Legal Support. Industry Review. April Introduction

Transcription

1 Contents: Introduction 1 Litigation Support 2 Law Firm Technology 9 & Services Sector M&A 12 Sector Private Equity 13 Sector Public Markets 14 VRA Partners, LLC 15 For more information please contact: Brock Matthias Managing Director bmatthias@vrapartners.com VRA Partners, LLC 3414 Peachtree Road Suite 1125 Atlanta, GA P F VRA Partners, LLC is a Member FINRA/SIPC. Introduction The United States legal support sector is unique in both its size and importance. The country s predilection for litigation and complex regulation supports an industry that has the most lawyers, and the most lawyers per capita, of any country in the world. As a benchmark of the legal support sector s size, the U.S. supports approximately 250,000 law firms that represent a $235 billion market. Historically, this market has exhibited consistently strong growth. According to Hildebrandt International, law firms experienced unprecedented double-digit annual revenue growth between 2001 and Due to these size and growth characteristics, the legal support sector has been an increasingly attractive sector for technology and service providers, as well as investors. Impact of Recession Though the legal market has historically demonstrated strong growth and resistance to economic downturns, productivity began to decline in 2007 as the economy softened marked the worst year in the legal market in 20 years due to sharp downturns in real estate, structured finance and transactional practices, such as capital markets and merger and acquisition activities. Traditionally, in economic downturns, bankruptcy, litigation and regulatory work offset declines in the more cyclical practice areas. For example, according to the U.S. Census Bureau, in 2001, 2002 and 2003, U.S. legal spending increased 6.7%, 5.0% and 8.5%, respectively, as U.S. civil litigation spending increased 30% during this time frame. Unfortunately, in this current economic environment, these trends have not been apparent as many counter-cyclical practice areas outside of bankruptcy remain soft. Although litigation spending typically lags in a recession, the delay could be much longer in the current economic downturn. The depressed conditions have forced corporations to allocate capital and resources to matters more pressing than litigation. Multiple law firms have been acquired, bankrupted or forced to pursue significant workforce reductions as a result of the recession. According to the U.S. Department of Labor's Bureau of Labor Statistics, the legal services industry shed approximately 7,000 jobs in Trends Unrelated to the Recession Notwithstanding the current economic environment, significant trends have influenced the legal support sector. Two of the most significant trends are: Increased complexity of the discovery process due to the proliferation of electronic documents and communications Growth, consolidation and globalization of law firms to meet the needs of their growing, global corporate clients

2 These trends have caused the legal sector to be one of the more dynamic industries over the last 10 years, yielding significant new business activity for those who support the industry. The first trend has stimulated the growth of the Litigation Support sector, which consists of technology and service providers that attempt to lessen the burden of increased litigation s complexity. The second trend has accelerated adoption of technologies and services by law firms to allow them to become more efficient and cost effective. These technology and service providers are discussed herein under Law Firm Technology and Services. Legal Sector Exchanging and reviewing information for discovery is estimated to represent 75% to 90% of litigation expenses. Litigation Support Electronic Document Discovery ( EDD ) Off-site Copy & Imaging Coding Web Hosting Legal Document Review Trial Graphics Legal Staffing Court Reporting Spend & Matter Management Claims Administration Law Firm Technology & Services Facilities Management Document Management Practice Management Revenue Cycle Information Technology In this report, we will review some of the major trends in Litigation Support and Law Firm Technology and Services. Litigation Support Increased Focus on Cost The proliferation of electronic documents and the required discovery thereof has dramatically increased the cost of litigation. Historically, litigation discovery consisted of paper documents and depositions. With the advent of and other electronic communications, the process of discovery increased in complexity. Exchanging and reviewing information for discovery is estimated to represent 75% to 90% of litigation expenses. These increased costs, combined with society s growing litigiousness, have caused the expense of litigation to run rampant. According to Fulbright & Jaworski s Fifth Annual Survey: One-third of all publicly held companies and 17% of privately held companies have at least one lawsuit with more than $20 million at issue. One in every ten companies, and one in every five companies with $1 billion or more in revenues, spends $10 million or more annually in litigation costs (excluding settlements and judgments). 2

