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The Disruption: Consolidation Is Significantly Altering the Legal Tech Landscape in 2023

Despite much talk of deals and investments generally being down in 2023 as compared to 2022, legal tech has seen its fair share of high-profile M&A activity in recent months.

In August, e-discovery provider Reveal announced the acquisition of two other major e-discovery companies, Logickull and IPRO, as part of an ongoing pattern of acquisition activity in recent years and a desire to form what it called a “superpower” in the e-discovery space. Following the acquisition, the total investment by Reveal’s primary stakeholder, K1 Investment Management, was estimated to exceed $1 billion.

Two weeks earlier, Thomson Reuters officially completed the acquisition of legal research company Casetext for $650 million cash. The deal elicited strong reactions from both clients and competitors when the definitive agreement was first announced in June. In April, the industry saw another major legal research consolidation, when US-based Fastcase merged with global company vLex, creating an international law library of over one billion documents.

The industry should no longer be surprised when new mergers or acquisitions are announced. Following a slight uptick of M&A activity in Q2 2023, consolidation ramped up over the summer. 

From early-August to early-September, the announcements kept coming. In addition to the Reveal and Casetext news, over that one month span, Consilio acquired U.K companies Lawyers On Demand and SYKE; Alt Legal acquired TM Cloud’s cloud docketing system; Level Legal acquired PC Forensics; Actionstep acquired FilePro; CiteRight and Jurisage merged; and Harbor formed out of a combination of HBR Consulting, LAC Group, Wilson Allen, Younts Consulting, Aurora North and KP Labs.

These are just some of the highlights in a year that has been, and likely will continue to be, marked by legal tech consolidation. Whether the consolidation trend will ultimately be a positive or a negative thing for the industry, however, is currently a matter of much debate.

The Conversation

For many, consolidation in the legal tech market is not unexpected, though it is nevertheless still significant. Between a recent proliferation of legal tech companies in niche areas and the near-constant integration of generative AI into legal tech products – and, as a result, often too many AI-powered competitors competing for supremacy in limited verticals – some degree of consolidation is inevitable.

For example, at the annual CLOC Global Institute in Las Vegas in May, several legal professionals noted the explosion of contract lifecycle management (CLM) providers offering similar, generative AI-powered products and questioned not only how many the industry needs, but also how many could feasibly survive. This led to a lot of speculation that future M&A activity in the CLM space is only a matter of time. 

The recent major consolidations in the legal research and e-discovery spaces have garnered mixed reactions, with some in the industry believing that the marketplace benefits from fewer players. As Haresh Bhungalia, CEO at Casepoint put it, “I think consolidation is necessary in our industry. There are a number of players and consolidation will help bring the best capabilities within these organizations. It will also allow the broader market to … be able to choose the best technology for their needs.”

Sara Perkins Jones, e-discovery consultant and president of Spark eDiscovery, offered an opposing view. “I am always worried about consolidation because I think that we’ve really benefited from the new options that are available and the creativity that they brought to pricing and to features and to UI design,” she said.

These responses add to what Brett Burney, principal of Burney Consultants and e-law evangelist at Nextpoint, described as “a lot of nervousness” in the market, resulting from changes that he sees as “inevitable.”

For now, the consolidations are still new and it’s too early to tell who the ultimate winner in the market will be, said David Cunningham, chief innovation officer, Reed Smith.

The Significance

A chief area of concern for many if the legal tech market continues to consolidate is the effect on pricing. For example, in the legal research space, subscription costs have long been a point of contention. When there are fewer significant players in the market, options for affordable research sources start to evaporate. If prices continue to climb and choices continue to decrease, desperation may lead some to turn to free tools like ChatGPT, which has proven to be unreliable for use in legal research.

Going hand-in-hand with the pricing issue is the question of access to justice. If increased consolidation is causing pricing concerns for even profitable institutions, those without resources will be even more reliant on a few top players in the market to make tools available for free or at a significantly reduced price. 

Finally, the potential for more M&A activity is impacting how legal tech companies are going about building up the necessary talent base to adequately compete in a generative AI-dominated market. For example, the Thomson Reuters acquisition of Castext raised a ‘build vs. buy’ debate – namely, whether it’s smarter for companies to be investing in building their own products and talent base from the ground up, or whether the more sensible move is to capitalize on the experience of others in the market who have had a head start when it comes to generative AI development.

The Information

Want to know more? Here's what we've discovered in the ALM Global Newsroom:

• Thomson Reuters Officially Acquires Casetext for $650 Million as Deal Closes
• Reveal Acquires Logikcull and IPRO to Create E-Discovery 'Superpower'
• Fastcase Merges With vLex, With Plans for Integrated AI-Powered Research Offerings
• Legal Reacts to Thomson Reuters' Casetext Acquisition: 'The Winners Are Yet to Be Determined'
• Worrying Consolidation or Healthy Competition? E-Discovery Industry Reacts to Reveal Acquiring Logikcull, IPRO
• Legal Research Consolidation Is Setting Off Some Alarm Bells, but It May Be Temporary
• LexisNexis and Thomson Reuters Weigh In on the Future of AI in Legal Research
  
• How Long Is Your Legal Tech Vendor Going to Be Around?
• Legal Tech Deal Tracke

The Forecast

The story of legal tech consolidation in 2023 is likely not over. While recent M&A activity has been significant, there are still thousands of legal tech companies across the globe, many of which offer similar products and overlapping services, with more startups continually emerging.

Going forward, competition for market share will continue to be fierce, and not every company will survive in its current incarnation. Moreover, as generative AI continues to advance and the war for AI talent gets tougher, further consolidation will be inevitable. 

As a result, legal should be prepared for changes in who their future vendors will be, what prices they’re expected to pay, and more.

Stephanie Wilkins is the Editor-in-Chieft of Legaltech News. Contact her at swilkins@alm.com and follow her on LinkedIn.