Category: Transcripts

Rick Weber Interview With eDiscovery Today – Transcript

[00:00:06.680] – Doug Austin
Hi, I’m Doug Austin. I’m the editor of Ediscovery Today, a daily blog about Ediscovery information governance, cybersecurity and data privacy trends, best practices, and case law. Welcome to another edition of Ediscovery Today’s Thought Leader Interview Series, where we interview thought leaders in Ediscovery and related legal technologies. Today we’re conducting another Thought Leader interview by video. And our guest is Rick Weber, managing partner of Arbor Ridge Partners. Welcome, Rick.

[00:00:34.040] – Rick Weber
Thanks. Glad. Happy to be here.

[00:00:36.440] – Doug Austin
Rick has been in the industry for quite a while, started as an attorney at an MLA 50 law firm and then became a federal prosecutor for the SEC. In 2000, Rick left the practice of law and co founded Advocate Solutions, becoming one of the pioneers in the Ediscovery industry with the creation of Discovery Cracker, which I not only remember, but used for several years. Since then, Rick has personally sold three other litigation technology companies, having led negotiations and due diligence for all of them. Having started and sold several litigation technology companies, rick has deep industry contacts and an inside working knowledge of legal technology mergers and acquisitions. Rick’s background as an attorney and prosecutor for the SEC allows for a skillful understanding for how to best structure mergers and acquisitions. Rick is also an arbitrator for FINRA and is frequently invited to speak as an expert in the field of electronic discovery and litigation data management at conferences and coe seminars sponsored by corporations, law firms, the American Bar Association and state bar associations. Rick’s overall experience has generated relationships and connections outside of the legal technology industry, thereby creating expanded opportunities for clients. Ready to get started, Rick?

[00:01:54.230] – Rick Weber
I am happy to be here.

[00:01:56.160] – Doug Austin
All right, great. So, Rick, as I mentioned before, you were managing partner of Arbor Ridge Partners. You were a lawyer at an Amla 50 firm, co founded the company that created Discovery Cracker and then had several more exits in the legal industry after that. So how do those roles prepare you for MNA advisory in legal tech and legal services?

[00:02:19.720] – Rick Weber
I think different experiences. So, on the legal side, the front end of the career was able to sort of see where deals went well and where deals didn’t go well. Not all lawyers are created equally, and some lawyers are really good at getting deals done where other lawyers sometimes get bogged down in minutiae, thinking that their role is to eliminate risk. And if you eliminate all risk and both parties are sort of trying to do that, then deals get stuck. So being able to see as an attorney where deals get stuck and to be able to sort of spot check along the way has enabled us to sort of have much smoother transactions. The experience in the industry really is where I’ve spent the bulk of my career the last 25 years, and it’s all been in legal tech and legal services. Having run these businesses myself and having had my own successes and failures we have a very intimate understanding of ediscovery companies, litigation technology companies, legal services companies. And that enables us really to work very well and very closely with our clients, really to try to help shape not only the best story, but also the best opportunity for a successful exit.

[00:03:32.340] – Rick Weber
One of the things that we do is exit planning consultation where we’ll work with companies six months, a year, two years, even three years out before they want to actually even sell their company. And we can start helping them make decisions in real time, but through the lens of M and A. So what decisions you make in business may have a different impact and you’re dealing with an M and A at the end of it versus running your business or building your business along the way. So recognizing the choices and decisions that companies can make on the front end, to have a better exit in six months or a year or two years is really something that we’re able to do with our clients. And I guess lastly, every company has a story and every deal has a story. And to be able to tell that story most effectively really helps us help our clients get the best exit possible. So it’s really that industry expertise and experience and then obviously the deep relationships after 20 years, I mean, it’s maybe one or two degrees of separation from most of the industry players and we’re able to mix and match our clients to sellers with really the best buyers.

[00:04:40.520] – Doug Austin
There you go. You’re a Kevin Bacon of the industry.

[00:04:45.720] – Rick Weber
Thanks.