3 As a result of these rising costs, and in some cases significant impacts to corporations bottom-lines, law firms have been pressured to lower legal costs, particularly those related to litigation. Corporations are increasingly finding ways to take control of the litigation process. This has caused significant pressure on law firms and legal service vendors, spawning new technologies and services to address the issue. Current economic conditions will further prompt corporations and law firms to utilize cost-lowering technologies, low-cost service providers and additional outsourcing. Current economic conditions will further prompt corporations and law firms to utilize cost-lowering technologies, low-cost service providers and additional outsourcing. Of course, this will continue to be balanced with the need to win cases and achieve favorable outcomes. While the cost of litigation will rarely outweigh the cost of losing a case, there is an increased awareness of ways to limit the expense of litigation without putting the outcome of the case at risk. Litigation support services allow law firms to focus on the practice of law and ultimately reduce costs to their clients. Corporation CFO General Counsel Pressure Points Corporation focus on cost Automation of processes Advances in technology $ $ Legal Costs $ $ $ $ Outsourcing efficiencies Law Firm Litigation Support Vendor Traditional Law Firm Model Proliferation of electronic documents Potential cost of bad outcome A rapidly growing and evolving market, the litigation support industry consists of a variety of segments that provide outsourced services to law firms and corporations throughout a case. Legal professionals, both in the corporation and at the outside law firm, are increasingly outsourcing many of the important tasks involved in litigation that are ancillary to, or in support of, the actual practice of law. 3

4 Cost Reducing Technologies Discovery Decision Deduplication Privilege Screenings Relevancy Screenings Corporation Groupings (concept, near-duplication) Review Decision Automation Spend Management Matter Management Litigation Support Vendor Law Firm Law firms will continue to be important customers as most mid to small sized companies will not take the time nor spend the money to prepare for litigation that comes only sporadically. Summary Trends Outlined below are some of the trends we see as prevalent from the perspective of the M&A and capital markets. While Federal Rules of Civil Procedure and other regulatory rulings have and will play a significant role in shaping the industry, they are not addressed here. Corporations as the Customer Large Corporation Mid-size and Small Corporation Historically, the law firm was the primary decision maker in choosing a service vendor. Today, more litigation support providers are focused on the corporation as the customer. We believe that this focus is due to: (i) the difficulty in selling to law firms as a result of the lack of centralized decision making at even the more professionalized law firms; (ii) the fact that it may be more effective to go to the source of the litigation since corporations may move work from one law firm to another or utilize several firms; and (iii) the tendency that corporate clients provide a more recurring, stable source of revenue than law firms. This strategy has been effective in allowing some litigation support firms to grow rapidly with what seems to be a more stable revenue base. Today, however, the largest dollar volume of litigation support vending is still controlled by law firms. Law firms will continue to be important customers as most mid to small sized companies will not take the time nor spend the money to prepare for litigation that comes only sporadically. Large Corporations are Investing in Technology Due to the substantial cost of discovery, large corporations with predictably high recurring litigation costs are investing further in records management systems and Electronically Stored Information ( ESI ) systems to proactively manage their potentially discoverable documents. In some cases, companies are purchasing software to perform electronic data discovery ( EDD ) processing in-house. 4

