In the latest sign of consolidation in the e-Discovery space, the Carlyle Group and venture capital firm Revolution Growth on Wednesday announced the acquisition of a Virginia-based legal technology services company for an undisclosed price.
LDiscovery, based in McLean, Va., lists seven U.S. offices as well as one in London. It employs attorneys, developers and other support professionals who service corporate law departments, law firms, and the federal government with their e-Discovery needs.
The Washington Post described the acquisition as “a bet of roughly $150 million,” with Carlyle owning half of the firm and the remainder controlled by Revolution and LDiscovery management, although it did not provide a source for the information.
The $150 million figure would fit in with the general focus of Will Darman, the managing director at Carlyle who led the transaction, who works “on a broad range of small and middle market equity transactions,” according to his web page .
The move by Carlyle, which manages $188 billion in assets, adds to a flurry of large scale investors who have made deals in the e-Discovery space in the past few months: In December, Consilio acquired Huron Legal for $112 million, its third deal after the Los Angeles private equity firm Shamrock Capital Advisors purchased a majority stake in August. That same month, the patent risk management company RPX inked a $232 million reported cash deal to purchase Inventus Solutions . Both are e-Discovery services providers.
In an interview with Big Law Business, Darman predicted there will be even more consolidation in the next few years.
He said that part of the investment thesis is that the e-Discovery space is dominated by smaller players that have strong business relationships and that it will make sense for larger companies to acquire those smaller players in a way that preserves the relationships.
LDiscovery has made at least six acquisitions in the past two years, according to its website. In August, it acquired Philadelphia-based CopySecure and also Fort-Lauderdale-based Credence , with no details disclosed on either deal.
“This is a company that’s been highly acquisitive over the last four years,” said Darman. “They’re very good at M&A. They have done a wonderful job of identifying companies that are good business and cultural fits and bringing them on to a technology platform that delivers best-in-class service.”
Evan Morgan, the partner at Revolution Growth who previously worked at Carlyle and helped lead the deal, said he estimates the total size of the e-Discovery services market to be $5 billion and expects it will double in the next several years.
Morgan was skeptical that companies handling e-Discovery from cheaper offshore locations would experience significant growth, noting that there are significant cybersecurity risks for large corporations.
“Because the data is so sensitive … some of the largest companies in the world really trust LDiscovery to do that work,” he said.
The entire deal took six months to complete, according to Morgan.
“This is a business which has tremendous organic growth potential,” said Darman. “It’s led by a world class management team. We see a great opportunity to back that management team to continue to drive organic growth, to help the Company continue to be a consolidator in the sector and to actually be a value-added partner by making introductions to the companies we own, the law firms we work and across our corporate network.”