Private Equity How Private Equity Benefits An Outstanding Legal Service Provider - And Its Customers

Wednesday, February 1, 2006 - 01:00
Mark Hawn

Editor: Please tell us about the basic business of OnSite E-Discovery.

Hawn: OnSite E-Discovery is a global e-discovery and forensics firm serving law firms and corporations. We specialize in cases involving multi-terabytes of electronic data. The company's services include discovery consulting and management, forensic data collection, tape restoration, e-discovery processing and online review capabilities. OnSite provides its services to more than 1,500 clients and corporations, including a majority of the AM Law 200 index of the top law firms in the U.S. In addition to its Alexandria VA headquarters, the company employs more than 700 individuals in locations in New York, Atlanta, Chicago, Philadelphia, Houston, Washington DC, Los Angeles, Century City, Raleigh, and Wilmington, Delaware.

Editor: Tell us how you were initially financed. Who were the angels?

Hawn: I had previously built an international litigation support and facilities management company called Legal Copies International that was sold to IKON in 1996. When a friend and current business partner encouraged me to get back in the business, I reached out to former clients in the Atlanta area to test the water. Forty investors stepped up to show their support. The idea was to get the first office profitable and then expand into other marketplaces. We effectively did that for about a year until February 2004 when the opportunity to buy OnSite, a public company doing about $30 million dollars a year in sales with offices in Washington, DC, New York and Philadelphia, was combined with our office in Atlanta. We took the company private upon its acquisition. We hired Breckenridge Investment Bankers to represent us with the public company, which also secured the debt and equity financing.

While OnSite had been around for eleven years, it was going through a transformation from a paper-based litigation support business with great client relationships to one poised to break into the new world of electronic discovery. As we got inside the organization, we realized that former owners had developed some cutting edge software technology for e-discovery processing. OnSite already had several AMLaw 100 law firms using them for this service. So we put all our energy into making investments in that part of the business, hired more sales people, more technology specialists, bought more hardware and really ramped up. The company has continued to grow exponentially since the acquisition of OnSite.

Editor: What convinced you that e-discovery was the wave of the future in servicing both law firms and law departments?

Hawn: Technology was turning the legal industry on its ear. Ninety percent of documents created today are electronic and stored electronically. The discovery requests in litigation were quickly changing from paper to e-mail and e-docs. Clients quickly saw the efficiency, speed, and cost savings of collecting, searching, sorting, collaborating, reviewing and storing electronic data versus the paper methods of old. As a result, our copiers became idle and our computer processors and storage equipment multiplied.

Editor: Where do you see this growth occurring?

Hawn: We see this opportunity is continuing to accelerate as more and more lawyers begin to understand that they need to have e-docs and e-mail in litigation. In some cities lawyers have been slow to adopt e-discovery. For example, when we bought OnSite in February 2004, Washington DC and New York law firms and law departments were much more familiar with the process whereas in Atlanta we were only getting one request a month for this service. The rest of the business we were getting from clients was paper to copy or paper to scan and code. Today, we're probably fifty percent e-discovery in Atlanta, but in DC and New York we're more like seventy-eighty percent e-discovery.

We're going through a real metamorphosis in the industry right now where clients are moving up the technology curve, building technology solutions into their practices. There are markets we're not in yet where clients who have data recovery needs are going to a local provider, if there is one, or reaching out to find a national provider. Therein lies our big growth opportunity, not only on a national but also on an international basis. We have been engaged in the last year on several global assignments. Multinational companies with subsidiaries in other countries that are involved in government-led investigations need to gather electronic data to determine if there is a problem, and if so, how widespread it is. They need forensic engineers to forensically extract the electronic data, preserve it and then put it through an e-discovery processing software that can separate out the documents that pertain to the specific issues at hand.

Editor: Do you find that corporations are taking preventive steps by having their e-mail scrutinized, even though they don't have litigation pending?

Hawn: We are moving into providing an e-mail archive solution for our clients by partnering with companies that do e-mail archiving. There are a lot of issues surrounding e-mail archives. Some corporations want to have an archive. Some corporations prefer to get rid of their e-mails after a brief time because they want to rid themselves of anything that is discoverable. Government-regulated companies, like financial institutions and health-care institutions, are required to retain data for a period of years. Another problem with archiving is that it is easy to get the information into the archive but it's not so easy to extract it and put it into a software system that allows you to search and retrieve it. One of the things we're working on is to provide a link from the e-mail archive into our litigation data base tools. We also provide e-discovery masters at the clients' site, to consult with them and provide e-discovery services onsite at their locations. By providing turnkey discovery management solutions to the corporation, we save them a tremendous amount of money and give them greater control. We also provide data repositories for all of the corporation's litigation, giving access to outside counsel based on the cases they are assigned by corporate counsel.

Editor: Why are you raising additional capital from Summit Partners?

Hawn: Both for purposes of organic growth, additional technology and some strategic acquisitions. Right now the market is tremendously fragmented. Most clients are buying their services locally and from a variety of different companies. For instance, they would go to an outside consulting firm to get advice on pre-discovery planning. Once they figured out what they needed to do, they would go to a forensics company to collect data and, in some cases, restore data. Because many corporations back up their files every 30 days or so, they may have three years of backup tapes which have to be collected, put in order and restored so they have a consistent chronological order of e-mail activity for the period of the investigation. Once the tapes were restored, they would send them to an e-discovery company that would process that information to find the documents related to the issues being investigated. After the e-discovery process, the company would typically put the data into an online review tool allowing the lawyers to review the documents and then assign certain attributes to them. There are only a few companies in the United States who have the skill sets to restore these tapes. OnSite happens to be one of them. We put together a company that can go from A to Z, handling information from preservation to production.

Editor: Do you see that because the industry is fragmented you will be using some of these funds for acquisitions?

Hawn: Basically, the acquisition side will be either for some new key technology that we see as important to enhance our company's future value, say e-mail archiving, for instance. Or it may be for getting an office in London or some strategic U.S. cities such as Boston, San Francisco or Dallas. It may be cost effective for us to acquire a firm which already has a presence and client relationships in a given market.

Editor: Why did you choose Summit Partners as your financing partner?

Hawn: Their impressive track record of investing in companies that became market leaders. The size of the organization with several billions in funds to invest in our global growth strategy. And equally as important the personalities, chemistry and common vision we shared with the Summit Partners management team.

Editor: How will you structure the board of directors after the financing?

Hawn: We will have some Summit Partners personnel on the board and will look for additional outside directors with international business experience and contacts to contribute to the company's continued success.

Editor: What comfort do your customers take from having a well capitalized company to depend on, especially in litigation proceedings?

Hawn: OnSite's financial strength is a strong advantage. Multinational companies need to ensure that custodians of their data have the latest technologies and are not having financial difficulties. Nor do they want to risk a company's going into bankruptcy and receivership whereby they may not have access to their documents. Our storehouse of knowledge and strong financial backing is a very important consideration.

Editor: In effect, you have a partnership with your clients as well?

Hawn: That is true.

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