Yesterday, NetDocuments, the leading cloud-based document management systems used by law firms and corporate legal departments, announced that global private equity firm Warburg Pincus had acquired the stake in the company previously owned by PE firm Clearlake Capital Group. Existing investor Cove Hill Partners retained its stake in the company, which NetDocuments said is equal to the stake Warburg acquired.
Shortly after the announcement, NetDocuments Chief Executive Officer Josh Baxter sat down with me for a conversation about the deal and what it means for the company and its customers.
Following is a transcript of our conversation, which I have edited for clarity and consistency.
This has been characterized in the media as an acquisition. It fair to characterize it that way? Or how do you characterize it?
Essentially as an acquisition by Warburg of Clearlake’s stake. They acquired, a meaningful chunk of the business and, the two will act as peers along with me and the management team in terms of governance.
What is significant about this deal to you? What matters to you about this?
I was really looking for a partner who had the same long-term view on this business as me and my team do. My leadership team is very much committed to building this business for a long time. We wanted financial partners who aligned with that timing. We had a good run with Clearlake over the last four years. Cove Hill has a very long view on the business, and we wanted another partner who matched their horizon, kind of a ten-year type of horizon, and that’s what we got in Warburg. The way that we see it is we now have financial sponsors who are going to support us as we build the platform for legal professionals globally.
What is that long-term vision? What is it that you’re looking to do? How are you looking to build this company over the next five to 10 years?
Today we have the core … the only core system of record in the cloud, that is a true native cloud application. Our view is that over time, you’re going to see a number of categories of legal tech vendors come together into a single cloud platform to deliver more than just work product, but to deliver, you know, things that reach into research – I’m not saying that we’ll do research, but we’ll reach into research – and things that sit across the business of law and the work of law, if you will, and you start to see an intersection between those two over time,
So taking a Salesforce-like approach to legal?
I like to say that we are Salesforce.com for the legal industry.
Is that how you’ve always viewed it or is that kind of a recent thing?
It’s funny. The first board meeting I ever attended, Alvin [cofounder and CTO Alvin Tedjamulia] was talking about the platform, and I said to Alvin then, “Alvin, this company can be Salesforce.com for this industry.” It’s taken us some time to start to build out our product portfolio, because we needed to lay more groundwork. But today that foundation is set. If you go back and look at my keynote from our conference a year ago, our ILTA keynote, you’ll hear me talking about us being Salesforce.com for the legal industry. It’s evolved over a number of years, but that’s absolutely how we’ve been thinking about it.
I want to know what Alvin said when you said that to him at that first board meeting,
The funny thing is – you know Alvin well, so you can imagine how this went – but he paused for just a moment and he was standing, and then suddenly he gets this high pitched, excited voice, and he says, “Yes, yes, that’s what we can be!” Only Alvin can bring that kind of love and passion to this kind of business.
So where are you on the timeline toward achieving that and what else needs to be done to get there?
I don’t think that’s an event, Bob, I think that’s a journey, and if you look back on our history, what you’ll see is we built the platform and then we brought in some new solutions. The solutions that we announced last summer were the beginning of really bringing that vision to life, where we’re now enriching the work product and enabling the productivity and the inspired work that legal professionals do. Over time, you’ll see us continue to expand upon that foundation.
So that’s partnering with third party solutions and also acquiring as well?
I think it will be threefold. You’ll see us build things. We’ve got an incredibly innovative engineering and products team. You’re going to continue to see us be the leaders in innovation. You’re going to see us continue to build deep partnerships with others in this ecosystem. And then you’re going to see us acquire the solutions that make the most sense for us to really be able to deliver on that vision.
You said that there will be no changes in the management team as a result of this acquisition?
Yeah. The leadership team is all in and committed to going through the next chapter.
What can you tell me about Warburg Pincus? I don’t think they’ve been in legal at all up to this point.
They’ve got a rich, deep history in technology and, in particular, vertically focused cloud applications. While they haven’t necessarily had legal tech businesses, they’ve had other great, vertical SaaS applications, and the expertise that they can bring, that helped them be successful with those investments, can really accelerate us.
Do you stay a legal vertical SaaS business into the future, or do you move into other verticals?
I don’t want to completely dismiss that idea, but our view is that being specialists in delivering value and really helping legal professionals do their best work is what we do best, and that’s where we should stay laser focused.
What are the short term and longer term implications of this for your customers? What does it mean for them?
Near-term, what it means is that the great NetDocuments experience, from the products and services and customer engagement that they’ve experienced, is going to continue, and that’s going to continue to be a foundation for what we deliver for the long term. Then, medium to longer term, they’re going to see us continue to invest in great innovation that accelerates them. That is going to come in a number of ways, but that’s what they can expect.
What else, if anything, did you want to highlight or point out about this that we haven’t talked about?
I think we’ve hit on the highlights. One of the things that I’m the most excited about here is that, this gives our employees a continued opportunity to be part of something great and build careers, and just be part of this journey for a really long time. At the end of the day, what we’re doing is about helping our customers be successful, but also about building something that our employees can participate in and really look back and be proud of what they built.
How many employees do you have?
We’re just shy of 350 employees.
Are the bulk of them in Utah, or are they spread out?
We’re probably 60-40, 60% Utah, 40% other. Somewhere in that range.
What about customers? How many customers do you have at this point?
We’re a little over 3,200 customers.
How would you describe your customer base at this point? How does it break down as between larger firms, smaller firms, corporate legal?
It’s changing over time, and that’s because we’re accelerating so much in SML [small and medium law], but if you look at our growth, what you’ll see is that we’re growing significantly in strategic law – the biggest firms in the world – in a meaningful way, we’re growing significantly in SML, and we’re growing in a big way in corporate. Government is a new venture for us. We just achieved FedRAMP authorization. That’s a little tidbit that’s not in the market, and that’s going to open up that new opportunity.
If I had to split out our business, 55%-ish of our business is going to be in the biggest law firms in the world, 25 to 30% is going to be in the small firms – and when I say small, I’m really talking about 10 users up to the bottom of the strategic space. Then, the rest is in corporate, with a very small piece that’s in gov today.
I know that you’ve intentionally focused on that smaller-firm part of the market over the last couple of years. How has that gone?
It’s definitely our fastest growth engine in terms of percentages. It’s growing, it’s kind of a 40% clip, if you will. We think that we’re in very early innings in being the platform for those medium-sized law firms to build their businesses on.
You’ve reported great numbers for the first quarter of this year. What do you attribute that to?
I’ll tell you, we have delivered a set of solutions that the market really buys into. The fact that we’ve got native cloud applications that they can implement and start to use so quickly. When you already have the platform in your environment, and then you want to add the next solution, whether that be our deliver solution or our plan solution or whatever it is, and all you have to do is turn it on and use it, that’s power. That doesn’t just help us sell new products to existing customers, but it has really shifted the way that law firms who don’t have NetDocuments today think about us, and has caused them to be choosing us as their solution for the future, because it essentially future proofs their organization.
Do you attribute this growth to the pandemic at all?
Yeah, certainly that created a little bit of a tailwind for us, as people found that they needed to be able to work in these hybrid work environments, initially completely remote, but I’m sure that you’re hearing from law firms that hybrid is probably the new answer, and I think that’s created a tailwind. But, frankly, just having the vision to build the solution, to build the platform, I think has set us up to take advantage of that opportunity.