Iron Mountain Snares Stratify
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In what may be the first of many such moves, Iron Mountain on Wednesday acquired Stratify, a leading vendor of e-discovery software, for $158 million in cash.
The purchase could inaugurate a number of technology-related acquisitions for the iconic records management and storage company over the next five years: Iron Mountain is attempting to replicate its dominance in the physical document management industry with the fast-growing digital records sector.
Stratify's Legal Discovery software incorporates elements of statistical analysis, pattern recognition and linguistics analysis. For companies entangled in legal or regulatory disputes, these features speed and refine the process for reviewing electronic documents like e-mail.
For example, it's costly for businesses to deal with employee stock-option inquiries from the Securities and Exchange Commission or Sarbanes-Oxley accounting compliance issues. Companies routinely spend millions each year in attorney fees directly related to the tedious process of culling through mountains of internal documents to satisfy these sorts of e-discovery requirements.
Accordingly, Gartner expects 50 percent of Global 2000 companies to implement enterprise-wide records management software by 2010, up from about 25 percent in 2005. Increased regulatory oversight, particularly for publicly held companies, means these new record management software systems will have to cull data not only from content repositories but also from file stores, archives and a whole slew of business applications.
John Clancy, president of Iron Mountain's digital technology unit, said Stratify's software brings structure to this sea of unstructured data. He said the technology allows attorneys or paralegals to search through 200 to 300 pages of e-mails in an hour, rather than the typical rate of 50 to 75 pages an hour.
"Our business is based around storage as a service to capture, store and use the data," Clancy said in an interview with InternetNews.com. "The 'use' piece is usually a black hole. This acquisition will allow us to take it to the next level, letting our customers find those needles in the haystack."
And Iron Mountain will be providing plenty of pitchforks. At the same time it announced the Stratify acquisition, the company also announced stellar third-quarter earnings and confirmed plans to spend between $500 million and $1.5 billion on acquisitions over the next five years.
In the quarter, Iron Mountain pocketed $51.3 million, or 25 cents a share, on sales of almost $702 million, easily hurdling analyst estimates calling for a profit of 18 cents a share and sales of $687 million in the quarter.
Clancy said that while Iron Mountain is "expanding" its digital records business, its core paper and physical storage will still account for about 94 percent of the $2.6 billion to $2.7 billion in sales it expects to close this year. Still, that remaining six percent in digital document management and storage represents about $160 million, up from between $30 million and $40 million just three years ago.
"It's not a transition but an expansion," Clancy said. "Our history since 1951 has been about protecting and storing information in physical formboxes and paper and tapesand we just completed our 75th consecutive quarter of increased storage. That business is cranking and will continue to crank. But today, so much is born and lives its lifecycle digitally and we've made a commitment to go after it."
Clancy himself is a product of Iron Mountain's relatively new fixation with digital records management. Before assuming his current role, he served as chief operating officer at Connected, a provider of backup and recovery space for desktop data that Iron Mountain snapped up in October 2004 for $117 million.
Stratify, which provides its hosted e-discovery software to Fortune 500 companies as well as many of the country's largest law firms, will become a division of Iron Mountain Digital when the deal closes at the end of the fourth quarter.
Gartner reported that worldwide spending for enterprise records management software licenses and maintenance totaled $350 million in 2006 and is projected to increase about 30 percent a year through 2011.
This expected demand is music to the ears of Iron Mountain executives as well as established content management software providers like EMC, IBM, Open Text and emerging players such as Mimosa Systems and Autonomy, through its July acquisition of content archiving pioneer Zantaz.
Earlier this month, Oracle unveiled Universal Records Management 10g Release 3, its e-discovery and digital document management software.
Iron Mountain claims it holds more than 300,000 customer contracts from more than 100,000 corporate customers and is responsible for storing and managing more than nine petabytes of customer data.
Iron Mountain shares rallied up $2 a share, or 6 percent, to close at a 52-week high of $34.70 a share in Wednesday trading.