EMC Acquires E-Discovery Specialist Kazeon Systems

Storage giant EMC on Sept. 1 made a move to bring fresh e-discovery functionality into its own content management realm by announcing that it will acquire cash flow-challenged Kazeon Systems for about $75 million in cash.
EMC did not reveal the purchase price. eWEEK obtained the information from a reliable industry source with knowledge of the transaction.
Six-year-old, privately held Kazeon makes a physical appliance that features a full menu of e-discovery, litigation and analytics software for corporations, legal service providers, law firms and consultants. The company claims to own the first enterprise-grade platform to offer end-to-end capabilities such as early case assessment, legal hold management, analysis and review, collection and culling.
Considering that EMC recently spent about $2.4 billion in acquiring a medium-size storage deduplication vendor, Data Domain, following a monthlong bidding battle with NetApp, the price being paid for Kazeon amounts to a bit more than pocket change for the world’s largest data storage and protection company.
EMC currently has partnerships to resell e-discovery software with Kazeon, StoredIQ and Clearwell Systems. A spokesman for StoredIQ told eWEEK that the company will maintain its partner relationship with EMC through the EMC Selects Program and “will continue to work on opportunities.”
Mark Lewis, who as president of EMC’s Content Management and Archiving Division will soon be supervising Kazeon employees, told eWEEK that Kazeon’s was “the only product that looked at the whole EDRM [electronic discovery reference model] from end to end and provided a good solution.”
EMC wants to extend its utilitarian presence in the search space with Kazeon, Lewis said.
“Their secret sauce is search, but it’s tied fully to the e-discovery model,” Lewis said. “It has all the nitty-gritty things that lawyers want for judicial compliance, redaction and all that stuff. This is a much harder market to get into with just basic technology than most folks think.”
As for EMC continuing to resell Clearwell and StoredIQ products, Lewis told eWEEK that “we’ll continue to look at customers’ individual needs and finding good fits. But clearly our focus will be on pushing and improving the Kazeon product.”
EMC’s move was welcomed by Kazeon, which had been suffering through some lean economic times.
The deal will come as a relief to Kazeon’s long-suffering shareholders, Aaref Hilaly, CEO of Clearwell and a competitor with Kazeon, wrote in an e-mail to eWEEK.
“Over the past six years, it raised over $60 million in equity financing, double the amount it usually takes successful software companies to reach profitability. But despite all that investment, revenue has been hard to come by,” Hilaly wrote.
According to former Kazeon employees, the company’s revenue totaled only $7 million over the past 12 months, Hilaly said.
“Perhaps as a result, there’s been a lot of management turnover, and last year the board retained a recruiter to find a new CEO. In light of all that, selling the company for $75 million, or 10 times trailing revenue, is a great outcome for Kazeon’s shareholders,” Hilaly said.
EMC Uses Its Standard Acquisition Strategy
The acquisition of Kazeon is the latest example of how EMC adds technology: by trying out the wares of a particular partner before deciding to make a strategic acquisition. EMC has done this on a number of previous occasions, such as with VMware (virtualization), Avamar Technologies (deduplication), RSA Security, ConfigureSoft (management controls), Atmos (enterprise cloud storage) and dozens of others.
Craig Carpenter, vice president and general counsel of competing e-discovery provider Recommind who has spent years in the business, told eWEEK that the deal was the “absolute worst-kept secret ever” at the recent ILTA (International Legal Technology Association) conference last week in Washington, D.C. “Everybody was talking about it there,” Carpenter said with a laugh.
Of the three e-discovery products EMC is reselling, Kazeon’s was perhaps the last one most people thought it would acquire, Carpenter said.
“Kazeon is primarily known for data collection and early-case assessment, and not for the deep review and analysis that legal firms require. It is primarily designed for enterprise e-discovery, not for legal firms, and that fits right into EMC’s product set,” Carpenter said.
Clearly, EMC had some choices as to how it wanted to get serious in the e-discovery market, Brian Babineau, senior storage analyst with Enterprise Strategy Group, told eWEEK.
“And we are all well aware that if EMC is going to buy revenue, they need a really big number for it to be material,” Babineau said. “So I view this transaction as more tactical from a business standpoint and strategic from a technology standpoint. Kazeon has very good technology and, yes, had some hiccups on the business side. That actually makes them a perfect fit for EMC.”
Babineau offered some perspective on how the deal may impact StoredIQ and Clearwell.
“I think this is terrible for StoredIQ, as they were a ‘strategic partner’ for EMC in this market. EMC invited them to the prom, danced with them for a while, and left with another girl,” Babineau said. “It’s [also] not great for Clearwell, but they [already] have a solid business along with Recommind.”
Upon completion of the acquisition later this quarter, Mountain View, Calif.-based Kazeon will become part of EMC’s Content Management and Archiving Division. The company’s product will add a key piece to EMC’s SourceOne software package, which the company said will make it a fully integrated e-discovery, archiving and compliance offering.