AI Fuels Merger Frenzy in Underpenetrated Legal Contract Management Software Market

The generative AI boom is driving a wave of mergers and acquisitions in the niche but growing market for contract lifecycle management (CLM) software.

Growing momentum around contract management and AI: The convergence of several tech and market trends, including the rise of generative AI, is driving increased interest in CLM software:

• Legal services is one of the industries most “exposed” to generative AI according to a recent academic study, fueling interest in incorporating this technology into CLM software.
• “There’s a lot of interest in generative AI . . . and if you look at all the predictions out there, the number one vertical to be affected by this . . . is legal,” says Zach Posner, co-founder of a legal tech VC firm.

Consolidation among CLM players: In recent months, there has been a flurry of M&A activity as established legal tech companies acquire smaller AI specialists to boost their CLM offerings:

• DocuSign acquired Lexion, Icertis partnered with Evisort, LexisNexis bought Henchman, and Sirion purchased Eigen Technologies – all deals focused on integrating advanced AI into contract management.
• “If you’ve got fewer players that are doing more things, then that’s much easier,” explains Jennifer Swallow, a legal tech advisor, on the drive to consolidate the fragmented CLM market to better serve customers.
• Acquiring AI capabilities is often faster and more cost-effective for CLM vendors than building the technology in-house, especially given the tight funding environment.

Untapped potential in the CLM market: Despite being a relatively mature software category, the CLM market is still underpenetrated, with significant room for growth:

• The global CLM software market was valued at only $1.5 billion in 2022, and just over half of corporate legal departments currently use a CLM system.
• Combining CLM with generative AI is expected to expand the market substantially. “There’s still a massive greenfield opportunity,” believes Posner.
• AI-powered features like automated contract redlining and editing are starting to emerge, with the potential to drive major cost savings for legal departments.

Analyzing deeper: While generative AI is generating huge excitement in the CLM space, the technology is still in its early days and will require further development before reaching widespread adoption. Key open questions remain around how quickly the AI capabilities will mature, how well they will perform in real-world legal workflows, and how to address any associated privacy and security concerns. Customers will need to closely evaluate vendor roadmaps and potentially pursue phased implementations. Nevertheless, if executed well, the combination of CLM and generative AI has the potential to be truly transformative for the legal industry – streamlining contracting, reducing costs, and freeing up lawyers to focus on higher-value work.