Legal Tech Company IPOs Are Rare, but That Could Soon Change

To date, few legal tech companies have gone public. But with various vendors eyeing initial public offering opportunities, that might change.

To be sure, vendors and industry observers contend few legal tech companies have gone public because their products focus on law firms and corporate legal departments. The key to a successful IPO then, is to aim services at the entire corporate structure and not just its legal staff, they noted.

Historically, only a few legal tech companies have gone public and traded on stock exchanges. Document and email management platform iManage filed an IPO in the late 1990s, according to an U.S. Securities and Exchange Commission filing from the company. More recently, MyCase completed an IPO in 2014, followed five years later by e-discovery platform KLDiscovery consummating an IPO in February 2019, according to public documents. In December 2020, e-discovery and investigations provider Nuix was listed on the Australian Securities Exchange, according to reports.

Still, despite a growing legal tech market, not many companies look to go public. Hector Guinness, a member of HG Capital, an investment firm whose portfolio includes various legal tech companies, noted public investors commonly seek companies that have success across many industries—a trait legal tech providers typically don’t have.

“In most cases the investors in the public market are looking for a multibillion-dollar market opportunity, and while legal tech is certainly a big market and long-term investors like us see a lot of opportunity out there, [in] most categories it tends not to reach that scale,” Guinness said.

But the dearth of publicly traded legal tech companies may soon change, especially if a pair of contract life cycle management (CLM) software providers have their way.

Last week, Ironclad CEO Jason Boehmig revealed his plans to take his company public. During a recent interview, Boehmig noted Ironclad hasn’t set a definite timeline for the IPO, but he expects other legal tech companies to follow.

“I think the first legal tech companies [that go public] will be like Ironclad that are whole business tools,” Boehmig said. “I think every category of legal tech will have a public company at some point, but I think SaaS [software as a service] is big and a lot of companies need this technology.”

Jerry Ting, CEO of AI-powered contract manager Evisort, said his company also plans to go public within the next five years. Ting said he believes his company addresses a pain point of the entire contract management market, unlike most legal tech companies that provide point solutions to resolve back-office challenges.

To be sure, Ironclad, Evisort and other CLM software providers have secured significant outside investments in recent years. However, multimillion-dollar private investments aren’t the impetus for an IPO. E-discovery company Relativity, for example, said it has no immediate plans to become a public company, despite adding Silver Lake, a private equity firm with a history of assisting companies to an IPO, as a shareholder earlier this month.

“There may be a time that we feel there is [a] major benefit to becoming a public company, but right now we see strong benefit to staying private given our long-term goals,” Relativity wrote in an emailed response.

For Ting, the road to IPO is built by the technology’s companywide impact, not outside investment or enthusiasm from legal professionals.

“For most legal tech companies historically, they’ve been focused on too small an addressable market to be able to have the right financial and strategic metrics to consider an IPO,” Ting said.

Fonte: Legaltech News