Shaking out the LPO Industry: overstretch or necessary consolidation?
Post the global recession, the recurring word within the mutating world of the larger legal process outsourcers has been ‘consolidation’.
Strategic realignment has seen an upsurge in the drive to foster relationships between bigger more established LPOs and, where possible, to provide profitable exits for PE investors.
The years immediately preceding the credit crisis 2005-2007 led to the establishment of a vast number of LPOs. This resulted in an industry with a peculiarly diverse scope. If manpower is taken as a basic means of interpreting the scale of the industry, the measure of the variety becomes evident.
As profiled on the RSG India Law Centre one top-end provider, SDD Global, has a global staff of approximately 20 people whilst another, Integreon, has one hundred times as many. Clairvolex has one office of 75 staff in Delhi whereas IDS Legal has offices around the world and a staff of 1,400 people. Consider also the industry goliaths; BPOs with legal capabilities, such as Infosys which has global offices and a staff of approximately 140,000.
This growth reflects the relative success of each organisation. However, the services provided from all legal outsourcers are broadly the same: contract management, document review, legal research and intellectual property work and yet some top end providers have chosen to stay small. Why then has expansion been so varied and is the industry still uncertain about the merits of large scale development?
Eamonn Kennedy who led the research into LPOs for the Black Book of Outsourcing’s 2010 rankings stated in the Times of India “Smaller outsourcing providers like SDD Global have been pushing their specialist knowledge and deep client understanding as their unique selling point for some time now, claiming that specialists provide a better service. While all outsourcers talk up their ability to specialise this survey suggests that SDD Global and other smaller players are best positioned to deliver on that promise.”
Russell Smith a co-founder of SDD argues that “the ‘small is beautiful’ trend has been accelerating, especially in the Western legal markets, where boutique law firms are very much in fashion. Corporate and other clients are looking for less overheads, fewer conflicts of interest, more responsiveness, greater expertise, and last but not least, lower fees.”
Smith points out in his blog that although many smaller LPOs have gone under, the rate at which they are established means there is still growth in the sector. Others will argue that this growth is unsustainable and that the slowdown in LPO revenue will cripple the smaller players in a flooded market.
However, the ‘small is beautiful’ trend and the consolidation among bigger LPOs could be indicative of overstretch. November 2010 saw the first takeover of one outsourcer by another. UnitedLex which has 650 staff and is backed by Indian and US VC firms bought the smaller LawScribe giving it offices in Los Angeles, New York and Gurgaon. Also in that month, Thompson Reuters acquired Pangea3 valued at US$100 million. Pangea3 was jointly owned by Sequoia and the Glenrock Group both making very profitable exits.
The extent to which the motives of these private equity houses and the expectations of shareholders are distorting the natural growth of LPOs is not clear. Consolidation within the LPO industry could easily be a result of PE owners who want strong exits in the face of uncertain revenue forecasts rather than because of any discernible over-stretch.
LEGAL PROCESS OUTSOURCING
Shaking out the LPO Industry: overstretch or necessary consolidation?
Post the global recession, the recurring word within the mutating world of the larger legal process outsourcers has been ‘consolidation’.
Strategic realignment has seen an upsurge in the drive to foster relationships between bigger more established LPOs and, where possible, to provide profitable exits for PE investors.
The years immediately preceding the credit crisis 2005-2007 led to the establishment of a vast number of LPOs. This resulted in an industry with a peculiarly diverse scope. If manpower is taken as a basic means of interpreting the scale of the industry, the measure of the variety becomes evident.
As profiled on the RSG India Law Centre one top-end provider, SDD Global, has a global staff of approximately 20 people whilst another, Integreon, has one hundred times as many. Clairvolex has one office of 75 staff in Delhi whereas IDS Legal has offices around the world and a staff of 1,400 people. Consider also the industry goliaths; BPOs with legal capabilities, such as Infosys which has global offices and a staff of approximately 140,000.
This growth reflects the relative success of each organisation. However, the services provided from all legal outsourcers are broadly the same: contract management, document review, legal research and intellectual property work and yet some top end providers have chosen to stay small. Why then has expansion been so varied and is the industry still uncertain about the merits of large scale development?
Eamonn Kennedy who led the research into LPOs for the Black Book of Outsourcing’s 2010 rankings stated in the Times of India “Smaller outsourcing providers like SDD Global have been pushing their specialist knowledge and deep client understanding as their unique selling point for some time now, claiming that specialists provide a better service. While all outsourcers talk up their ability to specialise this survey suggests that SDD Global and other smaller players are best positioned to deliver on that promise.”
Russell Smith a co-founder of SDD argues that “the ‘small is beautiful’ trend has been accelerating, especially in the Western legal markets, where boutique law firms are very much in fashion. Corporate and other clients are looking for less overheads, fewer conflicts of interest, more responsiveness, greater expertise, and last but not least, lower fees.”
Smith points out in his blog that although many smaller LPOs have gone under, the rate at which they are established means there is still growth in the sector. Others will argue that this growth is unsustainable and that the slowdown in LPO revenue will cripple the smaller players in a flooded market.
However, the ‘small is beautiful’ trend and the consolidation among bigger LPOs could be indicative of overstretch. November 2010 saw the first takeover of one outsourcer by another. UnitedLex which has 650 staff and is backed by Indian and US VC firms bought the smaller LawScribe giving it offices in Los Angeles, New York and Gurgaon. Also in that month, Thompson Reuters acquired Pangea3 valued at US$100 million. Pangea3 was jointly owned by Sequoia and the Glenrock Group both making very profitable exits.
The extent to which the motives of these private equity houses and the expectations of shareholders are distorting the natural growth of LPOs is not clear. Consolidation within the LPO industry could easily be a result of PE owners who want strong exits in the face of uncertain revenue forecasts rather than because of any discernible over-stretch.
For more information on Legal Process Outsourcers, the RSG India Law Centre profiles the top ranked providers including; Aphelion Legal Solutions, Bodhi Global, Clairvolex, Cobra Legal Solutions, CPA Global, Clutch Group, Evalueserve, Exactus, Integreon, Infosys LPO, IDS Legal, Kochhar LexServe, Lexadigm Solutions LLC, LawWave, LegalEase Solutions LLC, Mindcrest, Manthan Legal, NewGalexy Partners, Pangea3, Quatrro, QuisLex, RR Donnelly, SDD Global Solutions, Talwar & Talwar, Tusker Group, UnitedLex, WNS Legal.
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