What Are Legal Tech + Legal Service Provider Exit Strategies?
I’ve recently spent a fair bit of time thinking and talking with friends about exit strategies for legal tech and legal service provider companies. I don’t have a clear answer, so I’m writing this post to solicit others’ views.
[This article was originally published by Legal Business World under the same name here (30 Nov 2017) and includes excellent comments from long-time industry pros Jason Smith and Eric Feistel. There was also good comments at LinkedIn, spurred by a Tom Braegelmann update.]
Exit strategies – with the promise of huge pay-outs for founders and early joiners – drives much of Silicon Valley. Until recently, the IPO was the only path to riches. Today, it can also be when a giant investor (e.g., Softbank) buys a significant stake in a big private company.
Companies need not exit of course. They can continue operating, growing or not, and spin out quite a bit of cash. That can be very profitable for founders and other owners but may not provide a big pay-off for many employees.
The question of what will happen to companies providing legal services is important for at least two reasons:
- Ability to attract talent. To the extent that talented people seek a big financial pay-out, then they will look at what sectors offer that and, within each sector, whether a specific company has a plausible and profitable exit.
- Ability to anticipate market developments. Many commentators make much of the recent surge of legal tech investment and what they say is the rapid rise of alternative legal service providers. Understanding the fate of the companies driving both these trends may help us see where the legal market is heading overall. And the fate of both individual companies and the market likely depends on the ability to exit.
Generally speaking, we can think about three typical exit strategies: go public (IPO), sell to a strategic buyer, or sell to a financial buyer. Can we apply this in legal? In answering, let’s not limit ourselves to start-ups. Many legal tech companies and legal service providers were founded years ago and likely no longer count as start-ups.
LexisNexis (RELX) and Thomson Reuters frequently acquire other legal companies, usually as strategic buyers. We also see other occasional strategic buys by smaller companies, such as iManage’s acquisition of RAVN or Integreon’s acquisition of Allegory. Beyond that, I have a hard time generalizing. Roper Technologies recently acquired Aderant and Handshake. eDiscovery has seen roll-ups and private equity buys. K1, a private equity firm, recently acquired and combined serval companies with document authoring tools. I am not aware of any IPOs in the legal market.
So where does that leave legal tech companies and alternative service providers (legal process outsourcing and managed legal services)? The short answer: I don’t know. The long answer: I don’t know. We could speculate about some bigger brands and imagine that an Axiom or LegalZoom have the revenue and momentum to go public. But beyond that?
I’m neither a deal maker nor an investment banker so perhaps I’m missing something key. So now I turn to readers. Do you think the question is important? And if you do, any thoughts on a better answer than I have here?
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