Nine in ten legal tech start-ups will fail and private equity will target alternative legal services providers (ALSPs), a global legal outsourcer has predicted.
Exigent also predicted that “one or two law firms might float”, in order to buy ALSPs, but if they did it would be “a disaster”.
David Holme, chief executive and founder of Exigent, said that lots of start-ups, “flattered by the attention of law firms”, had announced “the next big thing”, but “serious tech start-ups” needed long-term funding partners, investment strategy and expertise.
“The focus for meaningful change and impact should be on combining corporate finance and technology expertise, not on small-scale law firm investment.
“That’s why not a single legal start-up or accelerator backed by a law firm will come to market in 2019.
“Forcing legal technology onto clients simply for the sake of it is just not working. Technology integration is the key, but that requires experimentation, true innovation, and risk.
“None of these are, and will never be, associated with the traditional legal practice.”
In his Top 10 Trends for Legal and Beyond in 2019, Mr Holme predicted that the Big Four accountants and ALSPs would “reshape legal services provision”.
He went on: “Law firms will try to ape the Big Four and acquire ASLPs, but they will need an external source of capital.
“Desperate to be relevant again, one or two law firms might float or try this at the top of the market. It will be a disaster.”
Mr Holme said the private equity “tank formations” were arriving, and would focus on ALSPs rather than law firms.
“Private equity funds have the firepower and they won’t be investing in businesses that have limited ambitions or traditional management.
“This has the implication that, with meaningful investment to back them up, ALSPs will soon be serious technology and subject expertise players. Consolidation will also be on the cards, of course. And a lot of it, as well.
“The acquisition of Lawyers on Demand, Prime Clerk, Williams Lea Tag, and UnitedLex means consolidation will become a necessity in a three to four-year timeframe.
“This will be the year that Axiom has to make a move, but we would think an IPO is pretty unlikely.”
Mr Holme argued that the “all too often weak and old-school management of the lower top tier of traditional law firms” left them especially vulnerable and easy prey.
“Expect a deal a month from the Big Four and continued merger activity with the traditional providers.”
Mr Holme said the legal sector had “most to fear” from a reversal in economic growth, and that 2019 should be a year to put the “storm shutters up”, only most law firms would not and instead “continue to inflate newly qualified salaries in a manner that would make Lewis Carroll proud”.
He added: “It’s not all doom and gloom. Yes, the economy will throw the industry some curve balls, but any difficult time is also an opportunity to do things differently.
“And boy, does the legal industry need to take that opportunity.”