5 Most companies will likely continue to use outsourced service providers for EDD and other services because of the substantial payroll costs required to keep this expertise in -house and to avoid conflicts such as the potential inability to testify to an unbiased chain of evidence custody. While most corporations will continue to rely on outsourcing, those who invest in internal technology will likely benefit from better control over litigation costs and enhance protection of confidential information. Need for Economies of Scale We expect to see significant merger activity over the next 12 to 24 months between firms whose growth has stalled and are unable to generate significant, consistent profitability due to the required infrastructure and the volatile nature of the revenue streams they are generating. As many investors have learned the hard way, most litigation support businesses are transactional, case-driven businesses without long-term contracts or guaranteed revenue streams. Being the chosen vendor on a major case can be both a blessing and a curse. Big cases end, and when they do, they can leave litigation support businesses with a large, costly infrastructure and no revenue to support it. As mentioned above, the closest thing to recurring revenue for most providers is repeat engagements on matters for large corporations with recurring litigation. Therefore, in order to weather the ups and downs of any one case, or the loss of any client (through acquisition or otherwise), vendors need to gain scale. An increased focus area of buyers and investors has been the concentration of a vendor s customer base and the concentration of cases within that customer base. Until firms gain scale, they will be unable to comfortably support any substantial infrastructure or support any debt in their capital structure. This will therefore limit the equity returns to investors. We expect to see significant merger activity over the next 12 to 24 months between firms whose growth has stalled and are unable to generate significant, consistent profitability due to the required infrastructure and the volatile nature of the revenue streams they are generating. Sub-Segment Breakdown Outlined below are some of the major trends seen within individual sectors of litigation support. The EDD sector is the area most often discussed because of its rapid growth, size and rapid evolution. However, it is certainly not the only sector within litigation support where there has been and will continue to be significant transaction activity. In particular, court reporting has generated some of the highest volume of transactions due to the significant costs savings available through acquisition. Additionally, there are several areas such as discovery document review ( Review ) that are beginning to evolve rapidly both in the advancement of Review tools and the early stages of a shift toward outsourced managed Review away from law firm controlled Review. Off-site Copy and Imaging Off-site copy and imaging is the process of taking paper-based information and either reproducing additional copies for distribution to relevant parties or converting the information to digital format through scanning. This work is typically done on short notice at high volume production centers located outside the law firms premises. The segment has faced rationalization of capacity over the last five years as document reproduction in the discovery process has shifted to electronic production. Imaging is growing though often not fast enough to offset the decline in paper copy. A paralegal is typically the purchase decision maker. 5

6 Electronic Data Discovery The cost of review is estimated to be approximately $5 to every $1 of EDD processing, which would estimate the total market for review services to be over $10 billion. EDD is the process of gathering, reviewing and producing documents in electronic format. Electronic documents include , memos, letters, spreadsheets, databases, office documents, presentations and other electronic formats commonly found on computer, network hard drives, back-up tapes and off-line storage vehicles such as CDs, DVDs and ZIP drives. Computer forensics is also typically included in this definition. The EDD market is estimated by the 2008 Socha-Gelbmann 6th Annual Electronic Discovery Survey to be about $2.8 billion. EDD is one of the fastest growing segments within litigation support; margins and growth remain very attractive despite competitive pressures. Pricing pressures continue to be a concern for e-discovery focused companies. Off-the-shelf e-discovery software can now handle most e-discovery processing needs. Emphasis has shifted from technology to service expertise. A paralegal has become the purchase decision maker at the law firm. More EDD purchase decisions are being made or controlled by the corporate general counsel. Coding Coding is the process of reviewing documents and summarizing key elements into a structured database format. Examples include document date, document type, Bates number, document description, to whom addressed and from whom. Coding is a highly commoditized offering with continued pricing pressure. It is primarily performed off-shore to minimize labor costs. The market has transitioned from roughly 75% of the work being complete onshore in 1999 to 68% of the work being completed off-shore in Hosting Hosting is a technology service that hosts a client s data and documents, so as to enable multiple parties in disparate locations to effectively share and use information (typically in Review) related to a specific legal matter. Hosting provides attractive margins and growth opportunities. It creates customer stickiness as the hosting site becomes the center piece of shared communications in current and future lawsuits. Many corporate documents are reused in future litigation. Hosting can provide the basis for automating technologies in the reuse of corporate data (privilege, personal). Legal Document Review Legal document review is the process of reviewing a database of documents, compiled through EDD processing, for relevance to a case. The review is performed by legal professionals and has historically been performed by in-house or temporary staff attorneys of a law firm. There has been significant movement towards utilizing managed review outsourcers to coordinate, control and perform review services, especially the first pass review. Outsourcers typically work closely with the corporate legal department and the law firm. The cost of review is estimated to be approximately $5 to every $1 of EDD processing, which would estimate the total market for review services to be in excess of $10 billion. 6