[00:04:47.400] – Doug Austin
So I’m going to ask a couple of kind of investment type questions that might be helpful for our audience. First one is what’s the difference between venture capital and private equity? And what is MNA Advisory and where does that fit?

[00:05:02.460] – Rick Weber
So it’s a good question. Investors and VC and PE, a lot of people sort of just sort of use those terms interchangeably and they’re really quite different terms. So investment and venture capital tend to be sort of the beginning of life for a company when they’re really like just getting off the ground and looking to bring on investors and maybe they’ll sell five or ten or 15 or 20% of their company, but they’re really looking for money to come into the company and use that money as growth capital to really start hiring new programmers, new salespeople, what have you. So when people talk about VC or investors, really what we’re talking about is helping companies get off the ground and really start to expand their businesses. Private equity is really at the end of the business’s life when it’s, hey, we built this thing, we’re looking for an exit, we’re looking for our payday. Then you’re really looking at that point at private equity groups or in our industry, you’ve got a lot of larger companies, whether they have private equity money behind them or not. But really that exit or that private exit. Private equity stage really is when an owner of a company is really looking to get out of the business or sell 70, 80, 90%.

[00:06:14.420] – Rick Weber
Oftentimes they’ll maybe stick around and have ten or 20% of equity rolled over. So they’ve got still some skin in the game. And that’s good for both the buyers and the sellers. The sellers, it gives them another bite at an Apple maybe 2345 years down the road. And from a buyer’s perspective, a private equity investor, they like having founders with sticking around and having some skin in the game because the business was built on their backs. And most private equity groups recognize that the business will probably prosper better if the key people stick around. So VC is beginning of life. Private equity is sort of the end of life. I tell people that venture capitalists usually invest in dreams and private equity usually invests and buys in realities. So profitability is something that private equity groups will look at. Projections and forecasts are something that venture capitalists will look at. MNA Advisory falls into this, I think it was part of the question. MNA Advisory really is helping businesses who are looking for an exit, either 100% of the company or like I said, 70, 80, 90%, really helping those companies find the right buyers.

[00:07:23.680] – Rick Weber
Again, whether it’s a private equity buyer or whether it’s a larger company in the space who’s looking to buy the company.

[00:07:32.380] – Doug Austin
Okay, well, so you talked about finding the right buyers. So why do companies need an MNA advisor? Couldn’t they just find the right buyer themselves?

[00:07:43.840] – Rick Weber
Yeah, look, in theory, you can in theory, I can cut my own hair and do a few other things. But it’s like anything else. It’s an expertise, it’s a profession. It’s not like selling a house where you just stick a sign outside your door and hope a stranger rings the doorbell and says, we want to buy you. Unlike a house, when we’re helping our clients find a buyer, we have deep relationships with the buyers, so we’re able to bring buyers and sellers together. And finding a buyer really is just part of the process. Getting from an offer, which is typically memorialized in a letter of intent or an loi from that stage all the way through actually closing a deal, that’s a pretty tricky process with a lot of minefields. I mean, it’s a bit like a pregnancy. 100 things have to go perfectly right, and only one thing to go wrong to kill the deal. So working with our clients to maximize the value of their business, as well as navigating all the minefields along the way, are really probably the most important things that we do for our clients. So again, in theory, absolutely someone could find a buyer.

[00:08:56.700] – Rick Weber
But typically when that happens, it’s almost like that someone rings the doorbell and says, hey, we’re interested in your company. And then they get into a discussion, they oftentimes try to sell it. I guess I would say this too, it’s very time consuming. We had a deal not last about four months ago. We had over 100 buyers take a look at this company. And because of our deep understanding of the business and our clients business, we’re able to have one or two phone calls with any prospective buyer before our client even has to get on a phone. We were literally talking about a couple of hundred hours of conversations without having to have the founder or the CEO on a single phone call. And when you’re trying to run a business, those hours are pretty precious. So to have to deal with tire kickers and literally hundreds of hours of conversations with people who may have no interest, real serious interest, it’s probably one of the bigger value adds that we have with our clients is that we’re able to really free their time up so that we can run this process in the background and really not have to bring them into a conversation until it gets serious.

