Our internal data suggests a record quarter — approximately $4.5 billion of transaction activity versus $3 billion in Q1. This quarter, the transaction activity was balanced between large platform deals (investments in large, $50 million-plus revenue businesses growing rapidly through organic growth and through acquisition) and strategic acquisitions (the transactions undertaken by strategic platform acquirers to add new products to their portfolio or expand their market share). A flurry of these “platform deals” generally portends an uptick in future activity, and we started to see this come to fruition in Q2, during which businesses such as Granicus, ESO, OpenGov and Kofile (each of whom took investment in the last two years) announced or completed acquisitions during the quarter.
THE BIG DEAL(S)
NEOGOV Receives Growth Investment from Carlyle
Why it matters: NEOGOV is one of the largest gov tech SaaS vendors, growing organically and through mergers and acquisitions by modernizing the HR/workforce management function for more than 6,500 customers in state and local government, public safety and education. Workforce management (the recruiting, hiring, onboarding, management and training of public-sector employees) is a complex market in the gov tech sector, where industry-specific regulations, training requirements and certifying bodies have spawned a large universe of vendors addressing specific pieces of the employee life cycle. As we saw in HR software in the private sector, this fragmentation lends itself to consolidation, and NEOGOV has already started down this path with the acquisitions of PowerDMS, Sigma Data Systems and High Line over the past few years, and we would expect more on the horizon following this recent investment.
CivicPlus Receives $290 Million from Insight Partners
Why it matters: Citizen engagement continues to be one of the most active segments in the gov tech market as governments look to deliver more digital services to citizens, a trend accelerated during the pandemic. CivicPlus is an established player in the citizen engagement ecosystem and, like other large players such as Granicus in its market, has a strategy crafted around centralizing the government-citizen experience in a single platform. Over the years, CivicPlus has expanded rapidly from its heritage in government websites, adding solutions for recreation management, HR, 311, emergency communications and more. Along the way, CivicPlus has acquired businesses including SeeClickFix, Rec1, BoardSync and others, and we would expect the investment from Insight to be a further catalyst for market consolidation in the citizen engagement arena.
Vector Solutions Acquired by Genstar Capital and Insight Partners
Why it matters: Another significant transaction in the public safety training, compliance and workforce management sector was the acquisition of Vector Solutions by Genstar and Insight Partners. Vector entered the public safety market through its acquisition of TargetSolutions in 2013, and has since emerged as one of the larger software providers to the public safety vertical, expanding its presence and product offering in the market through acquisitions such as Halligan and CrewSense. Again, we expect this recent investment to be a catalyst for more consolidation in the market.
NOTABLE MERGERS AND ACQUISITIONS
Bang the Table, OpenCities Acquired by Granicus
Why it matters: Granicus simultaneously announced the acquisitions of two citizen-facing SaaS businesses: Bang the Table (community engagement and feedback) and OpenCities (websites, portal and forms digitization). The evolution of how governments interact with citizens is closely following the evolution of consumer engagement in the private sector, where data and analytics powering modern, personalized experiences have become the standard demanded by consumers. Bang the Table and OpenCities are important components for Granicus in executing on this same vision in the public sector, in addition to providing a “voice of the citizen” for agencies to understand the sentiment and priorities of citizens in their communities. The acquisitions were announced shortly after Granicus announced its own investment from Harvest Partners and Vista Equity Partners in December 2020.
ProcureNow Acquired by OpenGov
Why it matters: OpenGov adds another important component to its growing ERP cloud, adding procurement solutions through the acquisition of ProcureNow. OpenGov has emerged as an active acquirer of “best-of-breed” SaaS solutions as it has expanded its ERP suite, with the ProcureNow transaction following the acquisitions of ViewPoint (community development) and ClearRec (reconciliation management) in the last two years.
Emergency Reporting Acquired by ESO
Why it matters: ESO’s acquisition of Emergency Reporting comes less than a quarter after ESO announced its own investment from Vista Equity Partners in March 2021. Historically, Fire and EMS have relied on different technology systems despite responding jointly in the field, creating an opportunity to collaborate more closely, increase efficiencies and improve incident outcomes through the sharing of data. The ESO and Emergency Reporting combination is responsive to that opportunity, bringing together expertise in fire (Emergency Reporting’s heritage) with expertise in EMS and hospitals (ESO’s heritage).
NextRequest Acquired by ArchiveSocial
Why it matters: The acquisition of NextRequest (Freedom of Information Act software) by ArchiveSocial (social media archiving) brings together two important components of public records management, creating a broader platform for government agencies to manage the compliance requirements and laws associated with public records. Managing public records has become more complex as the volume of digital communication has grown during the pandemic, and as calls for transparency have created demand for increased record access.
Data Preservation Solutions Acquired by Kofile
Why it matters: An often-overlooked part of government’s digital transformation is the preservation and digitization of physical records. Kofile brings a unique approach to the market, combining both the preservation and digitization of historical documents (through its subsidiary, Kofile Services) with a growing portfolio of citizen-focused software solutions (through its subsidiary, GovOS, created earlier this year). Kofile has long been a market leader in preservation and digitization services, and the acquisition of Data Preservation Solutions expands its customer footprint in Texas.
NOTABLE FINANCINGS
Mark43 Raises $101 Million Series E Financing Led by Spruce House Partnership and Tiger Global Management
Why it matters: One of the major investment themes in gov tech this year has been the modernization of public safety infrastructure, and Mark43’s latest round comes after Carbyne911, RapidSOS, SOMA Global and RapidDeploy each announced new funding events in 2021. Mark43’s funding event represents one of the largest rounds raised in public safety in recent memory and brings its total capital raised to $257 million. Mark43, perhaps the first company to tackle modernization of CAD/RMS, has had a steady drumbeat of announcements this year, noting major new product releases, major new customer wins and growth domestically and abroad.
Zencity Raises $30 Million in New Funding
Why it matters: Zencity’s $30 million funding round comes on the heels of its $13.5 million funding round in August 2020, significant growth in new customers and its acquisition of Elucd in Q1 2020. Zencity is capitalizing on an emerging market trend of government’s desire to be more data-driven, using the “voice of the citizen” from internal data (e.g., 311) and external data (e.g., social media) as inputs to inform decision-making (e.g., understanding community priorities when deciding on a new regulation or investment) as well as to measure the downstream impact of how the community has reacted to changes that have been enacted. Zencity has raised $51 million to date, making it among the most well-funded gov tech businesses in public administration.
Passport Raises $90 Million from Sixth Street Growth
Why it matters: Transportation management is poised to be an area of sustained growth in the gov tech market as cities grapple with how established and emerging forms of public and private transportation coexist and use public resources in a fair and equitable manner. This, combined with society’s return to work following the pandemic and major infrastructure investments proposed in the $3.5 trillion infrastructure bill, should drive significant activity in this market subsector. Passport, whose heritage is in parking payments, has evolved its platform to manage municipal transportation holistically, and its latest funding round (bringing its total capital raised to $200 million) positions it to invest in accelerated growth.
I'm always happy to meet others in the gov tech space and chat about what we're seeing in the market. If you have questions or want to talk about the state of the market, active buyers and investors, how the exit process works or anything in between, please don't hesitate to reach me at jcook@shea-co.com.
Jeff Cook’s firm, Shea & Co., served as an adviser for the Emergency Reporting and Bang the Table deals mentioned in this article.