7 The current amount of outsourced review is only a fraction of that number. Corporations have begun using on-shore and off-shore outsourcing for review services. Corporations are using managed review outsourcing firms to control review, align incentives and provide clarity into legal spend. Fixed price review is shifting cost risk to the service provider. Trial Graphics Defensible automation of review decisions could impact staffing companies significantly in future years. Trial graphics is the process of developing and preparing graphics and other presentations for trial. Many trial graphics companies also supply consulting surrounding trial presentation. A significant portion of trial graphic services and products are being produced offshore. Advances in court room technologies have increased the need for new technology competencies. Consulting and Expert Witness Several companies provide consulting services to law firms for trial strategy and case merit, as well as provide expert witnesses to present in court. Today, there are a significant number of companies that provide discovery consulting as well, helping the client effect the proper collection, processing and review of relevant information. Consulting companies that have previously focused on trial preparation, jury consulting, and expert witness testimony are broadening their services to discovery strategy. Non-legal professionals are often used to evaluate the merit of and provide expert support in specific areas such as medical. Legal Staffing Legal staffing businesses provide personnel to law firms, typically on a temporary basis. These personnel may consist of administrative assistants, paralegals or lawyers. Most legal staffing firms have become review staffing firms. Defensible automation of review decisions could impact staffing companies significantly in future years. Foreign outsourcing is creating additional pressure on domestic staffing firms though cost differential is not always significant. Court Reporting Court reporting is the process of taking verbatim reports of speeches, conversations, legal proceedings, meetings and other events when written accounts of spoken words are necessary for correspondence, records or legal proof. Although many court reporters record official proceedings in the courtroom, most take depositions for attorneys. Most large providers of court reporting focus on staffing, administering and scheduling of court reporters for depositions, while contracting with, versus employing, those court reporters. Market size estimates by market participants range from $2 billion to $3 billion annually. Court reporting is not an area of focus for reduction in litigation costs and remains relatively stable. 7

8 Advancements in technology (e.g. exhibit-linked transcripts, video and transcript synchronizing, repository, remote participation) are creating efficiencies and advantages for larger service providers. Unlike other litigation support sectors, technology is not changing the basic model. Significant cost synergies have been achieved through consolidation as the core business is largely administrative and process management. Spend Management and Matter Management Some bankruptcy administrators were badly hurt when shortterm interest rates fell as most administrators make significant profit from pricing on deposits. Spend and matter management is the provision of an internet-based software platform, through which the corporation s outside lawyers and law firms submit invoices, track expenses associated with any given matter, audit billing rates and compare expenses to budget. The corporation can therefore optimize inside and outside legal resources. The advancement of electronic invoicing has facilitated the analysis and management of corporate legal spend both internally and with outside counsel. Software as a service platform requires very little IT support and no installation. Cost pressures are increasing the corporate focus on the legal department spend. Several of the larger service and technology players offer some form of spend management technology. Low penetration of corporate legal departments but relatively high penetration of major law firms (required to use these tools by one or more of its clients) sets the stage for near-term market growth. Claims Administration Claims administration service providers perform legal settlement administration related to securities cases, product liability cases, bankruptcy noticing and distribution, and other legal settlements. The service is performed by identifying and qualifying class members, determining and dispensing settlement payments, and administering the settlement funds. The industry s performance and market size is contingent primarily on the level of bankruptcy filings and class action lawsuits. Bankruptcy will lead the way through the recession. U.S. Courts bankruptcy filings exceeded one million for the 12-month period ending September 30, 2008, up 32% versus the same period in 2007 and 86% versus the same period in Bankruptcy filings in the U.S. surged 37% in February from the same period a year earlier. There were 36 public company Chapter 7 and 11 filings in the first six weeks of 2009, with a combined prepetition asset value of $66 billion, versus 16 filings with an asset value of $10 billion for the same period in 2008, and 11 filings with an asset value of $690 million for the same period in Some bankruptcy administrators were badly hurt when short-term interest rates fell as most administrators make significant profit from pricing on deposits. The class action and mass tort marketplace is potentially very large, with estimated annual tort claim costs of $250 billion in 2006 of which 20% comprised administrative costs other than defense costs. Class action suits have dropped the last two years. According to Fulbright & Jaworski s Fifth Annual Survey, only 27% of companies responding to the survey said they were involved in a class action in 2008, down from 60% in A longer-term view shows solid growth in the sector with class actions in federal courts rising steadily between 2001 and 2007, increasing 72% and averaging 4,000-5,000 per year as of mid

