Iron Mountain Moves Into E-Discovery, Acquiring Stratify

After months of rumors that Iron Mountain was going to do “something”, the grandfather of records management announced today that it is acquiring Stratify for $158 million in cash. My best guess is that Stratify will do about $30 million in bookings this year, making the purchase price about 5X revenue – a pretty good multiple for a services business with gross margins of 50-60%.

Iron Mountain’s motivations are not hard to guess. It stores oodles of electronic data for large corporate clients. Whenever those clients have a case, they retrieve a subset of that data and send it off to a service provider like Stratify for processing. Through this acquisition, Iron Mountain now has a chance to up-sell its customers on Stratify and capture that service provider revenue for itself. This will be compelling to customers if (and this is a big “if”) Iron Mountain is able to integrate Stratify with its archive, making it easy to pass data from one to the other. As one Iron Mountain customer at a major Wall Street bank told me, “Iron Mountain is great about getting data in; it’s awful when you want to get data out.” If Stratify can help solve that problem, even if it’s only in the case of litigation, then every Iron Mountain customer will cheer.

Given the obvious potential of this deal to Iron Mountain, the question is less about why they would want to acquire a service provider in general, and more about why Stratify in particular. E-discovery services is a large, fragmented market, and there is no shortage of players to choose from. That said, I think they found Stratify a compelling target for 3 reasons:

• Good Technology: Unlike many service providers, Stratify (or Purple Yogi, as it was originally called) started life as a product company. It went through several incarnations: starting out in 2000 to “personalize the internet” for consumers, it soon moved on to knowledge management for corporations, before finally settling on e-discovery services for law firms. To fund all this, it raised over $30 million in venture capital and invested a good chunk of that in product development. The result is a sophisticated product that goes far beyond the review platforms that most other service providers have built.
• Right Size: Many acquirers like companies in that $20-30 million in revenue range. On the one hand, they are big enough to provide a solid platform for growth; on the other, they are small enough to be affordable. When Iron Mountain analyzed the market, it will have found the vast majority of targets either too big or too small, leaving it with only a handful of players to consider, like Stratify, Cataphora and H5.
• Willing Seller: It is no secret that Stratify’s largest shareholder, the venture capital firm Softbank, is winding down and was looking to sell its stake in the company. That, together with the inevitable fatigue that sets in after 7 years of slugging it out, most likely made Stratify a willing seller.

So, on paper, this is a good deal for both sides. Stratify gets a decent return for many years of work; Iron Mountain gets the chance to capture more revenue from its customer base. My congratulations to the Stratify team – I have huge respect for entrepreneurs who weather the dark days, re-invent their company, and lead it to a successful outcome. I wish them well on their new adventure.

“Web Services” For E-Discovery

Prior to working in e-discovery, I (Aaref) always thought standards bodies were a waste of time – or, at least, nothing more than an excuse for free travel to exotic locations. But George Socha and Tom Gelbmann’s EDRM project has changed my mind. In the second of a series of posts, our e-discovery guru – Kurt Leafstrand – explains one of many ways in which EDRM will have a big impact on e-discovery in the years to come:

Last week, I once again had the pleasure of participating in the (now biannual) EDRM conference in St. Paul, Minnesota. For those unfamiliar with it, EDRM is a fantastic collaboration between e-discovery software vendors, service providers, and consumers committed to addressing practical problems associated with e-discovery.

Looking back on both formal sessions and informal conversations with many participants, the one key theme that came across loud and clear is that the days of traditional, "throw-it-over-the-wall" (TIOTW) e-discovery are numbered.

I am sure you're familiar with the TIOTW approach, that endearing process whereby an enterprise gathers up a muddle of electronic data in all shapes and sizes, ties it up in a big bundle, rolls it in bubble wrap, and catapults it into the waiting arms of a service provider. They unwrap it, chant some incantations and perform other black magic for a few days (or it is weeks?) and throw a bundle back over the wall to their corporate client. In-house counsel takes a look and promptly realizes that the search terms she thought were sure things were completely off the mark, and that she missed a couple of custodians, and then... well, it's back over the wall again.

What’s going to tear the wall down? The EDRM XML schema, the first version of which is unveiled today by Clearwell and a large group of other vendors and customers. This will have the same impact on e-discovery as web services have had on e-commerce, enabling systems to pass data to one another over the internet, just as Travelocity passes information to American Airlines when you use it to make a reservation online.

What difference will this make? Well, I boil it down to 3 main things:

1. Litigation risk will decline as early case assessment finally becomes a reality in the enterprise—making it feasible to process, analyze, and do first-pass review of documents in-house, and then transfer those documents and tags to service providers and outside counsel without having to start from scratch.
2. E-discovery timeframes will shorten as enterprises become able to craft comprehensive e-discovery strategies more easily by executing and refining searches closer to the source of the data, and eliminate time-consuming back-and-forth exchanges between enterprises and service providers. And that’s a good thing, with the new FRCP (and coming soon, state rules!) pressure.
3. E-discovery manageability will improve as enterprise-based e-discovery systems are able to integrate seamlessly with downstream litigation management systems. Previously, you were forced to either channel data into a complex external litigation management system too early -- making it difficult for internal counsel and other constituents to have access to the documents -- or pay for costly and time-consuming custom data conversions to migrate data between document "silos."

What to do with all of those unused CDs gathering dust in your office? I've heard they make great coasters…