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Legal software provider Dye & Durham Corp. is laying the groundwork for a second try at going public in 2020 after clearing up issues that doomed its first attempt last fall, according to sources familiar with the company’s plans.

The Toronto company – which automates workflows and provides online access to public records for thousands of clients, including 18 of Canada’s top 20 law firms – filed in September, 2018, for a $125-million initial public offering on the Toronto Stock Exchange, co-led by BMO Nesbitt Burns, Scotia Capital and Canaccord Genuity. It postponed the offering weeks later, citing “poor market conditions” after Canadian equity markets fell.

Investors also took issue with the fact that $75-million of the gross proceeds – more than half the proposed offering – would have gone to existing shareholders, mainly chief executive officer Matthew Proud and brother Tyler, the chairman. It’s rare for investors to sell to such an extent during IPOs, as they are typically subject to a lock-up period after the offering.

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Some potential investors also questioned Dye & Durham’s revenue growth potential from existing businesses, given its acquisitive history. The Prouds previously ran OneMove Technologies, which specialized in software for real estate transactions. It assumed the name Dye & Durham – which was originally a provider of office supplies to law firms, founded in 1874 – after buying that company in 2016.

But D&D made two key moves after pulling the offering to address investors’ prior concerns, according to sources familiar with the company’s plans, who are being kept confidential by The Globe because they were not authorized to speak publicly. Tyler Proud ceded the chairman role to lead director Brian Derksen, the former deputy chief executive of Deloitte LLP. In addition, D&D raised $185-million in debt from U.S. investment giant TPG and Australia’s Macquarie Group, and used $50-million of the proceeds to pay a dividend to shareholders.

By giving the Prouds and other investors some liquidity, sources say, the company hopes to have a stronger story to tell investors in a revived IPO that would see all proceeds going to the company.

Meanwhile, D&D is now a bigger company, according to numbers shared with The Globe and Mail. It generates revenue and adjusted operating profit at an annual rate of about $70-million and $40-million, respectively. That’s up from $32.5-million and $19-million in its fiscal year ended June 30, 2018.

The increase is partly owing to three acquisitions announced in March for which it paid close to $60-million, including rival Cyberbahn – which specializes in corporate search and registration and litigation support services – from Thomson Reuters Corp. It also generated 15-per-cent revenue growth from existing businesses in fiscal 2019.

D&D’s board had considered going public this fall, but held off owing to worsening market conditions. Many high-profile tech companies that went public this year, including Slack Technologies Inc., Uber Technologies, Inc. and Cloudflare, Inc., are trading below their issue prices. Shares in Docebo Inc., a maker of employee-training software that went public earlier this month, are also trading below their $16 IPO issue price, while stock in Montreal-based retail software provider Lightspeed POS Inc., which went public in March, is down 33 per cent from its August high.

A D&D IPO likely won’t happen until markets for cloud software companies strengthen, with the board sensitive to ensuring ideal conditions, given the poor reception to last year’s offering, one source said.

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Matthew Proud declined to comment on the company’s IPO plans or its debt funding. “What I can say is Dye & Durham has continued to execute on its growth strategy of consolidation in the legal technology space,” he wrote in an e-mail. “We continue to actively evaluate additional opportunities and alternatives for growth capital and expect to determine our desired course of action early in the new year. ... We are hopeful our continuous and recent growth will be well-received as we continue to build [a] track record” with institutional investors.

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