Greg Nitzkowski, Paul Hastings. Photo: Jason Doiy/ALM

UnitedLex's deal to acquire Paul Hastings' data analytics team, which closed Tuesday, took nine months to get from the first meeting between the parties to the finish line. But the seeds of the transaction go back much further.

According to Paul Hastings co-managing partner Greg Nitzkowski, from the day the firm decided to invest in data science and artificial intelligence, it foresaw a point in the future when it would make sense to unload the unit.

"When we asked Tom Barnett to join and build the team, we were already talking about this possibility that came to fruition yesterday," he said. "The goal was not to confer a long-term competitive advantage to us around a proprietary set of tools. We didn't see any examples of that in a law firm."

Instead, the motivation for the investment was to help train the firm's lawyers to work in concert with data scientists and give them the skills necessary to leverage technology on behalf of their clients. This should give the firm a competitive edge over its rivals, Nitzkowski explained.

Now, the team's 20 members, who, like Barnett, formally made the jump to UnitedLex on Tuesday, will continue to work with Paul Hastings on advisory matters as a third-party provider.

"We're committed to Paul Hastings as being an incubator for new technology, new processes, new offerings," said UnitedLex partner David Deppe. "They want to actively develop for us."

But the unit will also market its services to other law firms and corporate legal departments.

That's one reason why Paul Hastings eschewed the initial proposal that Barnett proposed six years ago of establishing the unit as a wholly-owned subsidiary: the concern that conflicts would impede the wider deployment of any products it developed. Another worry was the challenges that law firms, with structural impediments to retaining earnings, have in committing to long-range investments in technology-driven proprietary technology.

"We thought it would be better to fully integrate the team and then have a broad understanding of what an exit strategy would look like," said Nitzkowski, who is based in Los Angeles. He emphasized that along the way, the group hit all of its financial markers.

UnitedLex first learned about the acquisition opportunity when it showed up in a bankers' deck outlining potential deals. Barnett, whose new role is senior vice president and divisional general counsel at UnitedLex, had been shopping it to several other potential acquirers. Then, a mutual friend who thought UnitedLex would make the best fit made a formal introduction, Deppe explained.

"We met in the Los Angeles office. We hit it off immediately," he said. "We could tell from that time that they really ran this function like a business. They had the proper financials and P&L statements."

Meanwhile, UnitedLex had never completed a straight-ahead acquisition before. Previous deals—like the ill-fated legal services outsourcing arrangement with LeClairRyan, and more recent litigation technology-focused contracts with Polsinelli and Ashurst—were structured more as strategic or managed-services partnerships.

"We actually acquired an asset here," Deppe said of the code developed by the Paul Hastings team. Neither Deppe nor Nitzkowski would comment on the financial terms of the agreement.

And while the technology remains usable today, just as it existed under Paul Hastings' umbrella, the next step for UnitedLex is to integrate the code into its Questio platform for eDiscovery and data management, which it launched in 2013. The company has committed to three "development sprints" aimed at having the code modularized within Questio in the coming months.

That follows nine months of exhaustive negotiations, which were slightly complicated by the coronavirus crisis.

"We really didn't experience probably more than a couple of weeks of delay due to COVID-19," Deppe said. "This is the first time I'd ever done anything like this virtually."

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