[00:09:57.180] – Doug Austin
Makes perfect sense. So let’s talk trends here for a moment. According to complex discovery, merger, acquisition and investment activity in Legal Services and Ediscovery dropped dramatically last year with barely more than a third of the transit transactions compared to 2021. So what factors do you think caused investment to slow last year, and what do you think the provider landscape will look like in the next few years?

[00:10:23.780] – Rick Weber

So I think there’s probably a couple of items at play. I mean, number one, 2021, I think when we look back, will have been the high watermark for the sellers market. 2022, interest rates were going up, capital was becoming more expensive. So it becomes harder for purchasers to rely on debt, which they oftentimes do to do deals. So the cost of deals goes up. So I think the private equity markets, by and large kind of mirror to some degree the capital markets. And we saw a slowdown, obviously economically across the board. That’s part of it. I think also we’ve seen a fair amount of consolidation amongst certainly Ediscovery companies over the last several years. And companies that were buyers got acquired themselves. Agility and H, five and exact half a dozen to a dozen good medium to large size companies that were good buyers were now absorbed and consolidated. So now instead of six buyers, now Conciliate owns all six of those. You’re down to one buyer. So the number of buyers has shrunk. So I think there’s probably a combination of like musical chairs at some point, there’s just less chairs. That’s part of it.

[00:11:45.980] – Rick Weber
And then I think the other part of it. Again, the private equity market, the capital market, the M and A market has sort of mirrored what’s happened sort of with the housing market and the general economy going forward. Look, good companies are still getting bought out every day. I think things are moving more slowly and buyers are getting a little more picky and again taking a little bit longer with diligence and whatnot. So I still think it’ll be a strong market in the next several years, maybe similar to what it was last year, probably not as fervent as it was in 2021.

[00:12:27.820] – Doug Austin
Okay, so what do you think are some of the current trends in legal tech and Ediscovery that will influence investment and MNA in the industry this year and beyond?

[00:12:40.720] – Rick Weber
Well, I think probably one of the biggest trends right now, and I think it’s a bit of an unknown, and I think you even wrote on this maybe last month, is really AI and where we may now be with AI. I think people certainly in our industry have been talking about AI for easily the last decade. But I think we’re finally now at the point where there’s real AI or AI that could have a very disruptive or potentially disruptive force within not just Ediscovery and not just litigation and legal technology, but obviously across the board, but really to the practice of law. I think lawyers are probably when we look back, I think this might be the tipping point for AI and how it’s being used in the practice of law. And I think lawyers who embrace AI will prosper. I think lawyers that don’t could be in a bit of a difficult situation. I think we could potentially be at the point where AI is able to start managing document reviews easily, sort of rough drafts of motions and things like that. So as AI has a direct impact on the practice of law, that will then have an indirect impact on legal service providers and legal technology providers.

[00:14:06.950] – Rick Weber
So I think it’ll be interesting to see the full impact that AI has in the next several years on the practice of law and what that then has on the service providers and the technology providers. I think being Nimble is going to be an important aspect. Again, the technology is there to augment the practice of law and the service providers are there to augment the practice of law. So I think having a very watchful eye on how the practice of law changes over the next few years is going to have a very direct impact on the service providers and the technology providers, which will then have an impact on the M and A markets. I guess I would say, in short, legal technology companies that are based on true AI are probably going to prosper significantly more than technologies that maybe are a little older or don’t. And I think service providers who embrace AI to augment their services are going to prosper better than those that don’t.

[00:15:08.160] – Doug Austin
Certainly doesn’t surprise me. Seems like in the past couple of months I’ve joked with a couple of people that anytime I want to boost my views on Ediscovery today, I should write an article about Chat Gbt or something like that, because it seems like everybody’s talking about the AI technology today. Yeah, for sure. Absolutely. So certainly in the past few months there have been layoffs at several, well, several companies throughout all industries and certainly several legal tech companies, including those in the Ediscovery space, and many of them are publicly or capital partner owned. So what influence do you think outside investment has on staffing and potential layoffs?

