Thomson Reuters: Casetext Acquisition a Bet on AI

On June 27, narrow-moat-rated Thomson Reuters TRI held a conference call to discuss its agreement to acquire Casetext, a provider of legal artificial intelligence tools, for $650 million in cash. The deal was not entirely surprising given that Insider reported that Casetext was in talks to be acquired last month. According to PitchBook data, Casetext previously raised $25 million in January 2022, giving the firm a postmoney valuation of $125 million. The deal is expected to close in the second half of 2023.

Casetext is certainly a long-term play for Thomson Reuters as we expect the revenue contribution to be very modest in the next few years. Notably, Casetext released CoCounsel earlier this year, which is a generative AI-powered legal assistant. Possibly as being part of a Y Combinator-backed company, Casetext had early access to ChatGPT-4 from Open AI, which likely advantaged the firm relative to other players. We believe the deal has strategic merit as Casetext can benefit from Thomson Reuters’ content and distribution. However, the deal represents about 1% of the firm’s market capitalization and is thus too small to materially move our fair value estimate of $109/CAD 144 per share, which we will maintain.