Why it matters who you choose to buy eDisclosure / eDiscovery from.
Article written by James MacGregor, Founder and Manager Director at Ethical eDiscovery.
Before I set up Ethical eDiscovery in 2022, I had experienced working in several different eDiscovery consultancy firms supporting law firms, and corporate legal departments, with the collection and review of digital evidence.
Like most people who are driven to start their own businesses, I wasn’t an easy to manage employee, because I was reluctant to accept things as they were. As I’m sure many of the people who managed me would attest, I relentlessly challenged the systems I found myself in, because I always thought there was a better way of doing things. That’s why when I did eventually start my own firm, I wanted to build something different from what already existed and I was keen to avoid the following pitfalls:
Investor-owned businesses
Many of the traditional eDiscovery service providers are owned by institutional investors. Whether via private equity, or on the publicly traded markets, eDiscovery businesses are attractive investment vehicles for high-net worth individuals because they can grow rapidly and achieve high profit margins. eDiscovery firms owned by passive investors who don’t work in the business will make the case that this external ownership gives them financial stability and helps manage their clients’ risk by ensuring sufficient cashflow to weather the ups and down of the legal market. However, often, the reality is that when legal support businesses are owned in this way, it drives the following behaviours:
The desire for an exit strategy
For eDiscovery businesses owned by private equity firms, investors are often looking for short-term returns. They normally operate on a 3-5 year investment cycle, meaning that they aren’t aligned with the long-term interests of their clients. They aim to make good on their investment as quickly as possible (the goal is normally to triple the value of the business they acquire). If this can be achieved in 3 years, that’s often the investor’s preference and if this return looks unlikely to be derived within 5 years, the investment may not be seen as worthwhile. Once these growth targets have been achieved, the business will be sold (likely to another private equity investor) for the cycle to repeat. Some cases will last for longer than 5 years, by the time they’ve gone through various levels of appeal. On that basis, if you’re buying from an eDiscovery business owned by a PE firm, chances are that that the owners of the business when you first select them to work on your case, will be different to the owners of the business when that litigation ends.
So how does that impact the client experience?
For investors to make these aggressive returns within such short time frames, they rely on the swift acquisition of other eDiscovery business, to allow them to quickly expand their client bases. By identifying other businesses in different geographies or industry sectors, where there is little client overlap, the Private Equity Playbook is to acquire these firms and fold them into their established way of working. In practice, that means making redundant any overlapping roles, and consolidating other combined expenses such as office leases, software costs, etc. In essence, the acquired business evolves from what it was that attracted clients to work with it in the first place, into the bigger business that has now acquired your eDiscovery work.
A lack of personalised client service
Following the merger of eDiscovery businesses there is often a drop in customer service. The people who built the business to service the clients they attracted are no longer the decision makers for how that business should be run. Instead, outside investors, who likely have never worked hands-on in the eDiscovery industry, become responsible for dictating the corporate strategy, which normally involves offshoring most of the operational work to low-cost labour markets and upping investment in the salesforce, by hiring new sales people and increasing the compensation for those already in place who hold relationships with key accounts. There is no longer a desire to provide long-term client satisfaction, the focus moves to closing quick deals to pump up the revenue and sell to the next investor.
Clients have the power to do choose an alternative provider
Choosing a PE‑owned eDiscovery provider ultimately strengthens a cycle that prioritises short‑term returns over long‑term quality, or partnership with the case team’s goals. Over time, that shapes the market in ways that might not benefit clients, practitioners, or the future of the industry.
Why not work with a business that eschews outside investment and isn’t planning an exit strategy? I like what I do, and the people who work at Ethical eDiscovery seem to feel the same way. We care about long-term relationships with our clients, and we want to build something sustainable, organically, the way people used to build business, for the benefit of everyone working within them, not to line the pockets of outside investors who don’t care whether your case is successful or not, or whether you choose to work with them again in the future.
At Ethical eDiscovery, we are invested in the outcome of your case because we want your next instruction. We want to assist you in getting the best outcome for your client so that you call us the next time you have a dispute that needs support with the management of digital evidence. We’re not looking to make a quick return on a single case, we’d like to become your trusted partner to help you manage your entire litigation portfolio.
