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Jack Newton, CEO and co-founder of Clio.DARRYL DYCK/The Globe and Mail

B.C. legal technology provider Clio has made its second acquisition – and largest ever – since raising US$110-million in growth capital earlier this year.

Clio, officially known as Themis Solutions Inc., paid an undisclosed sum in the mid-eight-figure range for Mystacks Inc., a 20-person, San Francisco-based provider of software that automatically generates documents and provides e-signature services to legal professionals.

Mystacks, which operates under the name Lawyaw, generates millions of dollars in annual revenue selling its services through Clio’s online app store to the Burnaby, B.C.-based company’s roughly 200,000 legal professional clients. The deal, which was announced Wednesday, follows Clio’s purchase in July of CalendarRules, which provides automated calendar systems to Clio clients for scheduling court dates and deadlines.

With the deals, Clio has joined a swath of Canadian “scaleups” – tech startups that have grown into sizable but still fast-growing entities – that have evolved into acquirers. The list includes Lightspeed POS Inc. , Nuvei Corp. , PointClickCare Technologies Inc., Tophatmonocle Corp. and SemiosBio Technologies Inc., in addition to conventional consolidators Constellation Software Inc. , Open Text Corp. and Dye & Durham Ltd.

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Clio, with 650 employees and US$100-million-plus in annual revenue, joined the ranks of so-called “unicorns” – private companies that reach US$1-billion in valuation – with its funding announced in May led by U.S. fund giant T. Rowe Price Associates Inc., which valued it at US$1.6-billion.

The company sells subscription access to its online platform that small and medium-sized law firms use as an “operating system” to track time and appointments, manage cases, share documents with clients, bill and handle payments, and bring in new clients.

Clio chief executive officer and co-founder Jack Newton said in an interview his 13-year-old company is focusing on buying companies that bring expanded features and products to its platform with an eye to increasing customer satisfaction. “We’re looking for companies that can help us accelerate our mission to transform the legal experience for all,” he said. Clio made its first purchase three years ago, buying Lexicata, a provider of legal customer relationship management programs.

Shubham Datta, Clio’s vice-president of corporate development, said the company expects to hunt for acquisitions primarily among the community of 200-odd vendors that sell apps to Clio customers and that work with its platform. “When we look at solutions to help our customers, if we don’t offer it directly on Clio, we start with our app store and see what solutions our customers are gravitating toward first.”

The emergence of a new breed of acquisitive Canadian software companies, including Clio, has helped reverse long-standing fears that Canada’s promising young tech companies are perennially at risk of being picked off by opportunistic foreign buyers before reaching their potential. While foreign companies have purchased prominent Canadian tech companies in the past year including Verafin Inc., Wattpad Corp., Galvanize Inc. and PayBright Inc., Canadian buyers have become much more active as overall deal activity has surged, said Ed Bryant, CEO of Sampford Advisors, a technology M&A advisory firm in Ottawa.

He said Canadian “strategic acquirers,” or operating companies, have purchased 234 software companies so far in 2021, compared with 208 for all of 2020 and 181 in 2019. That compares with just 46 acquisitions by that class of buyers in 2016.

“Five years ago Canadian companies were a lot smaller, a lot less funded, but there’s been a lot of venture capital or late-stage funding into Canadian companies and the life cycle has matured to where Canadian companies can actually afford to buy other companies,” Mr. Bryant said.

Mr. Newton, who hopes to take Clio public in the next 18 months, said much has changed in the technology ecosystem. “It was very much a one-way flow of M&A where we’d see a lot of U.S. companies buying Canadian companies before they had a chance to flourish,” he said. “Now we’re really seeing that tide reverse and Canadian companies stepping up to the plate, going for a bigger growth outcome and buying both Canadian and U.S. companies to help build these enduring generational companies.”

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