Emerging eDiscovery vendors may find traditional sales and delivery approaches ineffective as simply being “reactive” to lawsuits gives way to a more “proactive” enterprise sales model. Vendors choosing to be proactive may start by addressing compliance needs for preventative best practices and solutions that ensure electronically stored information (ESI) is properly captured, identified, preserved, and analyzed. Along the way, considerations around scalability, technology, and a solutions roadmap will help differentiate eDiscovery vendors from competition as they become further tied to the ongoing convergence between content optimization, search, compliance, and knowledge management.

An in-depth understanding of the legal industry vertical is important but alone is not enough. Not all vendors who claim to provide eDiscovery features truly offer them. and it is impractical and costly for organizations to use numerous tools and approaches for each need and gain accurate and complete eDiscovery results. Because many roles within organizations leverage information and document handling and storage tools. a new spotlight has been cast on the importance of eDiscovery. images) with a strong focus on compliance. and legal departments need a common platform. documents. rising volumes of content. secured. and archiving. Alongside eDiscovery. When combined with the increasingly “risk aware” culture that permeates many techenabled organizations. Given all the noise. the tools required to manage and optimize this growth call for advanced information management solutions – features that are at the core of eDiscovery and enterprise-wide compliance strategies. they also have needs for eDiscovery – naturally leading to inconsistent definitions and vendor solution approaches. This report is TripleTree’s second publication on Compliance and Risk Management (see Next Generation Compliance for additional perspectives). archiving). It is further reinforced because eDiscovery spans a number of functional areas (search. organizations are expecting more consistent content management solutions. litigation support is the biggest driver for eDiscovery processes and procedures and represents a key reason why knowledge workers. IT. it’s easy to see how headaches for CXOs are multiplying and why more mature eDiscovery approaches are warranted. In response. located. Federal Court rulings from tech-savvy judges. identification. For CXOs. Vendors who directly serve the legal market and provide (or partner) with technology solution vendors to address complex eDiscovery and information management problems are the strongest contenders for market leadership. and other new government regulations are driving eDiscovery solutions to fill an important gap that exists between IT and the legal world. and more complex content management workflows. PAGE 2 . In addition. we consider the breadth and context of data growth across all industries to be significant. Our team currently tracks 70plus vendors who we characterize as eDiscovery specialists. best in class eDiscovery vendors are engineering their applications and services (and directing their messaging) to tie together disparate formats of electronically stored content and information (email. Today.INTRODUCTION eDiscovery solutions optimize how electronically stored information (ESI) is sought. Legal precedents. and searched with the intent of using it as evidence in a civil or criminal legal case. It briefly assesses eDiscovery through the lens of technology and builds on the premise that eDiscovery solutions exist as a subset of broader compliance automation initiatives. we are watching a myriad of global firms chase the same fragmented market drivers of content management. search. Many factors contribute to eDiscovery’s increasing relevance and alignment alongside other business applications. content management. At TripleTree. content analytics.

Figure 1: Compliance Q-Diagram Goverance. While this attempt at mapping such a wide array of compliance solutions across a continuum may not be perfect.The functional micro-disciplines of compliance and eDiscovery are illustrated in TripleTree’s proprietary Q-Diagram (Figure 1). Risk & Compliance (GRC) Business Risk Contract Management Training Certification Marketing Compliance Human Resources Presentation / Review Processing / Analysis Preservation / Collection Content Management Message Security Data Backup / Archive IT Standards/ SOA Disaster Recovery/ Continuity Project Portfolio Asset Management Management Resource Management Change & Configuration Management Service Management Industry Corporate Specific Filings Environmental. Regulations Health & Safety Regulatory Compliance Financial Controls Internal Audit Enterprise Risk Operational Risk Fraud Assessment/AML Risk Analytics Ethics Programs eDiscovery IT Compliance Capacity Planning Performance Management Security Management User Activity ID Management Monitoring & Segregation of Duty $5 Billion Segment by 2011* IT Governance * Source: Forrester Research Source: © 2009 TripleTree. LLC. All rights reserved. Unauthorized copying is prohibited. PAGE 3 . it goes beyond the grid style rankings of many research companies by acknowledging specific and adjacent compliance technologies.

