Embattled Epiq Systems agrees to $1 billion buyout and merger with rival DTI

Kansas City, Kan.-based Epiq Systems Inc. agreed Wednesday to be purchased by the owners of Atlanta-based rival DTI in a $1 billion transaction.

Epiq said its two large shareholders who have challenged the company’s management and performance have backed the cash deal, which prices each Epiq share at $16.50. Shares of Epiq closed Tuesday at $14.42 and gained $1.93, or 13.4 percent, after the news Wednesday, closing at $16.35.

The billion-dollar price includes the value of Epiq’s debts that the buyers are taking on.

The buyers are OMERS Private Equity, which is an investment arm of the OMERS pension plan in Ontario, Canada, and investment funds managed by Harvest Partners LP, a New York-based private equity investment firm.

The OMERS pension plan’s 461,000 members include municipal workers, transit system and electrical utilities employees, nonteaching staffs of school boards, police, firefighters, paramedics and employees of children’s aid societies.

OMERS, through its investments, also is the controlling owner of DTI, which, like Epiq, is in the business of providing technology and services to law firms. The work includes e-discovery, using technology to manage email and other data in legal cases.

DTI, as a privately held company, does not make its financial information public. Analyst Peter Heckmann, who follows publicly traded Epiq at Avondale Partners LLC, said DTI has been buying up other e-discovery companies and merging them, what Wall Street calls a rollup strategy.

Heckmann said he doesn’t believe DTI is in the bankruptcy and class-action lawsuit administration business that Epiq handles.

Epiq, which has 350 employees in the Kansas City area, likely is a larger company overall, but its standing in the e-discovery industry remains unclear. Most of the work is done by private companies or within large businesses.

“Xerox is in the e-discovery business but never breaks it out” in financial reports, Heckmann said.

Executives with Epiq were unavailable for comment.

Eric Haley, managing director of OMERS Private Equity, said in the announcement that merging the two companies will make them stronger.

“Epiq and DTI are both recognized as excellent service providers and market innovators. This combination will produce a global firm with best-in-class solutions and significant opportunities for growth in the dynamic legal technology industry,” Haley said.

Earlier this year, there were unconfirmed reports that DTI and Xerox had made offers to buy Epiq for between $14 and $16 a share, and there were claims that Epiq had turned down another offer at $20 a share. More recently, Epiq said it had received no “viable” offer at $20 a share.

Directors of Epiq agreed to the OMERS deal after nearly two years of strategic review about the company’s future. The review was marked throughout by lawsuits and other pressure from Epiq’s two largest shareholders, St. Denis J. Villere & Co. LLC in New Orleans and P2 Capital Partners LLC in New York.

Villere and Epiq recently settled a courtroom battle that grew out of Villere’s attempt to take control of Epiq through its board of directors.

Commitments from those two large shareholders as well as chief executive Tom Olofson and other management and board owners represent 38 percent of Epiq’s shares that have agreed to vote for the deal. The sale requires approval from two-thirds of shares eligible to vote on the deal and from regulators, but the companies expect it to be completed by the end of this year.

Heckmann said that the deal seems a fair one and that its terms allow Epiq to terminate the sale if a superior offer comes along or the deal is not completed by Nov. 23.

“Given the strategic review is in its 22nd month, we think a superior proposal is unlikely,” Heckmann wrote in a note to clients.

This story was originally published July 27, 2016 at 10:09 AM with the headline "Embattled Epiq Systems agrees to $1 billion buyout and merger with rival DTI."