9 Both bankruptcy and class action claims administration will experience up and down trends over time but should generally grow with the overall legal market. Significant government intervention, legislation or tort reform could reduce, or increase, incentives to undertake either action. Law Firm Technology and Services Law firms are continually seeking opportunities to focus their professionals time and efforts on billable hours, control administrative costs and outsource services which are either non-revenue generating or considered pass-through expenses. Law firm consolidation and globalization have amplified the complexity of law firms forcing them to operate more efficiently. In order to compete effectively for business and increase their own profitability, law firms are continually seeking opportunities to focus their professionals time and efforts on billable hours, control administrative costs and outsource services which are either non-revenue generating or considered pass-through expenses. Among the services that are being outsourced, and the areas law firms are making significant technology investments, are document and mailroom management, word processing, contract creation/editing, billing and collecting, human resources, IT and staffing. These services have historically been isolated service offerings to the law firm. However, as law firms have become more professionally managed with more centralized decision making, and as technology has advanced, there are opportunities to create efficiencies and cost savings between functions such as document management, IT, billing and collecting and practice management. Summary Trends Below, VRA has outlined some of the trends it sees as prevalent from the perspective of the M&A and capital markets. Continued Evolution of the Management of Law Firms Despite the multiple partnership structures of law firms, they are increasingly being managed more professionally and turning to outsourced service providers to handle tasks that are ancillary to the practice of law. Functions that have been traditionally viewed as too important or delicate to be handled by a third-party provider, such as billing and collecting, are now being increasingly handled, or handled in cooperation with, providers focused in this area. While law firm business has its peculiarities, VRA believes that law firms will continue to move toward utilizing outsourced service providers in order to improve their business operations, lower their costs and capital needs, leverage the knowledge and share infrastructure of business process outsourcers that focus on non-core functions. Consolidation of Vendors and Service Providers Due to the growth in the size of law firms, VRA expects larger firms to seek out more national contracts for technology and services, as other industries have done. The reasons for this consolidation are to simplify the contracting process, gain consistency across the organization and reduce the complexity and therefore the personnel needed to manage vendors and service providers. This has reduced costs and increased efficiencies in organizations in other industries and will likely do so for law firms. 9

10 Continued Integration of Internal Technologies Similarly to the consolidation of vendors and service providers, law firms are seeking to integrate the technologies used to manage their business. While law firms will not sacrifice important functionality of technologies, they are more likely to utilize software packages that are able to integrate various functions such as time management, scheduling, document management, accounting and IT. The interoperability of these functions allows law firms to better track costs, optimize billing and generally manage the business. Though law firms are typically far behind other industries and organizations in their adoption of technology, most firms have used some form of practice management and financial management software for some time. Sub-Segment Breakdown Outlined below are some of the major trends seen within individual sectors of Law Firm Technology and Services. Financial and Practice Management Financial management systems are time, billing and accounting systems. Case and matter management systems are systems used to track case-related information and handle document assembly for document intensive practices. Customer Relationship Management ( CRM ) systems assist lawyers in organizing its contact, follow up and care of current and future clients. Document management systems manage word processing systems, spreadsheets, graphics, s and even voice mail. The integration of these various functions has greatly enhanced the law firm s ability to reduce operating expenses, properly track and bill for reimbursable expenses, improve days receivable and therefore enhance profitability and cash flow. Though law firms are typically far behind other industries and organizations in their adoption of technology, most firms have used some form of practice management and financial management software for some time. Various software companies focusing on specific functions are likely to give way to larger integrated enterprise packages. Software packages incorporate considerably more functionality and are a great deal more integrated than ever before. Most practice management software integrates financial management, case management, CRM and document management functions. Increased focus on costs by consumers of law firm services are forcing law firms to continue to invest in practice and financial management technology. 10

