Elevate mulling merger before expected capital raise or IPO, CEO says

29 July 2020

Elevate Services, a Los Angeles-based provider of consulting, services and technology to the legal industry, is evaluating a possible merger, said Liam Brown, founder and executive chairman. Privately held Elevate was recently approached by some similar-sized players, Brown said. The company is weighing whether to merge now or wait to acquire a large peer after an expected capital raise or IPO in late 2021 or 2022, he explained.

 

  • Company to seek up to USD 200m by next year
  • Near-term merger could make US listing an option 

 

Elevate Services, a Los Angeles-based provider of consulting, services and technology to the legal industry, is evaluating a possible merger, said Liam Brown, founder and executive chairman.

 

Privately held Elevate was recently approached by some similar-sized players, Brown said. The company is weighing whether to merge now or wait to acquire a large peer after an expected capital raise or IPO in late 2021 or 2022, he explained.

 

In a near-term merger scenario, Elevate is open to either being the controlling entity or the acquired entity, depending on the deal, Brown added.

 

Elevate generated revenue of USD 81.4m in 2019 and USD 47m in 2018, according to Brown. Due to effects from the COVID-19 pandemic, sales are expected to be flat this year, with growth of 10%-15% projected for 2021. The company had a gross profit margin of around 35% in 2019 and is aiming for 40% this year, the executive noted.

 

Roughly 80% of Elevate’s revenue is recurring. Its EBITDA margin typically is between 10% and 15%, though this year Elevate is operating close to breakeven or at a slight loss, Brown said. Approximately 60% of business comes from the US, 30% from Europe and 10% from Asia-Pacific.

 

Recent valuation multiples have ranged between 10x and 15x EBITDA, according to Brown.

 

Fundraising options

In late 2021 or 2022, Elevate plans to raise between USD 100m and USD 200m via a capital raise or listing on London’s AIM stock exchange, Brown said. If a merger is completed prior to an IPO and Elevate remains in control, the company may be big enough at that time to consider a US exchange, he added.

 

A strong market rebound, solid company growth in 2021 and increasing traction in its software business would tip the scales to the higher end of the capital-raising range, Brown said. Right now, software sales account for roughly 5% of sales and 10% would be “more meaningful,” he noted.

 

Brown, 51, founded Elevate in 2011. He owns 36% of the business but controls approximately 85% of voting rights. Company executives, angel investors, friends and family hold minority stakes. Kayne Partners acquired a slightly less than 10% stake for USD 25m in June 2019.

 

Last July, Brown told this news service that Elevate would likely complete an IPO by mid-2021 to provide liquidity for early stakeholders and fund the next stage of growth. COVID-19, however, has pushed back those plans, he explained for this report.

 

Brown pointed to IPH [ASX:IPH], DWF Group [LON:DWF] and FTI Consulting [NYSE:FCN] as public comparables. DWF became the UK’s largest listed law firm when it competed a GBP 95m IPO in March 2019.

 

To support its growth and M&A initiatives, Elevate in December hired Simon Heyrick as Chief Financial Officer. Previously, Heyrick was CEO of Soothe, an on-demand in-home massage company that has raised close to USD 80m in capital, and CFO of marketing analytics technology provider MarketShare, which was acquired by Neustar.

 

Elevate has completed eight acquisitions to date, with the last five taking place between late 2018 and early 2019.

 

This year, Elevate is opportunistic about acquisitions of technology-enabled legal services in the US, UK, Canada and Australia, Brown said. Its sweet spot is companies that have USD 10m to USD 15m in revenue, though next year, the company will more actively seek buys larger of companies with up to USD 50m or more in sales, he added.

 

COVID-19 views

Elevate has approximately 1,200 employees and roughly 300 Global 1000 enterprise and Global 100 law firm clients. No employees were furloughed due to COVID-19. Brown said Elevate predicted a 2020 recession related to the election and Brexit and fortified its balance sheet prior to the coronavirus crisis.

 

Though COVID has forced some customers to temporarily slow down or stop projects, especially related to courtroom litigation, others have accelerated their investments, depending on the industry. Brown noted a greater future opportunity in the digital trend, with law firms and departments now likely to increasingly embrace enterprise legal management software and solutions beyond email.

 

Elevate competes with other legal consulting, technology or services companies such as HBR ConsultingConsilioOnitKim TechnologiesKira SystemsLuminancePERSUITAxiomEpiq and UnitedLex, according to Brown. The Big 4 consulting firms – DeloittePwCKPMG and EY – are increasingly entering this space, he added.

 

Axiom scrapped IPO plans after private equity firm Permira acquired a majority stake in September. In terms of other recent activity, Brown pointed to Canadian legal software player Clio, which raised a USD 250m Series D in September, and the 2019 acquisitions of Australia-based Lexvoco by LOD and Simple Legal by Onit. Also last year, PWC partnered with New Zealand-based Lawvu and KPMG invested in and partnered with Plexus.

 

Elevate uses Littler Mendelson for employment law and RSM US for audits. McGuire Woods advised on the Kayne transaction. The company has a debt facility with Morgan Stanley.