This past week, Utah-based NetDocuments ownership switched from Clearlake Capital Group to private equity firm Warburg Pincus. It’s an exciting move for NetDocuments (whom we know pretty well) for a couple of reasons. Firstly, such a large deal will surprise many in the industry as NetDocuments, as the saying goes, flies beneath the radar. It’s not a particularly visible or well-known firm even though it has been growing at one heck of a clip, with revenue growth around 40% year over year in 2020. Secondly, NetDocuments sells cloud-based Information Management to legal firms, a seemingly tough sell in a sector renowned for its reluctance to embrace cloud computing.
Beyond the obvious, Warburg Pincus sees many potentials to grow NetDocuments further; otherwise, why make such a significant investment? This deal caught our attention as NetDocuments has ventured into uncharted ECM/Content Services territory. In particular, it has engineered growth beyond the US in Latin America. NetDocuments was one of the firms we spoke in-depth with when researching our Brazil Market Report last year. Selling cloud applications into a sector seemingly reluctant to embrace it and growth outside of the US is brave but so far successful. And to be clear, it is not a path we see many other firms taking. It takes some bravery to step outside your comfort zone and explore new and relatively untapped markets, whether in Supply Chain, Healthcare, or overseas. But for those willing to invest and take a leap of faith, it can pay solid dividends. Our industry is at an inflection point; many pundits see it as mature and somewhat stagnant. Believing the technology itself needs to be jazzed up with the addition of AI (as much through marketing AI rather than indeed using it) or adding things like RPA and HyperAutomation. Though it’s right and proper to continue evolving your technology stack to meet changing needs, you should never lose sight that the bulk of buyers want to automate and manage business documents as effectively as possible at the end of the day. That corpus of buyers and prospects extends far beyond the US Fortune 500; every firm in the world wants to do this. And that means adapting your go-to-market pricing, products, data centers, and services to meet those local needs. NetDocuments is one of the few firms in our industry that has done that, and hats off to them.
That’s not to say there isn’t more work to do at NetDocuments; as a firm that has been around since 1999, it has some legacy elements that will benefit from this investment. The UI’s can be updated, and despite what I just said, NetDocuments could invest further in AI & ML. We would also like to see NetDocuments go further with its early steps into Blockchain. All in all, though, from a Deep Analysis perspective, we think there is much for the industry to learn here. As we believe it is in everyone’s interest, buyers and sellers alike to think more broadly and take a few more risks. When market resistance comes, it’s not because they don’t want the benefits of modern Information Management; it’s because their specific needs and requests are not being listened to.
We will be watching NetDocuments closely as it moves forward under new ownership and the response of some of its nearest competitors, not least iManage, OpenText, and Worldox.