[00:15:53.100] – Rick Weber
I think part of it depends on how much of the business the private equity groups own. Again, typically in sort of the perfect case or the typical case, I would say for a private equity group when they come into a business is they buy 70, 80, 90% of the business. The founders of the business retain 1020 30%, with the idea being that those guys or women got the company. To that point, they’re best equipped to continue to run the business. I think some private equity groups are more hands on than others. Obviously the playbook for a private equity group is to buy a company, grow it over three, four, five years, both organically and then through consolidation and more MNA and then to flip it. So in order to make money, they have to grow not just the top line, but they also have to grow the bottom line. And obviously, if you’ve got an overinflated payroll, a good way to increase the bottom line is to reduce expenses. So I think there is definitely an influence of the third party owners over maximizing profitability. Some are a little more hands on and get involved in the micro and the macro of hiring and firing.

[00:17:11.420] – Rick Weber
But I think there’s also a bit of contagion. You see one, Facebook does a ton of layoffs and now all of a sudden if you have a bunch of layoffs, it may not make news. So you see concilio do layoffs or you see relativity. They did some layoffs. I think Disco did some layoffs. If those groups are laying people off, then all of a sudden you laying people off. Doesn’t look so bad and it doesn’t even get talked about. So I do think there is some level of contagion amongst the like minded or like companies that are of similar nature. Certainly there were some hiring challenges for companies over the last few years. It was a very tight labor market. I think companies probably overhired and now realizing that maybe they’ve got a little bit overcapacity in certain areas. So we’re not as close to the sort of the staffing side of things. But I think there’s probably a combination of factors involving that and like anything else in our industry, it’s cyclical. So companies might get a little too lean and may have to start staffing back up again. So I would not anticipate that this is going to be a long trend.

[00:18:28.400] – Doug Austin
Yeah, certainly last year we were talking about the this time we were talking about the great resignation. So kind of exactly what you mean when you talk about it being cyclical goes from one kind of range to the other. So certainly something to keep an eye on. So, last question I have for you, and this would be something that I think a lot of people would be interested in, is what advice do you have for a company that’s thinking about selling and trying to position for the best success?

[00:19:01.660] – Rick Weber
Maybe a few things. It’s always better to sell from a position of strength and growth than it is from a position of weakness. And it’s probably a good time to start thinking. First of all, you should always be thinking about selling your business, whether you’re going to sell it or not. Running your business as if you are going to sell it is just a smart way to run a business. It just makes you more lean and effective. It probably makes sense for companies to start thinking about the choices that they make early, going back to the beginning part of the conversation, the exit planning consultation. So it’s probably better to start thinking six months or a year or even a couple of years out where you want to be. It’s important to understand the mechanics of how deal flow works and what buyers look at. And that’s something again, we can kind of work with our clients and help them navigate on the early side of things. But you need to build your business so you’re not going to want to make choices that are going to hurt the business just because you think they may help something else down the road.

[00:20:18.730] – Rick Weber
So it’s a bit of a balance, but I would just say grow the best business that you can. Profitability is important. Revenue is important. Growth is important. Positioning yourself for what other companies are going to want is important. Client distribution is something that’s very important. Companies that have a disproportionate amount of revenue coming in from a small number of clients can oftentimes hurt a company. It’s client concentration. So it’s obviously better to have more clients than less. That said, you’re not going to tell a client to stop giving you work because all of a sudden but diversification is an important factor as well. But I think it’s a very still legal technology, legal services is still extremely robust. Lawyers have become very busy over the last few years. The legal industry seems to be very strong right now. So I anticipate that the next several years will continue to be strong for legal technology, legal Services, M and A.

[00:21:22.280] – Doug Austin
Yeah, I certainly agree with that. All right, so I want to thank my guest, Rick Weber of Arbor Ridge Partners, for the interview. Thanks, Rick.

