AI Acquisition: Nuix Buys Rampiva
A look at Rampiva's product, how it fits Nuix, and how it was acquired for $7m.
Investigative intelligence software company Nuix recently acquired Rampiva for up to $7m. Rampiva is automation for Nuix but let’s dig into Rampiva’s product, business and how Rampiva was acquired.
This type of acquisition, where a technology company acquires a product to fill a gap in its offering, can be very successful.
Rampiva fills a clear product gap for Nuix and gives Nuix a new product to cross-sell into customers, generating additional revenue. The trick for Nuix will be to drive overall profitability to give this acquisition the time to succeed.
Context: Nuix
Before we can understand Rampiva and the acquisition, we need to understand a little more about Nuix.
Nuix provides software and services primarily to lawyers and forensics experts that lets them rapidly understand data. In today’s world, court cases, forensic analysis and cyber incidents or issues can have mountains of data to comb through. Nuix’s software makes this easy.
Customers usually require Nuix’s software and some level of services or internal work to implement and make use of Nuix technically but also in their legal, analysis or forensic process.
Here’s a summary of Nuix’s financial position around the time of acquisition:
Nuix’s market capitalisation was around $450m-$510m at the time of acquisition.
Rampiva’s Timeline
The story of Rampiva isn’t just the story of Rampiva. Three years prior to being acquired by Nuix, in 2020, Rampiva merged with RYABI Group.
So, the journey starts with a story of two businesses. Rampiva was founded in 2016 by Daniel Boteanu, a former forensics expert, and focused on building software for automating forensics work. It’s unclear if Rampiva’s first offerings were closely tied to Nuix. RYABI was founded by 2 former Nuix employees in 2017 as a Nuix services, integration and resell partner.
After the two companies merged the next major milestone for them was releasing Rampiva 5 and releasing Rampiva Baseline (more on each later). Then they were acquired.
Rampiva’s Solution
Rampiva’s core solution around the time of acquisition was a solution to help Nuix customers automate their data collection and processing.
Ryan Best, VP of Client Success at Rampiva describes it as software that allows “clients, remote teams, and analysts at the scene can submit forensic images, network folders, and loose files for automatic processing, reporting, and production to review.”
In practical terms this is automating how the data gets into Nuix and then automating how Nuix is run to process the data. Automating how Nuix runs, on say Amazon Web Services or Microsoft Azure, means that clients can optimise their costs and data processing performance.
Rampiva appears to have built some helpful tools around this automation to make it easier and easier for clients to do.
One of these tools they give away for free, called Baseline. Baseline seems to be a collection of Microsoft’s PowerBI dashboards that give insights into how Nuix is performing. PowerBI is almost like excel on steroids if you aren’t familiar with it, it lets a user build dashboards, analytics and reports on just about anything fairly easily.
In product development, sticking together a tool like this for free to solve a customer problem is the sort of scrappiness I like to see. Solving a customer problem, in the cheapest, easiest way possible, then using it to break into new accounts. Love it.
The Acquisition
Rampiva’s product is clearly solving a need in Nuix’s customer base. Acquiring a commercialised product to slot into your overall product suite when you’re in a financial position to do so.
There is clearly a problem Nuix customer’s need solved because they’re paying Rampiva to solve it. So Nuix either needs to build it themselves, continue to partner or ignore it.
Nuix’s financial position to make acquisitions isn’t straightforward. While Nuix has reduced its losses, it is still making losses and current assets have decreased, particularly cash. It has the cash to make the acquisition and continue to sustain its losses for the foreseeable future.
Why Acquiring Products Makes Sense
What Nuix is really acquiring here is the product and the team that built it. I like to think of it as a Product Acquisition.
Generally speaking, Product Acquisitions make sense for scaling tech company like Nuix for a few reasons:
Cost less: It would likely cost Nuix more than $4m-$7m to develop this product internally.
Product/market fit has been solved: It is difficult to find product/market fit with major new features or products. This is innovation, it’s hard.
Speed to revenue: having a proven product with successful clients can be faster than doing it yourself. Having revenue is easier for most organisations to understand and manage.
Organisational challenges: Companies operating at some scale face adverse factors in building new products. Harder to persist with the development timeline, internal politics can kill good ideas and lack of management bandwidth are just some examples.
Moves another AARRR metric: If the revenue isn’t obvious, maybe the product will have an impact on Acquisition, Activation, Retention or Referral (AARRR is a framework for measuring product success metrics).
Financial Case for Acquisition
The key financial case for this acquisition, with the Product Acquisition in mind, in this instance is likely around (a) the additional revenue it can generate (Nuix’s statements mention “cross-sell”) and it is likely to help (b) retain customers.
A blunt reverse engineer of Nuix’s numbers tells us that they likely charge around $185,000 per customer annually ($185m revenue / 1,000 customers) inclusive of software and services. You could also say it’s likely there are customers on $100,000 and others on $500,000+ per year.
Rampiva seems to be most relevant to bigger customers or customers working with more scale. It’s likely that Rampiva’s software and services are priced somewhere between $10,000 and $100,000 (usually ecosystem products are priced as a fraction of the cost of the core product).
Therefore the cross sell opportunity for Nuix with Rampiva could be worth $10m to $20m.
This means Nuix needs to get to 20%+ of the total current market for Rampiva to begin repaying the cash consideration of the purchase price. With Nuix currently growing at close to 20% year on year the market should expand somewhat as well.
Thoughts
Services are essential when selling products like this to customers that need service plus software to get an outcome. RYABI merger would have helped here.
A simple PowerBI dashboard helps, no need to build a new product.
The focus on a niche ‘feature’ in an existing ecosystem can build products and companies worth acquiring.
A Final Thought
Nuix’s acquisition requires some nuanced consideration. Although the equity component of the acquisition is a small percentage (1%) of Nuix’s market cap, the cash component represents ~7% of Nuix’s available but rapidly declining cash.
Nuix seems to be moving towards profits, which should replenish cash and make this a non issue. Remember, for this acquisition to work, Nuix needs to generate something like $4m+ in revenue from Rampiva to provide a payback on the $2m cash (assuming a 50% gross margin).
On the equity side, Nuix is trading around 2.7x revenue. So the $5m in equity, at today’s valuation - not properly accounting for the earn out - means Rampiva needs to bring at least ~$1.8m in annual revenue (or should have at the time of acquisition) ($5m equity divided by 2.7 = $1.8m revenue).
Nuix may have gained an immediate uplift if there is the right difference in how Nuix’s multiple of revenue valuation versus the price and revenue of Rampiva but, given the data available, I wasn’t able to look at this.