Integreon

Industry sentiment is that Q4 08 was very challenging for many EDD vendors as corporations reined in litigation spending. And Q1 09 looks to be the same, if not worse. Tanking Economy Hits E-Discovery Firms (The National Law Journal, January 29, 2009) reveals that some EDD vendors are in financial distress or have simply gone out of business. One can only imagine the consequences of litigation data suddenly becoming unavailable during a lawsuit. Corporations and their legal advisors should now urgently diligence the financial health and capital structures of their EDD vendors and consider those dimensions beyond the usual price, experience, technology, information security and disaster recovery capabilities. It’s not sufficient to be told ”we have big private equity investors with deep pockets” - the wallets of those very investors who were spending their way into the ‘hockey stick’ EDD market growth, e.g. described in the 2008 Socha-Gelbmann Survey (Law Technology News, August 11, 2008) are now superglued shut, despite the pleas for cash from their portfolio companies.

We’re seeing more EDD vendors for sale right now than ever before and we are actively looking to make an acquisition. It’s a good time to be an acquiror of one of these businesses since it fits our overall business strategy, we believe we understand what we are buying (these are very complex, technical businesses), and many of these companies are struggling under a debt burden they cannot service or have investors that want to get out rather than invest more.

Before trusting data to an EDD vendor, we encourage buyers to dig deeper than ever before into the current Q profitability of the vendor, the level of debt, and the management team or investor plans to sell the business.