Consolidation in the legal tech sector is gathering pace as private equity interest reaches a new level of ambition with the creation of ProfitSolv – a specially made investment company that is seeking to buy up billing-focused technology companies in legal, accounting and other professional sectors.
One of the main groups behind the consolidator business is Lightyear Capital and its affiliated funds, which estimates the total addressable market for these solutions is approximately $1.4bn in the legal vertical alone. Another backer of the special purpose vehicle is Greater Sum Ventures (GSV). And they want a big slice of that $1.4bn and chunks of market share from other professional services areas.
While we have seen funds such as Hg buy legal tech groups like Litera, and then finance the acquisition of a string of smaller businesses to then build a multi-purpose platform, what ProfitSolv is doing is moving through a single tech segment – billing and timekeeping.
So far it has made three acquisitions and there are likely to be several more to come. It has already bought:
- Rocket Matter, a leading cloud-based legal billing, practice management, and payment processing software business;
- TimeSolv, a provider of cloud-based software for legal billing and timekeeping; and
- ImagineTime, a practice management and payments company serving accounting and other professional services firms.
And just listen to how they see things: ‘ProfitSolv will seek to execute strategic acquisitions that will help expand its footprint within the professional services software and payments solutions industry, a highly fragmented market with a large number of small providers.’
They hit the nail on the head: a large number of small providers. That is exactly what legal tech is, plus a handful of giants. To PE funds with a roll-up mindset this is an area of rich pickings.
It’s interesting that they should choose to do this now. After all, legal tech has been hyperactive for some years now as a sector. Perhaps it’s the downturn that makes the target prices better? But, more likely it’s simply that legal tech has really been ‘noticed’ now and word has spread through the investor market.
They are approaching legal tech, and as noted other professional services areas, in the same way PE funds approach all sectors – they aim for scale. The goal here is not to help founders build new tech – rather its goal is to stick all that tech together into an integrated wall of Lego bricks, that one day can be sold on as a far larger, more comprehensive billing-based business.
It also then perhaps shows a new level of maturity in the legal tech market as a whole, after all people have been saying for years there needs to be more consolidation. Well, here is at least one player that is trying to do that.
Last word goes to Mark Vassallo, Managing Partner of Lightyear: ‘Our investment in ProfitSolv reflects our long-term investment thesis that embedding payment solutions in vertically integrated, sector-specific software will continue to gain market share from more traditional software providers.‘