[00:21:31.310] – Rick Weber
Thank you. It was great.

[00:21:32.890] – Doug Austin
Yeah. And I want to thank you all for tuning in to another edition of Ediscovery today’s Thought Leader interview series. We’ll see you next time on the Ediscovery today video.

[00:21:42.330] – Rick Weber
Net.

[00:21:42.920] – Doug Austin
Goodbye. Bye.

RICK WEBER INTERVIEWED BY THE REINVENTING PROFESSIONALS PODCAST – Transcript

Reinventing Professionals Podcast Host, Ari Kaplan, interviews Rick Weber, Managing Partner of Arbor Ridge Partners, about Legal Technology & Legal Services M&A and the current trends.
Reinventing Professionals Podcast is designed to offer ideas, guidance, and perspectives on how to effectively navigate a perpetually shifting professional landscape, with a unique focus on the legal industry and the technology that is driving its evolution. Host, Ari Kaplan, is an attorney, author, and leading legal industry analyst. He has been sharing interviews with industry leaders shaping the next generation of legal and professional services since 2009.

Arbor Ridge Partners is a business broker that focuses on mergers and acquisitions for legal software, litigation support, computer forensics, and eDiscovery companies. With over 60+ years of combined industry experience, legal backgrounds, first-hand industry M&A experience, and deep relationships, Arbor Ridge Partners helps maximize value in the purchase and sale of Legal Technology & Legal Services Businesses. Rick is an attorney and former federal prosecutor and the co-founder of Advocate Solutions – becoming one of the pioneers in the eDiscovery industry with the creation of Discovery Cracker.

Listen To The Podcast


Ari: This is Ari Kaplan and I’m speaking today with Rick Weber, the co-founder and managing partner of Arbor Ridge Partners, a Legal Technology and Legal Services M&A Advisory Firm. Hi Rick. How are you?

Rick: I’m good, how are you?

Ari: I’m great. I’m looking forward to speaking with you today. So, tell us about your background and the genesis of Arbor Ridge partners.

Rick: I’ll try to do 25 years in less than 25 years. I started after law school in 1994 as a lawyer in Chicago at a firm called Mayer Brown and was there for three years. I left Mayer Brown to become a prosecutor for the United States Securities & Exchange Commission where I got to investigate and prosecute the bad guys – which was a fun job. And then in around 2000, I knew that I didn’t want to stay in the government forever, so at that point I decided to leave. I realized that I really didn’t want to go back into the law firm environment and kind of found myself in a sticky situation and at a crossroads in my career. A good friend of mine at the time was a legal technologist, for lack of a better word, and he and I got to speaking and one thing led to another in the conversation and we decided to take his legal technology background and my legal background and start a litigation software development company called Advocate Solutions.

We ended up developing and pioneering eDiscovery with a product called Discovery Cracker, so for any of your older listeners that should hopefully at least resonate a little bit. We sold that company in 2003 and I stayed on with the company that bought us until 2006. In 2006 I ended up getting involved with another legal technology/legal services startup company called eDirect Impact out of Houston. We were developing some eDiscovery project management tools as well as doing traditional eDiscovery hosting and processing, so it was a combination of litigation software development as well as some legal services. In 2010, we sold 51% of that company to a bigger company that ultimately got bought out. We had yet to be fully integrated into their company at the time that they sold, so through a long series of events ended up getting that company back in 2012. In 2013, I then merged it with a company called Elijah out of Chicago.

