Right Price, Time and Reasons for Acquisitions in Legal Information

The contentious sale of Simon and Schuster, by Paramount, to KKR for $1.62 billion, albeit for less than the $2.18 billion which, in 2020, was agreed in an agreement which subsequently failed, is a reminder both of the wealth and ambition of private equity, and the value of some publishing businesses. On a lesser monetary scale, there is no question but that Thomson Reuters’ acquisition of San Francisco-based Casetext is a significant step. Although in existence only ten years or so, in 2017, its legal research platform, CARA, was named by the American Association of Law Librarians as “new product of the year”. Recently, it introduced its service, CoCounsel, described, by Casetext itself, as “the world’s first reliable AI legal assistant powered by GPT-4”, which facilitates document review, legal research memos, deposition preparation and contract analysis. Objective reviews can be found, to show both the positive and negative aspects of the service.

Hugh Logue, Outsell’s vice-president and lead analyst, writes of the acquisition that, in paying $650m for Casetext, Thomson Reuters has set off waves in the world of legal technology and that it is paying a very high price for moving too slowly on its AI strategy. I wonder if this is, in fact, the case and if Thomson Reuters would view the purchase in that way? Thomson Reuter’s description of the deal is more muted, certainly not admitting any weaknesses in its recent strategy. It comments that the proposed transaction will complement its own existing AI roadmap and builds on TR’s recent initiatives, including a commitment to invest more than $100 million annually on AI capabilities, the development of new generative AI experiences across its product suite, as well as a new plugin with Microsoft and Microsoft 365 Copilot for lawyers. As long ago as 2017, multiple award winner, Bob Ambrogi wrote, “I can assure you that executives at Thomson Reuters and LexisNexis would take issue with [the] statement that only Casetext has research powered by artificial intelligence”. There will certainly be hyperbole from PR functionaries on behalf of both the acquiror and acquiree, but Thomson Reuter gives the impression of doing what it does, namely allowing competitor innovators to develop their capabilities and then acquiring them to integrate within the corpus of the giant. As for the acquiree, it too operates to format; having been backed by Y-Combinator, a time comes to fulfil the ambition of entering the mainstream and for those individuals who profit directly from the sale, a share of $650m is a satisfactory reward for their efforts. Perhaps it is not so much so for those among Casetext’s lesser employees and even some from Thomson Reuters who, in consequence, may find themselves redundant. Some might see this and similar acquisitions favouring the target at least as much as the acquiror. Perhaps first and foremost, the likes of Thomson Reuters have unlimited funds at their disposal to take themselves and their new acquisitions anywhere they see fit. Organisations of its size and scale are rarely entrepreneurial and innovative and are not really set up for that sort of approach. With exceptions, it is seen to be preferable, if not to destroy them at an early stage, just to swallow up the minnows, take what is on offer from them and lumber on.

Shortly before the announcement of the acquisition, Thomson Reuter was boasting its achievements in respect of AI for legal markets with Westlaw Precision, Practical Law and other related tools, while no doubt setting out the stage for Casetext’s arrival. However, the impression was of the imminent arrival and subsequent integration of the new component with others, in order to exchange and exploit functionalities and increase the sales potential to existing customers. TR announced that “the acquisition of Casetext is another step in our ‘build, partner and buy’ strategy to bring generative AI solutions to our customers […]. We believe that Casetext will accelerate and expand our market potential for these offerings – revolutionizing the way professionals work, and the work they do […]. For the last ten years, we have harnessed the power of AI to build products that elevate the practice of law and enable attorneys to serve more people’s legal needs, with the ultimate goal of increasing access to justice”. The primary benefits of the acquisition were stated by Thomson Reuters to be to accelerate development of generative AI solutions for the legal market; expand generative AI capabilities beyond legal research; accelerate TR’s vision of blending legal content with legal workflows; enable TR to apply generative AI capabilities outside of legal – specifically for the tax and accounting and risk, fraud and compliance markets. Nonetheless, according to Mr. Ambrogi “Several investors asked about Casetext’s revenues and pricing, but the TR executives put off explicit answers about any of that for now, promising more details when they issue their earnings report later this year”. He is also concerned that Casetext’s spirit of innovation and originality might be lost, while hoping that it will not be so. Analytical, knowledgeable and insightful as ever, Jean O’Grady, of Dewey B Strategic, offers her observations and opinions in relation to the deal itself, the competitive responses and from a customer standpoint, presenting a range of pluses and minuses.

While Casetext claims to be “trusted” (in the hope that this means “subscribed and paid to”) by 10,000+ law firms of different sizes, Thomson Reuters has secure contractual relationships with many more, almost certainly including all those which are trusted by Casetext. The newcomer has much to gain from access to TR’s customer base, to related tools and, of course, in adding value with TR’s vast body of primary and secondary information content. This will keep them ahead of other non-aligned legal technology businesses, which have to keep hunting for small content licensing deals with law publishers, and, occasionally, minor acquisitions, in order to offer competitive service. Furthermore, Casetext operates only in the USA, so the potential for it, within Thomson Reuters is, in theory, to appeal to similar markets beyond the home one, perhaps mostly in the English language, Common Law spheres, while mindful of differing practice and other traditions and conditions which will make it less or more attractive. Nevertheless, there is much research evidence to indicate, in general, that law firms are using fewer software products, while specifically among English and Welsh solicitors, “a lack of understanding by, and encouragement from, management is proving a barrier to the uptake of technologies like artificial intelligence in the legal services sector”. It is interesting to observe, however, among others pretending to be able to predict the future and numerous surveys with conflicting results, that if a Lexis Nexis UK survey is to be believed, 70% of in-house counsel will expect law firms to use AI, while 55% of firms think that their clients will expect it. Their research in the USA would indicate that 86% of lawyers have an awareness of generative AI, versus 57% of the general public. Some 51% of lawyers are using generative AI or are planning to do so. Even allowing for an absence of timelines, a degree of vagueness in the research findings, and all the current hype, these results might be incentivising for Lexis Nexis.

Of course, even if there is a broader, international opportunity, much of this would be for the longer term, by which time the Casetext brand is likely to have been abandoned or be just a product name. The benefits to new and potential customers remain to be seen, although shrinking competition tends to result in higher prices and more “bundling” to increase revenue per customer. Meanwhile, in general terms, speculation and argument will continue incessantly, with much of it being dishonest and self-serving, with respect to merits, demerits, winners and losers, as these developments evolve, grow or diminish.

So, as another one goes under the hammer; two, if the agreement to acquire full ownership of Westlaw Japan is included, on these occasions for Thomson Reuters, it must be time for further signs of life and significant competitive reaction from Lexis Nexis, even beyond its day-to-day process tinkering and pronouncements so far on its competitor’s deal and the acquisition of French-based Case Law Analytics. Also, Lexis Nexis has announced that, like Thomson Reuters, it is collaborating with Microsoft on Product Integrations and Generative AI Capabilities, integrating Microsoft Azure OpenAI.