and billable hours. and services range from hourly and project based consulting. cost sharing. and could also be an installed appliance with firmware. to tech-enabled business services (TEBS) and outsourcing. Specialist vendors can’t count on any alliance to result in a preordained strategic exit. Software ranges from traditional on-premise licensing. PAGE 4 . Perhaps the most critical component of an eDiscovery solution is its ability to scale quickly and efficiently while integrating with other data sources.$50m annually but cannot accelerate to the next plateau of growth.MARKET INFLUENCES The eDiscovery landscape is complex and suffers from a number of misconceptions. Platforms Are About Scale Not Size. Technology Delivery Models Define Scale. sales (conflicting messages). Professional services. to Software as a Service (SaaS). eDiscovery vendors bring solutions to market with a variety of pricing models that include subscription. but they can usually count on a meaningful partnership to introduce new market opportunities that may have previously been unattainable. Because first impressions are critical. the case-driven model has become popular yet it exposes vendors to risk. the eDiscovery market now calls for unique expertise that should force vendors to consider unique IP and scalability above revenue size and capacity as a key indicator of success. Too often vendors point to their revenue size and/or the amount of data they manage as the main benchmark(s) for success. to hosted licensing. Many eDiscovery vendors began as professional services firms. services-intensive businesses may struggle to make the transition to proactive eDiscovery because of the inability to scale quickly. Other important business considerations: • Business Models. case volume. some of which are clarified below. winning exits for eDiscovery vendors have consistently been a match between a global software leader and a specialist vendor whose solution complements the functionality of the larger acquirer. But like any business. A considerable number of eDiscovery vendors post revenues between $30m . In particular. including limited revenue visibility. services. All point to the most important aspect of a distinguishable eDiscovery business: scalability. and hybrid technology delivery models make up the vendor landscape. software. However. As vendors who are truly “emerging” (< $20m annual revenue) manage through a critical stage of development and growth for their business. • End-To-End eDiscovery Solution Roadmaps Represent Strategic Challenges. With few exceptions. Much of the eDiscovery market has been defined as “services-driven” – a tough basis on which to scale revenue as the market transitions to more proactive solution selling. Hybrid technology delivery models blend software and services around a proprietary approach. taking on case-loads (and customers) and the requisite workloads to drive revenue. wasting a year (or more) with the wrong partner can impact marketing (inconsistent positioning). and customer service (up-sell and cross-sell). law firms and offices of the general counsel don’t want to pay for services they don’t use – thus. TripleTree has witnessed more than a few who have become distracted by partnering opportunities lying outside of their core competency. Specialized eDiscovery vendors survive on their ability to execute on a specific feature set.