Elijah was and is a computer forensics company doing some eDscovery and the CEO and founder of Elijah, coincidentally – or maybe not so coincidentally, was a good friend of mine. His name is Andy Reisman and he also started at Mayer Brown with me back in 1994. He and I had been friends for years and we decided to put those two companies together where we could provide end to end computer forensics work with the eDiscovery piece. As those two companies began to grow, we saw that while they fit really nicely on EDRM model – as a lot of companies in industry see where forensics leads into data harvesting, which leads into eDiscovery processing and hosting – that they’re two very different businesses. One is a technology business where you sell by the gigabyte and the other one is more of a consulting business or even like a law firm where you’re selling a very specialized skillset on typically an hourly basis and there’s very little crossover between the skills of the people doing the forensics work and the skills of those doing the eDiscovery work. So, we ended up spinning off the eDiscovery business unit and selling that to a private equity group in 2017. After that, a lot of what I was doing went away since I was managing all of the due diligence that led up to that acquisition as well as the eDiscovery business unit. In the summer of 2018 – taking lessons learned with having had four exits in the eDiscovery and legal technology space, having bought a few companies along the way and my legal background (as with my business partner who also had had some exits and bought some companies and has the legal background) – we started a brokerage partners with the idea being that we could leverage all the relationships, industry knowledge, industry experience, legal backgrounds and help companies that were looking to sell, find a better exit and companies looking to buy companies, help them find better targets. We’ve since added another person to the team who’s also an attorney and has over 20 years of industry experience as well. So really again, it’s a long arc that got me from the traditional practice of law to cobbling everything together to help industry companies find better exits or find companies to purchase.

Ari: What exactly is legal technology and legal services M&A advisory?

Rick: It’s a lot of words that really means something very simple. M&A is mergers and acquisitions. Advisory is really just giving advice on buying and selling. So, we’re kind of fancy business brokers for legal technology and legal services companies where we have confined ourselves to the vertical. Given that our strength and our skillset and really our value proposition is that we have lived in this space for so long, that we pretty much know either directly or indirectly most of the buyers and most of the sellers. We are very good at being able to match sellers with buyers and buyers with sellers. In short, it’s really just mergers and acquisitions for companies that fall into the legal technology and legal services arena and includes eDiscovery, computer forensics and other Legal services companies. We help sellers who want to sell get a better exit and we help companies looking to buy, find the right target.

Ari: Take us through that process. Who contacts you? Who do you then contact? How does this generally work?

Rick: It depends on whether we have a sell-side mandate or a buy-side mandate. I’ll answer the question from a sell-side mandate, since we do more of that and it is a bit more traditional. It’s usually one of two things: either people that we’ve known for a while or it’s people that know of us that decide that now’s the time to sell their company. Or, it can be that a company is thinking of selling their company in let’s say the next year or two and wants to plan ahead. In this case, if they know they want to sell in a couple of years from now, we can do what we call Exit Planning Consulting whereby we help those companies evaluate business decisions and financial decisions today through the lens of M&A with an eye toward an exit down the road. For example if one of these company’s is say looking to spend money on a new server farm or whether to hire a new employees or sales person, we can have strategic conversations with them about what impact those decisions will have – for better or for worse – if they want to hit the market in say 9 or 12 months.

It’s kind of like when a real estate agent stages a house. We can help companies be in the best position to get the best exit.

Now, the way the process works typically is we’ll enter into an engagement with them whereby we’ve become their exclusive representative and help based on what they’re looking for. In some circumstances, some of the executives are looking to get out of the business completely where in other circumstances, some or all of the executives are looking to stay on, and depending on their particular circumstances and what they’re looking for, we generally have a pretty good idea of who in the industry is acquiring and who would be a good fit for the right group. That’s where our relationships really come in handy as we can match the right buyer with the right seller. In the process, I typically would put together a list of potential buyers that I think would be a good fit and go over that list with my client. We would then reach out to potential buyers and start presenting to them the opportunity with data – whether it be financials and/or business documents – and trying to get interest from particular groups. And then that generally whittles itself down to groups that are somewhat interested to then more interested. It’s a process and can be kind of like dating: you have a first date where you talk about things generally, followed maybe with a second day where you talk about things more and then things progress. The first big event is what’s called a letter of intent where it would be a letter from a specific company that says we want to buy you and we’d like to buy you at this purchase price. A seller would then agree in principle to those terms and generally means that that buyer and that seller would then be working exclusively towards getting a deal done. LOI’s typically have what’s called a “no shop clause” whereby a seller wouldn’t be allowed date on the side if you will, i.e. not be allowed to have discussions with other companies about a deal while they’re going through a due diligence process. Depending on the company and the buyer deal can take four or five months on the short end to anywhere from nine to twelve months – and sometimes even longer – on the longer end. But, right now in the industry, I would say deals are getting done in five to nine month range.

