Extract from article by Chris Hildreth
Organic growth in the e-discovery sector remains robust, with increased litigation activity, heightened regulatory scrutiny and data proliferation driving that expansion. However, with aggregate spending exceeding an estimated $10 billion annually, e-discovery as a category is maturing, and growth rates are moderating. For the private equity investor-backed consolidators in the sector, acquisitions are figuring even more prominently into their growth strategies in an effort to maintain historically strong growth rates.
Economics of acquisitions in the legal technology sector can materially enhance consolidators’ returns on invested capital. In most instances, deal sizes and valuation multiples are correlated – smaller companies are valued at lower multiples. When larger players valued at comparatively high multiples tuck-in acquisition targets at lower multiples, consolidators enjoy value accretion on the transactions. That arbitrage or “riskless return” for the consolidator in these deals enhances investment returns. The value differential is a function of not only the smaller deal/smaller multiple phenomena but also the synergies realized in many of these acquisitions. Through elimination of duplicative people, technology and facilities, significant cost savings can be realized.
Read the complete article at Is Consolidation the New “Name of the Game” for E-Discovery?