11 Practice Management Functions There are a number of law firms that have turned to consulting and outsourcing firms to assist them in improving their cash flow. Docketing / Calendaring / Scheduling Task / To-Do / Tickler Management Contact Management / Related-Party Database / Messaging Management Time Capture / Time Entry System Document Management Key Word Searching Document Assembly Conflict of Interest / Conflict Avoidance Case Information Tracking / Law Type Information Management Case Information Reporting / Management Reporting Revenue Cycle Outsourcing As in other industries, an increased focus on cost tends to result in more outsourcing of non-core functions in order to gain access to expertise, technology and shared infrastructure investment. The outsourcing of revenue cycle functions such as billing and collecting is one of these functions. There are a number of law firms that have turned to consulting and outsourcing firms to assist them in improving their cash flow. Law firms account receivable days are some of the highest of any business. This is both due to the sensitivity of harassing clients for timely payment of bills and standard practices of letting balances grow while existing matters or cases continue or new ones from the same client begin. The collection function is often handled individually by the lead attorney and many practices experience a mad rush for collections prior to year-end to generate cash to pay bonuses or partner distributions. Outsourcing firms are typically law firm focused as the nuances and sensitivity around maintaining client relationships are important and different than most industries. As in other industries that have to overcome their own industry specific collection issues, it is likely that as law firms look to improve cash flow they will move to more outsourcing of the revenue cycle function. Facilities Management Facilities Management ( FM ) services consist of on-site office support, document management, and hospitality outsourced services. Specific sample services include: copy, scanning and imaging, document routing, mail and distribution, shipping and receiving, switchboard and reception, office supply management, and warehouse and fulfillment. 11

12 FM firms typically provide a turn-key solution of staff, equipment, and proprietary workflow processes that generate cost savings and efficiencies for the law firm client. Law firms typically enter long-term contractual agreements of three to five years with FM service providers. In the past, the FM industry was dominated by large equipment vendors that provided volume deals on equipment. The service offering of these equipment companies was mainly created as a channel through which it could sell more equipment. Law firm economics require outsourcing services to enhance the productivity of its primary assets, lawyers. The emphasis of most law firm FM contracts today is on centralized, frequent, high touch service that keeps assistants at their desks (instead of at the copier) and lawyers practicing law. This service focus within the legal sector has allowed service oriented firms to compete with large equipment companies. Centralization of printing and copying reduces of the ratio of administrative assistants to attorneys and the total amount spent on printers, copiers and scanners. FM enhances revenue by better capturing the expense of these cost centers for contractual reimbursement from clients. Future FM growth is expected to come from additional law firms outsourcing for the first time and from the expansion and capacity needs of law firms that already outsource. As the legal market continues to consolidate and law firms become more complex organizations with multiple office locations, the value proposition of FM outsourcing is enhanced significantly. Sector Mergers and Acquisitions Recent M&A Issues: Overall market conditions and credit crisis Several failed sale processes of EDD businesses due to the inability to achieve desired valuations Track record of private equity ( PE ) firm investments in the sector that have either failed, sold for a fraction of cost, or restructured to survive Why the sector is still attractive for M&A and private equity: Long-term growth sector Dynamic market Many companies are still achieving very attractive margins (20%+ EBITDA) Importance of scale Significant market fragmentation Recent M&A Activity Date Company Buyer / Investor Pending Interwoven Autonomy, Inc. 02/23/09 Juritek.net LuciData Inc. 02/12/09 ONSITE3 Integreon Managed Solutions, Inc. 02/10/09 Black Letter Discovery, Inc. Callidus / Milestone Partners 01/07/09 Verdict Systems LLC Alexander Gallo Holdings LLC 12/31/08 Document Technologies, Inc. Quad-C Investors 12

