⚖️ Litigation Services Roll Up: AI Opportunity or Disruption?

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My friend CJ Gustafson (also former Providence Equity!) writes one of my favorite newsletters. It’s called Looking for Leverage.

CJ is a PE-backed tech CFO with multiple exits under his belt. He writes each week for over 75,000 PE and VC backed operators.

Topics include “the exit ready org”, “building your company’s first deal desk”, “how to write a great investor update” and “the characteristics of a great sales comp plan”.

State of Play

One of the most talked-about roll-up waves recently is acquiring law firms. For decades, non-lawyer ownership of U.S. law firms had been barred, but since then, MSO/split-practice structures have moved from experimental concepts to repeatable PE strategies.

But before PE could touch the law firms, they have been very keen to invest in the legal market. One of the angles has been: outsourced litigation services.

The insight was that (i) although back then PE firms couldn’t touch the law firms themselves, (ii) litigation requires a large number of non-legal tasks that law firms and corporate legal departments execute expensively and inconsistently. And none of these services require a law license. The market that emerged around outsourcing these functions is today a $28.5 billion Alternative Legal Services Provider (“ASLP”) category.

In today’s article, we’re going to unpack one of the ASLP theses in court reporting, use Lexitas (backed by Apax) as a case study to understand how PE firms approached roll up in a subset of this market, and discuss the future ahead.

I don’t have the crystal ball, the AI disruption risk here is real, as we’ll discuss. For some, this could be an AI-enabled opportunity; and for others, an existential threat. 

Let's dive in.