As enterprises further enmesh compliance disciplines into their workflows. and corporate counsels continue to share eDiscovery responsibilities. Evolving A Proactive eDiscovery Approach. pharma. Even global vendors with content management and other significant resources at their disposal don’t have the tools and expertise to execute a seamless transition into eDiscovery success. Moreover. PAGE 5 . knowledge workers. Distinct knowledge of the legal market will be table stakes for eDiscovery vendors who aspire to successfully compete as the market evolves. including content management features that can integrate with other front and back office applications like ERP. and financial services are still playing “catch up” to new data management Traditional Content Management Practices Alone Aren’t Enough For eDiscovery.The Electronic Discovery Reference Model (www. search) • Does not show how each functional solution integrates • Too easy to claim full end-to-end functionality Figure 2: The Electronic Discovery Reference Model (EDRM) Processing Preservation Information Management Identification Collection Collect Analysis Review Production Preservation * Source: EDRM . The Electronic Discovery Reference Model (EDRM) serves as a good framework for understanding eDiscovery processes.edrm.e. These approaches will be most relevant as proactive eDiscovery vendors begin to address broader enterprise compliance and content management needs. and delivery model). scale. TripleTree expects vendors to update supported file types in order to reach beyond email and unsecured file formats to gain traction. However. these investments will be justified by the simple avoidance of high risk and penalty-ridden failures to comply with legal precedents. Understanding the limitations of the EDRM are crucial when planning or developing an eDiscovery solution and roadmap. the corresponding reliance on archiving and retention will also increase.Look To The EDRM Framework As A Reference (Not A Roadmap) For Value Creation. and Customer Service. The following points summarize several limitations of the EDRM: • Does not capture all eDiscovery processes • Not all eDiscovery components can be positioned definitively in a single category on the model (i. CRM. While business unit executives. the EDRM is limited in its ability to capture functional needs along the eDiscovery continuum and does not adequately address the individual aspects of eDiscovery delivery that can vary significantly from one implementation to another (data volume. size. nor does it address how specialist vendors interoperate along the functional continuum. highly litigious verticals like tobacco. These types of organizations will be the early adopters of in-house (or proactive) eDiscovery deployments. energy.

publishing. content and storage. The eDiscovery Leadership Race Is On. global vendor relationships will be quite beneficial for leadership and attracting specialist eDiscovery vendors looking for partnering and growth opportunities. storage and archiving. PAGE 6 . strong features. Proactive eDiscovery should be considered a strategy rather than an objective. For every well-aligned eDiscovery vendor with strong partnerships there are two that don’t understand how the eDiscovery puzzle fits together and therefore cannot identify and secure beneficial partnerships.” the 70plus specialist vendors we are tracking will need to appreciate some of the trends and attributes of market comparables shown in Figures 3 and 4. eDiscovery exits are occurring with predictable frequency. and the ability to easily integrate with internal data workflows. Global content management. global software providers will look to acquire specialist vendors with quality technology. For emerging vendors. Because eDiscovery solutions usually involve a number of buying influences within an enterprise (especially so for electronic document delivery). These acquirers include vendors across pure-play eDiscovery. With market leadership still “up for grabs. Multiple enterprise categories are filling out gaps in their portfolios by targeting emerging vendors through M&A. performance objectives are critical and for domains like eDiscovery. global software providers have multiple levels of enterprise-wide relationships – relationships that have likely been cultivated over a number of years. As enterprises make the push to control eDiscovery processes internally. specialized knowledge of the eDiscovery domain and workflows will be the key differentiator sought by global firms and will represent a good starting point for strategic partnering discussions. or service provider partnerships can help emerging firms whose point solutions may require an “anchor solution” to enhance competitive credibility. An advantage that emerging vendors have over global software providers is specialized knowledge of the eDiscovery domain and workflows. As with any strategic alliance.FINDING AN EXIT Partnering To Broaden EDRM Functionality Can Make Sense. a good reputation. services and consulting. enterprise compliance. Among the most attractive qualities of the eDiscovery market is the intense interest from a wide array of buyers. subject matter knowledge is paramount. As a counterpoint.

