I see pure-play India LPOs such as QuisLex or Mindcrest.

Axiom Law is not a broad line competitor – I think of them mainly as staffing, plus we have a different focus (ours is on litigation and IP with our contracts work  focused on financial services).  Also, Axiom is the anti-law firm; unlike them, we are for both law firms and law departments.

On the financial side, our venture capital backers understand we are a service business, which takes time to scale, and are patient.  We started in 2007 with three people.  Now are approaching 1500 or 1600.  That growth came without any acquisitions. Our performance is unusually good, so we have latitude to invest in future.  Our investors see our model works.  I have a long-term view and our VC backers give us the flexibility to pursue it.

Conclusion – The Market Has Changed

The market has changed but it will still take time to build the vision.  That said, the number of e-mail I received from law firm CEOs and MP in last week since we announced this deal is shocking.  Something has changed in the market – even since announcement.

[Clarifying edits made 09:50, 7 Nov 2013]

  1. Alicia Brown

    Thanks for laying this out so clearly, Ron. Great piece.

    It is pretty amazing and I look forward to seeing how the rest of the market reacts. It certainly is about time we started seeing this kind of structure emerge.

    Tim: you analogy to your daughter is spot on and very funny!

  2. Timothy B. Corcoran

    To be clear, I think this IS novel, and it’s AWESOME news. But I do look forward to the day when leaders in the legal sector making rational business decisions about how to run their firms isn’t front page news!

  3. Mark Peers

    Great article–this is groundbreaking news and it is good that someone is digging deeper into it. It seems like the parties to this venture have rather different understandings of it. THe LeClair Freinberg firm seem to think of it as primarily a service offering of their firm, although other law firms might use it. UnitedLex, on the other hand, sees it as a small piece of their larger strategy, and emphasizes that LeClair will account for only 10-15% of the business of the venture in a couple of years. The UnitedLex CEO also downplays the significance of this particular venture, stating that “More and bigger news is coming. I expect several announcements in January, perhaps February, that will be bigger and more profound than this.” I wonder if the venture will even continue to be branded with the law firm’s name in a year or two, once the goodwill from the LeClair ediscovery operations tails off.

  4. Timothy B. Corcoran

    I was called by two reporters yesterday to comment on this news. The reaction is breathless, like someone just invented fire. Or the wheel. My view is this is about as novel as when my baby daughter discovered those wiggly things are her own fingers! Law firms adopting a model of continuous improvement, outsourcing non-core services (just as law firm clients outsource non-core services, like legal work!), and thinking of their services as products that compete in a marketplace with competitors and substitutes is the new normal. For some anyway. Good post, Ron.

  5. Charles Rodriguez de la Montoya

    This sounds less like a strategic partnership and more like the unloading of a business unit by the law firm.