13 Recent M&A activity (cont.) Date Company Buyer / Investor 12/18/08 Sword & Shield Enterprise Security Forensic Discoveries 12/08/08 World Document Solutions, Inc. Scarab Consulting 12/02/08 mpac Document Solutions DupLEX LLC 11/03/08 Aderant Vista Equity Partners 10/31/08 Cash Management Solutions River Associates 09/25/08 The Hobart West Group, LLC Alexander Gallo Holdings 08/29/08 Midnight Run, Inc. Orange Legal Technologies, LLC 08/27/08 IKON Office Solutions Ricoh Americas 08/25/08 ACCESS Litigation Support Services, LLC 08/15/08 The Emerging Technologies Group USA, Inc. Edmond Scientific Company ManTech International Corp. 07/23/08 Discovery Mining, Inc. Interwoven Inc. 06/09/08 Attenex Corporation FTI Consulting, Inc. 06/05/08 Daticon, LLC Electronic Evidence Discovery, Inc. 06/03/08 Datum Legal, Inc. Integreon Managed Solutions, Inc. 04/07/08 PinPoint Global Limited EPIQ Systems Inc. 02/29/08 Priority One Court Reporting Services, Inc. Veritext Corp. 01/14/08 Barrasso Consulting, Inc. Deloitte Financial Advisory Services Sector Private Equity Sample Private Equity in Legal Technology, Services and Outsourcing Sectors Company Aderant Alexander Gallo Holdings Bankruptcy Management Solutions Blackletter Discovery CaseCentral Cash Management Solutions Datacert Doar Document Technologies, Inc. EED, Inc. Emag Solutions Encore Discovery Solutions Fios Garretson Firm Greenhill Capital PE Firm Vista Equity Partners Accel-KKR Charlesbank Capital Milestone Partners Housatonic River Associates SSM Ventures Veronis, Suhler, Stevenson Quad-C Management Welsh Carson Anderson & Stowe Patriarch Partners Frontenac 3iGroup Pfingsten Partners Stroz Friedberg

14 Sample Private Equity in Legal Technology, Services and Outsourcing Sectors (cont.) Company Inference Merrill Corporation Pangea3 Recommind Renew Data Update Legal Veritext PE Firm Veronis, Suhler, Stevenson CSFB Private Equity Sequoia Capital India Kennet Partners ABS Capital Gryphon Investors The Riverside Company Sector Public Markets Reference Public Companies Market EV to Projected [3]: Price Enterprise EV to LTM: Revenue EBITDA Company 4/1/09 Value [1] Revenue EBITDA [2] EPIQ Systems Inc. $18.43 $ x 14.6 x 3.20 x 2.93 x 9.9 x 8.6 x First Advantage Corporation FTI Consulting, Inc , Huron Consulting Group Inc , LECG Corp NM 3.8 Navigant Consulting Inc Mean 1.50 x 8.3 x 1.48 x 1.34 x 7.4 x 6.0 x Median EV - Enterprise Value, NM - Not meaningful [1] Market value of equity plus net debt. [2] Excludes non-recurring and extraordinary items. [3] Forward looking financial information and estimates provided by Reuters. Source = CapitalIQ Reference Companies S&P 500 NASDAQ

15 VRA Partners, LLC Merger & Acquisitions Capital Raising Strategic Advisory Valuation & Fairness Opinions VRA Partners is an independent Atlanta-based investment bank that focuses on providing M&A services to middle-market companies and private equity firms. VRA Partners also assists companies with raising capital for growth, acquisitions, recapitalization, going-private and management buy-out transactions, and provides fairness opinions, valuations and strategic advisory services. The professionals of VRA Partners have completed more than 500 transactions across a broad range of industry sectors, including business services, consumer and retail, energy services, healthcare, industrial, media and technology. We provide our clients with pure, unbiased financial advice. We do not trade or underwrite securities. We do not cross-sell other products or services. Because we are not burdened with any organizational conflicts of interest, we are able to provide the most appropriate advice to ensure our clients objectives are realized. VRA Partners is focused on providing the highest quality investment banking services to our clients. Our services include: Advising owners of privately-held companies in the sale or recapitalization of their business; Advising private equity firms in the sale or recapitalization of portfolio companies; Representing publicly traded corporations and their Boards in negotiating acquisitions, sales and divestitures; Consulting with selected clients in the pursuit of buy-side opportunities and related acquisition financing; and Raising capital for growth, acquisitions, recapitalization, going-private and management buyout transactions. For more information, please contact: Brock Matthias Managing Director P bmatthias@vrapartners.com VRA Partners, LLC 3414 Peachtree Road Suite 1125 Atlanta, GA P F To receive this publication via , please sign-up at This document is for information purposes only and has been compiled from publicly available information. VRA Partners, LLC makes no guarantees regarding the accuracy and completeness of the information or opinions expressed herein. No data or statement contained is, or should be construed as, the recommendation for the purchase, sale or retention of the securities of the companies mentioned. 15