Ari: What’s the difference between private equity and venture capital in the context of M&A?

Rick: M&A really would be more wedded with the term Private Equity because private equity groups are looking to buy usually a majority to a complete ownership interest in a company. That lends itself towards mergers and acquisitions because it’s in essence an acquisition by acquiring a majority ownership in the company. Venture capital is more of an investment – i.e. companies that are looking to fund early stage companies for broad growth. Typically they don’t take a majority interest. Instead, they come in maybe in the five, ten, fifteen, or twenty percent range and there’s often different stages in which a venture capitalist would come in and invest. Series A, B, C, and so on. Valuations of target companies change over time depending on the growth of the company. In a nutshell, venture capitalist look to invest in early stage companies that are looking to grow and have really large returns on the initial investment.

I like to tell people that the venture capitalists buy dreams where private equity groups by realities. Private Equity groups are not investors per se, where they’re buying for growth. They are, but they’re really buying companies to then hopefully see some growth, but their growth expectations are significantly different than a venture capitalists’. Venture Capitalists would be looking for usually a 10X return on their investment, recognizing that a few of the investments they make are going to hit, but many are going to lose. It’s kind of like in baseball where you can strike out seven out of ten times, but get on base three out of ten and you then would go to the hall of fame. That’s kind of similar to venture capitalists. Private Equity groups wouldn’t be very successful if they had a .300 batting average. They’re looking to buy companies that are strong and solid, but maybe has an executive team that’s looking to either leave or cash out in part, and then maybe they bring in some investment funds along with maybe a different management team, but look to continue a trend to then sell it within a couple of years at some multiple that is usually significantly less than a 10X. If they can get that type of return, they’re happy obviously, but their expectations are significantly different.

So, private equity, again, is really more buying companies or a majority interest in companies that have growth and a stable client base and growing it. They’re also looking for companies that typically have a minimum amount of net profits anywhere from $1M on the very low end and some won’t even come in until there’s at least $3M of profitability and above. Whereas venture capitalists oftentimes we’ll invest in companies that are actually even losing money.

The parameters are very different. The two terms are oftentimes conflated, but they’re really quite different entities looking for different things.

Ari: What’s the current state of M&A for legal technology and legal services companies today?

Rick: I think it’s strong. I think it’s been very, very strong for the last few years. There’s been a lot of industry consolidation, certainly the eDiscovery space. We’ve seen a lot of small and medium size eDiscovery companies take on private equity investment with the idea that it’s become harder to grow organically in the vertical than it used to be. Companies instead of trying to grow by hiring a bunch of sales people and building an office in a particular area are finding it easier to buy the revenue from an existing litigation services or eDiscovery or computer forensics company. M&A has thus been very hot for the last several years. I think it’s going to remain strong through 2019 and probably into 2020. I do think that the window’s probably going to start to tighten up a little bit. One of the things that I think we’re going to see in the next year or two is that some of the larger buyers, the groups that have been private equity backed, that had been buying up companies, are going to become sellers at some point in the near future. That will have a double impact as one, there will be less buyers and more sellers, and two that could have upside down pressure on the existing groups that are selling. Also, over time, there are less and less groups out there. There are definitely more companies coming online that are doing litigation services, but I think you’re seeing more companies selling then you’re seeing startups. There’s less sellers out there today and less than there were probably two, three years ago. I think there will be a slowing down in activity over the next couple of years, but I do expect that we’re going to still see M&A being relatively strong for the next couple of years.

Ari: This is Ari Kaplan speaking with Rick Weber, the co-founder and managing partner of Arbor Ridge partners, a legal technology and legal services M&A advisory firm. Rick, thanks so much.