Legaltech is now a fast-growing sector globally and both law firms and investment houses are taking note.

Certainly, investment in the sector has been accelerating; in 2016, it weighed in at just $225m (£175m) but by last year that figure had risen to $2.1bn (£1.56bn) globally, with the UK contributing $348m (£260m) to legaltech in the first half of 2019 alone. The growing array of legaltech firms and the increasing variety of legaltech tools is fuelling optimism about the sector’s prospects.

SOFTWARE AS A SERVICE, COVID-19 AS A CATALYST
For an industry such as the legal sector, which is heavily dependent on reams of data and information, it makes perfect sense to search for tech solutions. Certainly, this is reflected in the balance of skills law firms are now seeking from potential new hires. A recent report from Robert Half Legal revealed that six out of ten lawyers say tech skills outweigh soft skills in the hiring process for new roles. The rising role of legaltech is further demonstrated by the fact that the US Department of Justice has allocated 10% of its entire budget to IT services.This push towards tech in the legal industry is being met by an increasing number of lawtech startups – of which there are now more than 250, up from 70 three years ago. This pattern is replicated globally, with a list compiled by Stanford University showing there are now 1,700 firms in the area, up from 1,250 within the past year.

Thankfully for them, the COVID-19 pandemic has only accelerated law firms’ legaltech drive. According to (professional information provider) Wolter Kluwer’s 2020 report on law, 56% of law firms in Europe said they had an increased need for tech solutions due to COVID – with 65% of firms noting their investment in legal tech will stay the same or increase moving forward.

Key areas of legaltech, which are attracting the most interest from law firms are case management, which includes secure file sharing portals, automatic document creation and management, document collaboration tools and meeting management software, which has become more important with the rise in remote working. And a key factor why the sector is proving so popular is the recurring revenues legaltech firms can generate.

Caselines serves as a prime example of this. The company provides a cloud-based solution for evidence management and has clients globally – helping provide all stakeholders involved in the courtroom with accessible and easily sharable legal documents. The firm has experienced unprecedented demand throughout the COVID-19 pandemic, as its services have become a vital component of conducting hearings remotely,

Caselines reduced time taken to conduct trials in English courts by around 50% where in use (by, among others the UK Ministry of Justice and the UK Supreme Court) and boasts a 100% customer retention rate, with a threefold increase in customers over the past three years. Caselines has been a profitable company for much of its 20-year existence, as its clients, like those of many other legaltech firms, remain loyal and therefore provide a solid and dependable revenue stream.

AN OPEN AND SHUT CASE FOR M&A
Given the fundamental factors driving the rise of legaltech it is not likely to be a passing trend. With the proliferation of companies that have now appeared in the sector it is also likely to see an increasing wave of consolidation and M&A.

Caselines itself, advised by Cavendish, was acquired earlier this year by Thomson Reuters, as the firm continues to pursue its strategy of building up its legal platform Reuters sees the acquisition as a vital addition to its suite of services, which also includes another UK based company HighQ Solutions Limited – a provider of enterprise collaboration and content management solutions for law firms, companies in the FS sector and governments, which was acquired last year. Adding both HighQ and Caselines to an already substantial information and solutions platform further elevates Reuters’ offering in the area.

Tyler Technologies, which also offers services to the educational, public safety and correctional public sector industries, is another company that has recently ventured into the legal tech sector with the acquisitions of Courthouse Technologies – jury management system, MicroPact – case management platform and Socrata – a cloud based open data service for federal, state and local governments.

Another acquisitive company in recent years has been Fastcase, which through a number of acquisitions has become the third largest firm in the research legal market behind only LexisNexis and Thomson Reuters.

Given the urgent need for the legal industry to adopt technology to drive efficiencies and cope with workloads, as well more remote working, the case for a likely acceleration in the growth of the legaltech sector, coupled with an intensified wave of M&A, is already very well made.

This article first appeared in Lawyer Monthly

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