7 6.9 $253.0x 1. MetaLINCS Stratify ZANTAZ DolphinSearch Accutrac Software Image Capture Engineering Amici CaseLogistix Intralinks Lextranet Description eDiscovery eDiscovery ECM.0 3. Integreon Autonomy Continuum WW Infonic (Corpora) Interwoven EED Proofpoint FTI Consulting HP Stroz Friedberg Dell Teracloud Atempo Seagate Iron Mountain Autonomy Xiotech Iron Mountain Lexis Nexis Xerox Anacomp TA Associates Merrill Corp. Target AXS-ONE Onsite3 Interwoven Focus Solutions Lexalytics 5.5x 2.6x 6. Source: The 451 Group.0 $7.5 $2.0x 5.6x 5. except multiples) Date Apr-09 Feb-09 Jan-09 Jan-09 Jul-08 Jul-08 Jul-08 Jun-08 Jun-08 Apr-08 Mar-08 Feb-08 Feb-08 Feb-08 Dec-07 Oct-07 Jul-07 Jun-07 Jun-07 Jun-07 Jun-07 May-07 Apr-07 Mar-07 Buyer Unify Corp.0 $36.0 $770.0 $25.0x $88.0 $94.0 $100.0 $6. PAGE 7 . Source: The 451 Group.0 $30.3x 3.1 $28.7x $770.9 $10.0 $165.0 $27.0 Revenue $13. WCM.0x 6.Figure 3: Total eDiscovery M&A* (3 years) 16 14 12 TRANSACTIONS 10 8 6 4 2 0 Q2 Q3 Q4 2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q109 Q209 * Includes Storage & Archiving.0 $38.8x $174.0 $98.0 $400.0 $2.0 Discovery Mining Daticon Foritva Attenex Tower Software Docuity MessageOne Estorian Corp Lighthouse Global Tech.0 $59.0 $25.4 $84.4 $253. Capital IQ and TripleTree.0 $7.0 $158.6x 5.4x * Includes Storage & Archiving. Figure 4: M&A is Increasing in eDiscovery Select eDiscovery M&A Transactions (in $ millions.0 $375.0 10.0 EV / Revenue 1.6x $74.7 10.4x 3. Capital IQ and TripleTree. eDiscovery eDiscovery eDiscovery eDiscovery eDiscovery Storage & Archiving eDiscovery Record Management eDiscovery eDiscovery.0 $7. Storage & Archiving eDiscovery Compliance eDiscovery eDiscovery eDiscovery eDiscovery eDiscovery High Median Low Enterprise Value (EV) $19. Storage & Archiving eDiscovery Storage & Archiving eDiscovery eDiscovery eDiscovery.

However. IP and services. As eDiscovery M&A consolidation accelerates. as well as support for document retention. eDiscovery is a segment of a broad landscape including IT Governance (ITG) and Governance. these firms will find a likely entry point through eDiscovery. People Will Remain Vital To The eDiscovery Process. TripleTree has developed a comprehensive 40-factor scoring methodology for indentifying where companies can build value and overcome potential challenges with an eye on future liquidity. policy protocols. and strong content and records management suites will match up with the increasingly complex data management needs of organizations. enterprises will develop more stringent data and security requirements for their eDiscovery providers. Risk and Compliance (GRC). General counsel and external counsel purchasing decisions may happen on a case-by-case basis. These best in class specialists are defined by unique eDiscovery knowledge. Solutions With Process And Workflow-Centric Features Are Relevant. The importance of these silos is garnering attention from organizations as they seek more holistic compliance solutions for enterprise-wide needs. eDiscovery buyers in the enterprise are still being defined. To address the opportunity “white space” in compliance and risk management. Other beneficial features include content search. Global software vendors will take advantage of these trends by leveraging long-standing client relationships and triangulation toward e-Discovery decision makers. many aspects of the eDiscovery process are still people-intensive and global vendors may begin to position eDiscovery solutions into their broader solution mix because they are best positioned to fold in the requisite specialty services and support. CROs & CIOs. In addition: • Compliance Is Top Of Mind For CFOs. and the shift to a proactive eDiscovery sales approach means decision making and financial support for eDiscovery investments are inconsistent. Key eDiscovery features include the ability to support EDRM workflow and integrate with other compliance automation workflows like ITG and GRC. it is critical for emerging vendors to understand how value drivers affect their business. more consistent and increasingly reliable eDiscovery process. This means that the enterprise customer base may resist entrusting highly confidential legal data to small vendors who are susceptible to failure or breach. In addition: • eDiscovery Purchasing Decisions Will Remain Fragmented. PAGE 8 . via acquisitions or partnerships with specialized eDiscovery vendors. This proactive sales approach breaks traditional norms for eDiscovery vendors and will emerge as an imperative for new market leaders. and repositories that acknowledge native document formats. • eDiscovery vendors face a set of unique challenges. filtering. The introduction of automated eDiscovery solutions supports a faster. • As the market shifts to a proactive approach. tracking and notifications. There is considerable variation across a variety of business metrics for the 70-plus vendors who comprise TripleTree’s emerging eDiscovery universe.CONCLUSION The maturing eDiscovery market is trending toward leadership by global software providers whose international reach. extensive sales force.

