Consolidation Update: E-discovery MSP Eyes Acquisitions

More evidence that e-discovery has entered a consolidation phase comes from Flex Discovery, an Austin, Texas MSP that recently completed an acquisition and has two more in the works. Here’s a look at the strategy.

Flex Discovery, which provides managed e-discovery services to law firms and corporate legal departments, in October purchased e-DOCUPLUS, an Orange Co., Calif company that provides litigation support services.  Bill Rioux, president of Flex Discovery, said his company is in discussions that could lead to additional acquisitions. One may close by the end of this year, while the other deal could come to fruition by Q2 2012, he added.

Buyouts seem inevitable in a market with hundreds of participants that are mainly on the small side and fairly localized. In September, market researcher IBISWorld placed the population of e-discovery software and services companies at 612. According to IBISWorld, consolidation is already underway, with the pool of companies shrinking at an average annual rate of  2 percent over the past five years.

“I think you’re certainly going to see companies like Flex come in and start acquiring smaller, regional companies that have great, long-standing client relations,” Rioux said.

Flex Discovery aims to provide customers a consistent e-discovery process at a predicable cost — customers pay a monthly subscription fee for e-discovery services based on a service level agreement. The fee includes the licensing of e-discovery software, which the MSP can manage behind the customer’s firewall or provide on a hosted basis from its SAS 70 Type II data center.

Smaller service providers may lack that level of infrastructure and that’s where the acquisition route can make sense.

“There are a number of companies like e-DOCUPLUS, smaller, regional companies providing a certain level of services to those local clients, but really not set up with the personnel and infrastructure to provide an enterprise-type managed service,” Rioux explained.

In Southern California, e-DOCUPLUS has been focusing on traditional litigation support. Although the company’s work includes e-discovery processing, it hadn’t fully moved into the managed services space, Rioux noted. Flex Discovery now has the opportunity to offer managed hosting services to e-DOCUPLUS’ established accounts.

Rioux said he sees e-discovery moving toward a hosted model. That said, the company still supports many law firms behind the firewall. He said the company may take the on-premise approach with a client’s smaller, day-to-day projects. With larger, more data-intensive legal matters, Flex Discovery will host those projects for customers in its data center.

Flex Discovery’s data center and headquarters reside in Austin. The company also operates regional offices in Houston and Irvine, Calif. The latter office stems from the e-DOCUPLUS acquisition. Flex Discovery said it will retain all of e-DOCUPLUS’ employees including Tim Morenc, the company’s managing partner an co-founder. Morenc is now managing partner for Flex Discovery in Orange Co.

The Flex Discovery/e-DOCUPLUS example is likely a sign of things to come in e-discovery services. Expect more deals to be done in a segment lacking any obvious nationwide players.