Legal tech focus: Joined-up thinking

With cash flowing freely into legal tech and start-ups scaling, the market is looking increasingly mature. But while bold claims have been made of the disruption start-ups will supposedly trigger in legal, the response from established providers has been a robust acquisition strategy, which could see fledgling companies struggle to compete.

‘Certainly there’s been consolidation and people buying up platforms,’ says Simmons & Simmons innovation and business change director Ben McGuire. ‘Bigger incumbents like Thomson Reuters and LexisNexis are becoming more acquisitive. We’ll likely see more of that from large, existing platforms and fast growers like UnitedLex.’

For many, one of the most the significant tech developments of 2019 was Thomson Reuters’ acquisition of legal software provider HighQ. Founded in 2001, HighQ provides a secure file-sharing and collaboration platform used by more than 400 clients, including half of the Global 100 law firms.

Buying such a widely-used system sends a significant message: broad platforms that can host a range of products are expected to increasingly dominate the legal tech market. The feeling among legal technologists is that requiring lawyers to use multiple, separate tools or software environments will increasingly be a struggle, instead leading to a race to build large ‘ecosystems’ that attract clients and co-developers. Thomson Reuters has responded with the creation of a formidable range of technology products. ‘For us, 2019 was when we committed to the platform strategy,’ says Thomson Reuters customer proposition lead Jim Leason (pictured). ‘We now have a strong portfolio to deliver solutions on.’

The HighQ move sent a jolt through the market. ‘We thought for a time that they had gaps, but they’re filling them up,’ says DWF Ventures managing director Jonathan Patterson. ‘[Thomson Reuters] now has a platform of products with Contract Express, Panoramic and HighQ that really make you stop and take notice.’

The buyout came after some streamlining by Thomson Reuters, with the company selling its managed legal services arm Pangea3 to Big Four accountancy firm EY in April 2019. The acquisition meant EY bolstered its corporate legal department by more than 1,000 legal professionals.

For some, the acquisition showed the increasing relevance of the Big Four in developing and procuring tech-assisted legal services. Not all are convinced, however. One law firm’s innovation director notes that EY had also in 2018 bought alternative legal services business Riverview Law, which has yet to ‘punch through in a significant way’.

Leason said that 2020 will see Thomson Reuters return to the market to make strategic acquisitions to bolster its suite of services. Such a commitment will be troubling for wannabe start-ups, as some believe it will be increasingly difficult for small outfits to compete, rather than tout themselves for sale to larger rivals.

If attempting to build ecosystems for legal tech is the current vogue, another company gaining attention during the year was Reynen Court, a start-up that launched in 2018. Initially backed by 12 elite law firms from the City and US, the company has created an app store for legal tech products, in response to unconnected, niche tools flooding the market.

‘2019 was when we committed to the platform strategy. We now have a strong portfolio to deliver on.’
Jim Leason, Thomson Reuters

Freshfields Bruckhaus Deringer, Clifford Chance (CC), Linklaters and Latham & Watkins were among those to initially back the project. More recently, New Law outfit Elevate partnered with the platform, bringing with it three technology tools: analytics product ContraxSuite; project management app Cael Project; and online billing app Cael BillPrep.

‘Reynen Court speaks to the issue many huge law firms have: the proliferation of many-point solutions that need to be integrated into one,’ argues Jeroen Plink, chief executive of CC subsidiary Clifford Chance Applied Solutions.

The moves reflect the shifting priorities of law firms. The trend several years ago for City firms to buy in an array of disparate technology products on an almost experimental basis has now passed amid struggles to find practical applications of the tools. Instead, firms are increasingly left wondering how best to get products to deal with a volume and breadth of work, rather than narrow pain points.

Moreover, if the oft-forecast economic slump becomes a reality in the near future, broad-based platforms that attract a range of products and software are expected to have far more resilience in a tougher market.

