Nuix, a company started 20 years ago in Australia and which is now a global player in eDiscovery and complex data investigations, looks set to finally list on the ASX this week in what is a rare IPO for the legal tech market. After some months of speculation the goal is to raise AUS$275.6m (US$203m) – which according to Australian experts gives the company a valuation of AUS$1.8 billion or US$1.33 billion.
Very few legal tech companies are publicly listed. Instead we see public companies in this sector mainly at the two extremes of the market, with giant multi-sector companies such as Thomson Reuters and LexisNexis’s owner RELX both listed on one end, while at the other end we have Ayfie – the text analysis company – which has a small listing in Norway. The vast majority of companies remain in the ownership of their founders, along with angel investors, VCs and private equity funds.
Interestingly, in the case of Nuix, one of Australia’s top banks, Macquarie, took a 66% stake in the company back in 2011. Moreover, Macquarie will be acting as underwriter and joint lead manager of the IPO, alongside Morgan Stanley. It is understood that this stake will be greatly reduced as a result of the listing.
So, to the inevitable question: is this a big deal? The answer has to be a resounding: yes. Thomson Reuters is a conglomerate in many ways and the Reuters legacy company listed as far back as 1984. Legal tech is just one part of what is a massive, multifaceted business that has been growing in many directions for decades. Nuix is more like what one thinks of when someone says ‘traditional legal tech company’, or at least it once was.
Nuix grew from a small, cutting edge company formed in 2000 with a focus on ‘making vast quantities of unstructured data easily searchable’, into a business that found in investigations and eDiscovery a market space ready and willing to take on its technology at scale. It grew rapidly and in 2018 it even acquired the Ringtail eDiscovery business from FTI. The company has customers now in over 60 countries.
Yet, despite all that growth and with projected revenues for 2021 of around AUS$190m, Nuix still only has around 400 staff spread across more than a dozen offices globally.
In 2018 research firm MarketsandMarkets estimated that the eDiscovery sector was worth more than US$10.7 billion, growing annually by 10% through to 2023. The pandemic may have altered that somewhat, but perhaps not as much as some had feared.
Given the size of the market and the pressure to grow that comes with a public listing – along with the huge dose of capital raised – investors will no doubt be expecting rapid expansion. Perhaps we will also see more acquisitions by Nuix as well.
One of the challenges of public listings is that although you get a huge injection of capital, you also have to keep delivering significant returns, sometimes to investors who may not have any particular interest in the niceties of how you make money in your niche area – they just want their dividends and an ever-growing share price.
But, how do you keep making that share price go up? A healthy balance sheet helps, but that won’t be enough. And that leads back to acquisitions. The legal tech market is still hugely unconsolidated. Buying up rivals or adjacent businesses is a rapid way to acquire market share.
One other aspect is whether this will push other companies in the same space, e.g. Relativity and other large players, to also seek to do an IPO, or at least take on new and large injections of growth capital? Nothing is certain there, but as has been seen with large VC rounds in the legal tech market, one company getting a lot of funding can trigger rivals to accelerate their own growth plans and then also reach out to the market.
To conclude, this is a rare event. It may also drive further consolidation in the eDiscovery space, and perhaps it will become something of a trend-setter and encourage other large-scale and well-developed legal tech companies to also list publicly. Interesting times for legal tech.