Update: Iron Mountain to buy e-discovery company

Major storage provider Iron Mountain said Wednesday it intends to purchase Stratify, a maker of document discovery software, for about $158 million in cash.

Stratify is known for products aimed at law firms and other organizations that need to access large amounts of legal filings. Iron Mountain said in a statement that the purchase should help customers better manage and monitor such sensitive documents in an age of stricter oversight of regulatory compliance and government investigations.

Iron Mountain also believes there is huge money to be made in combining Stratify’s document discovery technology with its own storage offerings and services. “Litigation and regulation has been building for years. It then got really propelled last year with Rule 26,” Iron Mountain president and COO Bob Brennan said during a conference call, referring to amendments made to federal law governing the discovery of electronic documents.

He estimated the market opportunity for such services as being between $4 billion and $12 billion.

Iron Mountain said Stratify will become a division of the company, and its offerings will also be marketed as value-added services to Iron Mountain’s customers. The deal is expected to close by the end of the year.

Brennan said Stratify has had annual revenue of about $30 million, and Iron Mountain expects that number will grow by 20 to 30 percent each year.

He characterized the pending acquisition as something to “bridge the gap between our physical and digital businesses…. We are acquiring the best product in the space as well as the best process in the space.”

John Clancy, president of Iron Mountain Digital, said in an interview that the company conducted an “exhaustive” search among e-discovery companies, and settled on Stratify due to its strong technology. “There are lot of vendors in the space. When you go through, there’s usually a smart team of entrepreneurs … but what happens is, they start with the process, but then back into the technology.”

Newer features in Stratify’s core product, Stratify Legal Discovery, include the ability to detect duplicate and near-duplicate documents; tools for identifying and tracking documents with hidden metadata, such as comments or tracked changes; and better management of “compound” documents, such as a text file with an embedded spreadsheet.

Clancy said Iron Mountain has no current plans to rebrand Stratify’s offerings, and company employees will be retained.

Iron Mountain also announced its third-quarter earnings on Wednesday. The company said total revenue increased by 18 percent to $702 million, a boost driven by a 12 percent internal growth spike along with a number of acquisitions, including ArchivesOne and RMS Services-USA.

Operating income for the quarter rose to $129 million, a jump of 33 percent. Net income was $51 million. Iron Mountain’s stock was trading at about $34 Wednesday afternoon, up roughly 4 percent from Tuesday’s closing price of $32.70.

CEO Richard Reese noted the company’s recent run of acquisitions, which he said total some $500 million including the Stratify deal. Reese said he doesn’t expect the company to continue its “burning pace” of purchases.

This story was updated on Oct. 31, 2007.