Cove Hill takes a minority stake in NetDocuments

Yes, we have yet more legal tech private equity news, as Boston headquartered fund Cove Hill buys a minority stake in NetDocuments from Clearlake Capital Group, which acquired NetDocuments in 2017.
The investment, announced today, (14 May) follows revenue growth at NetDocuments of 65% since 2017.
Speaking to Legal IT Insider, NetDocuments CEO Josh Baxter said: “Cove Hill came to us and they really like our business and they wanted to make an investment in a true SaaS vendor that they felt was a long-term investment.
“They have a 17-year fund and are long view investor but wanted to invest in NetDocuments because they felt the business was built to grow and be successful.”
According to Baxter, Cove Hill has long been interested in taking a stake in the Utah-headquartered company. He said: “We use the baseball analogy that this is early innings, and that’s Clearlake’s view as well. But Cove Hill came back saying ‘you’ve grown this business by 65%, we want to participate.’ It gives us the opportunity to have added dollars to spend on the likes of ThreadKM and Chapman and Cutler’s Closing Room, so they’ve come in as a minority part of the business.”
NetDocuments acquired deal management application Closing Room in November 2018 and enterprise chat site ThreadKM in November 2017.
One independent senior private equity investor with knowledge of the deal told us: “Clearlake invested at a high valuation, but they have grown the business well. The business is much bigger than it was in 2017 in terms of revenue and customers. The benefit of this sale to Cove Hill will be to show Clearlake’s investors that the value of the business has increased and that they can take out a few shares at a materially higher value than in 2017.”
A vendor familiar with the situation added: “Clearlake’s acquisition was a leveraged buyout and they put a lot of debt onto NetDocuments books so you can expect that the sale of a minority stake will go towards that debt.”
According to Baxter, there are no specific acquisitions on the horizon, but he said: “There are so many small legal technology vendors that complement NetDocuments and this investment means we have dry powder.”