‘The broader platforms are better hedged, but narrower tools will see opportunities in any downturn.’
Alex Woods, Slaughter and May

‘The broader platforms, which are matter-agnostic are better hedged,’ notes Alex Woods, Slaughter and May director of knowledge and innovation. ‘But narrower tools, you would hope, will see opportunities in any downturn. The market has room for niche players – they won’t all get hoovered up.’

But the acquisition of companies has led to fears of not enough independent providers, according to Leason. One such independent provider was the well-regarded legal engineering company Wavelength, which has now been acquired by Simmons & Simmons.

Simmons had been working with Wavelength for around a year prior to the acquisition. The firm now plans to use the Wavelength team on larger mandates, as well as upcoming projects such as ‘repapering’ work arising from the upcoming replacement of the Libor benchmark for setting institutional lending rates.

With a team of approximately 30, two thirds of which are in Cambridge and the remainder in London, McGuire insists Wavelength is now considered a fifth practice group at Simmons. And the acquisition has its admirers, with Woods hailing it as ‘significant’ and of ‘extreme interest’, even if some question whether Simmons overpaid.

CC is another City player looking to develop its capabilities in technology that aids clients in the regulatory sphere according to Plink, though via in-house development rather than acquisitions (CC’s tech-assisted portfolio gained a boost with the 2018 acquisition of the Newcastle-based Carillion Advice Services, a provider of paralegal and commodity managed legal services).

Microsoft is one marquee provider that many feel has huge untapped potential in legal, even if its generalist software portfolio gives it considerable reach in the profession. DWF’s New Law business, DWF Ventures, moved towards collaboration and communication platform Microsoft Teams in 2019, after the team found using disparate tools cumbersome. ‘There’s a potential move back to Microsoft,’ argues Patterson. ‘Some of the tools available in 365 toolkit are interesting and the savvy law firms are realising you can do a lot with that standard toolkit.’

But which firms are savvy? According to most, the hierarchy has not changed much in relation to legal technology. Herbert Smith Freehills and Hogan Lovells are often mentioned, while Freshfields is thought to be enjoying something of a renaissance. One Magic Circle chief information officer suggested it had gone ‘from nowhere to contenders’ following a lot of staff changes in its technology team.

‘There’s a potential move back to Microsoft. Savvy law firms are realising you can do a lot with that standard toolkit.’
Jonathan Patterson, DWF

Allen & Overy, meanwhile, is still held in high regard, though many question the foundations behind its marketing. In particular, the firm’s tech incubator/accelerator Fuse is accused by some of lacking substance. Slaughter and May, however, hopped on the incubator bandwagon in 2019, launching its Collaborate programme, which will enjoy its sophomore year in 2020 with more emphasis on aiding start-ups to pursue funding an expected change. However, the value of such legal incubators is still much debated.

But the prevailing trend is clear: the fragmented legal tech market is beginning to consolidate. Smaller companies who have entered saturated parts of the market are having to pull the plug; bigger players are beginning to acquire tools and embed them into their portfolios; and incoming economic turbulence could see the niche players struggle. Overall, the feeling in the market is legal tech could be reaching something like maturity.

Perhaps the wider issue is whether legal tech industry is getting anywhere in terms of ambitious applications that can directly automate legal services themselves at scale, rather than focusing on the far easier digital infrastructure of document management and assembly.

Legal tech veteran Derek Southall, who set up the consultancy Hyperscale Group, recently went as far as asking whether 2019 represented the ‘death of legal tech’, arguing in an article that rising investment did not change the fact that underlying automation was happening faster in other industries. Under this analysis, ‘legal tech’ could ultimately be forced to fit in with products crafted as ‘ProTech’, ‘InsuranceTech’ or ‘PensionsTech’ due to the profession’s inability to substantively digitise the underlying legal product.

While many would disagree with that analysis, the legal technology industry is still struggling to define its goal beyond better infrastructure, let alone live up to the claims routinely thrown around of disruption and radically remaking an industry. The question for the 2020s will be whether legal tech firms can start to put substance on those bolder claims, or be content with the less glamorous mission of delivering slicker and more intuitive infrastructure.

thomas.alan@legalease.co.uk