Cox Enterprises, known for its communications and automotive businesses, took a majority stake Tuesday in OpenGov, a 12-year-old San Francisco firm that sells software for budgeting, planning, procurement and other jobs vital to government.
The deal valued OpenGov at an eye-popping $1.8 billion, making the company one of just a handful in the gov tech space to reach or exceed the billion-dollar mark.
It “shows investors that gov tech can support venture-scale, unicorn outcomes,” Steve Ressler, managing partner and co-founder of The Brydon Group, told Government Technology via email. “It gives inspiration for entrepreneurs that you can start from nothing as a startup, and in a decade, build a big impactive business in the market.”
The purchase also highlights Cox’s increasing presence in gov tech, including through its Socium Ventures arm; and the fact it bought out OpenGov’s other investors, including those in private equity (PE) — a form of investment that is becoming more common in gov tech, and is a mainstream industry trend. The acquisition’s structure, OpenGov Chief Marketing Officer (CMO) Matt Singer said, should encourage long-range planning.
“Unlike the typical acquisitions we’ve seen in recent years in gov tech where PE firms are buying solutions for short-term gains, Cox offers OpenGov long-term stability to make decisions that will benefit our local government customers for decades,” Singer said via email. “PE acquisitions tend to focus on cutting costs and increasing profits, which means little to no R&D investment or customer support.”
He said OpenGov will operate independently under the Cox umbrella, with company leadership intact and Cox keeping its seats on the OpenGov board. Singer said OpenGov trusts that Cox will let the gov tech firm “flourish,” given how Cox has handled previous acquisitions.
“Cox has done an excellent job of diversification over the years, building lasting industry-focused businesses in newspapers, radio, cable, automotive, and now state and local government,” Singer said. “OpenGov is the expert in this space, and they want to continue providing us the autonomy to apply that expertise.”
OpenGov plans to invest “heavily” in AI for local government, Singer said, reflecting another gov tech trend; the company already uses AI in budgeting and procurement. And OpenGov will beef up its customer service offerings, the CMO said, expanding its Transform customer education event. The company is hiring for 70 open positions across all departments, hoping to complete that effort by spring and is especially interested in engineers and professional service staff.
The deal also underscores the spread of cloud computing and software as a service (SaaS) in gov tech, according to Jeff Cook, a managing director at Shea & Co., an investment bank that has advised in more than 20 gov tech deals. Calling the Cox investment “one of [the] more important gov tech deals in recent memory,” he said it stands as an example of the growth of modern, SaaS-first companies, and demonstrates how far the industry has come.
“OpenGov is one of the few [relatively] more recent entrants that has been SaaS-first from the beginning to get to this valuation level,” Cook told Government Technology via email. “Not to be dramatic, but I view this as a milestone and indicator of where we are in the modernization of gov tech overall — the shift from legacy systems to SaaS solutions isn’t an emerging trend anymore, it’s here and now.”
Unlike many companies at OpenGov’s scale, he said — companies which generate “tremendous” cash flows that form the basis of their valuations — the firm has focused on investing “massively” in product.
“In this case the valuation is justified not by cash flow but by the huge growth potential the company has ahead of it as governments continue to modernize,” Cook said. “Moving forward, I think it will be business as usual at OpenGov and it will be that way for the foreseeable future.”