For vendors who want to remain relevant. organizations are shrinking their list of trusted vendor/partners. Vendor Consolidation Will Continue. Lumpy revenue streams have stifled much of the PE interest around eDiscovery. Valuation disconnects persist between buyers and sellers. Fragmented markets cannot sustain themselves. contract structure and terms. technical architecture. » Operational / Technical Scalability of solution. delivery model and pricing. » Feature Set Specialist or platform approach. uniqueness of IP. and how we may be able to accelerate your success through a unique and insightful investment banking process. Any savvy industry observer has seen similar scenarios play out before. Buyers are seeking “value” at 2x revenue and sellers are seeking “premiums” far higher. EDRM workflow components. Looking ahead: • The Appetite Of Private Equity Has Abated…For Now. As with most sectors. As an investment bank and strategic advisor. Consolidation will occur and eventually innovators will be acquired and some valuation “balance” will be attained. application programming interfaces (APIs). » Market Presence Proven sales model given diverse buyer universe for eDiscovery solutions.Below we’ve listed a summary of factors for eDiscovery vendors interested in a high-level peer-to-peer comparision: » Financial Quality and type of revenue. the opportunities you’re facing. Valuation Disconnects Need To Align. TripleTree is committed to helping mid-market companies understand and take advantage of macro-trends like those in eDiscovery. growth metrics. the points below warrant consideration: • Align sales tactics to pinpoint a quick eDiscovery ROI • Create an open approach to strategic alliances • Publish best practices for eDiscovery deployments to reinforce the proactive sales approach TripleTree looks forward to learning more about your organization. robustness of solution across TripleTree’s Compliance Q-Diagram. • • PAGE 9 . yet roll-up and platform opportunities remain. cross-sell and up-sell applicability. profitability. brand momentum with one or more channels.

business services. legal. financial services. Our recapitalization practice is growing quickly and since 2006 our team has concluded over a dozen financing transactions with an enterprise value in excess of $1B. insight based on proprietary research. We have led over 125 sell-side M&A transactions totaling $5B in enterprise value with clients and buyers on three continents. Relevant TripleTree Research: TRIPLE TREE TRIPLE TREE TRIPLE TREE NEXT GENERATION COMPLIANCE © 2009 SAAS PLATFORMS © 2009 COLLABORATION © 2009 PAGE 10 . professional services. and candid advice regardless of popularity. TripleTree’s principals bring decades of experience as former operators of technologybased businesses in healthcare. telco and distribution. Our commitment since our founding in 1998 has been to provide best in class private businesses with independent perspectives. and vertical industry specialization.ABOUT TRIPLE TREE TripleTree’s investment banking and advisory practice is focused on the intersection of disruptive technology delivery models.

Relevant Compliance M&A and Recapitalization Activities: PAGE 11 .

LLC. are not guaranteed. LLC may perform or seek to perform investment banking services for any company referenced in this t f 952-253-5300 952-253-5301 | MINNEAPOLIS | SAN DIEGO BOSTON . All rights reserved. www. No part of this publication may be reproduced or transmitted in any form or by any means. without permission in writing to TripleTree. and that of the opinions based thereon. LLC. TripleTree.triple-tree. The information contained herein has been obtained from sources believed to be reliable.Copyright © 2009 by TripleTree. but the accuracy and completeness of the information. electronic or mechanical.