Looking at transaction activity last quarter would seem to reinforce that optimism — in Q3 2022, we tracked $2.1 billion of transaction volume. While that is down from the $2.9 billion in the prior quarter, it was effectively flat from the $2.2 billion that we saw a year ago in Q3 2021 and puts 2022 on pace for the second-busiest year on record. Interestingly, Q3 saw very few private equity platform deals, which historically have been the consistent driver of activity and a bellwether for the state of the market — in contrast, most of the activity this quarter was strategic mergers and acquisitions or new financing rounds.
Even though the transaction volume headlines indicate a busy market, the composition of transaction activity in Q3 suggests that there is some slowdown at work in gov tech — while gov tech is a more durable category and relatively insulated from the broader markets, it is not immune. The “soft spots” in the market we are seeing underlie some of the transaction trends we saw in Q3. First, there is no question that the volume of transactions is starting to slow down. We attribute that to: 1) a lower “inventory” of companies that planned to go to market in 2022, but sold earlier in 2021 given strong market conditions, and 2) sellers in the current day taking a “wait and see” approach. On the latter point, much of the activity we expected in the second half of 2022 is getting pushed out to 2023 as sellers, many of whom have no rush to exit, are electing to see if volatility cools down in the market and not take on the potential risk of uncertain markets. Another major piece is the state of the credit markets, where rising interest rates have increased the cost and availability of debt and are beginning to weigh on valuations.
Our prediction for the next few quarters? We think that we will see a deceleration in activity through Q4 and into early next year, and activity will be characterized by strategic acquisitions and minority financings similar to those in Q3. Those that do test the market will still be met with considerable interest from investors, and valuation multiples that are at or near the multiples we saw in 2021. For the growth equity side of the market, we expect investors to nudge operators to get to cash flow breakeven sooner rather than maximizing revenue growth.
THE BIG DEAL
OpenGov Acquires Cartegraph
Why it Matters: OpenGov’s acquisition of Cartegraph is among the more transformational acquisitions to happen in gov tech this year. With the acquisition, OpenGov adds the important category of infrastructure and asset management to its growing cloud suite of solutions, which includes budgeting, financial management, community development and reporting, as well as bolsters OpenGov’s status as one of the largest cloud providers to local government. It also pairs asset management for the first time with a comprehensive set of financial management tools like budgeting and procurement, providing an ability for local officials to plan, budget for, procure and deploy new infrastructure projects, especially as funds from the infrastructure bill start to flow. The acquisition was funded by a new investment in OpenGov from Cox Enterprises.
OTHER NOTABLE DEALS
Carbyne Raises $56M
Why it Matters: Growth in the public safety market remains strong, perhaps best captured by Motorola Solutions CEO Greg Brown who said in a September interview, “this is the strongest demand environment I’ve ever seen.” With that as a backdrop, it comes as no surprise that the continued growth investments in public safety continued in Q3. Notable this quarter was Carbyne announcing a $56 million Series C funding round following a year of 400 percent revenue growth. The investment was co-led by Cox Enterprises (who also invested in OpenGov) and Hanaco Growth Fund, with participation by several new and existing investors. Carbyne has raised $128 million to date.
Madison Dearborn Acquires a Majority Stake in Unison
Why it Matters: Unison, a longtime leader in federal procurement with its nearly 40-year history, has received a majority investment from Madison Dearborn Partners. Unison’s procurement and contract life cycle management solutions support the key economic links between federal agencies and their largest business partners, while also ensuring compliance with complex requirements and regulations. This investment continues a long streak of private equity backing the dominant players in government contracting, including Mitratech (Ontario Teachers, 2021), OMNIA Partners (Leonard Green joining TA Associates, 2020) and Unanet (JMI Equity, 2019). Unison was previously majority owned by The Carlyle Group, who will maintain a minority stake in the business.
Edmunds Merges with Municipal Software, Inc.
Why it Matters: Edmunds is representative of the way in which many of today’s leading gov tech platforms were built: regionally focused, founder-owned businesses that expanded through private equity investments fueling internal R&D efforts and consolidation-oriented M&A. Combining with Edmunds, MSI adds to the geographic footprint of the organization and brings additional accounting, tax billing and collection and utility billing capabilities to Edmunds’ suite of ERP products. The acquisition also bolsters Edmunds’ status as one of the largest independent ERP vendors to the gov tech market.
Column Raises $30M
Why it Matters: Column, a provider of public notice software, raised a $30 million Series A funding round led by Lux Capital, with participation from existing seed and angel investors. All 50 states have laws that mandate the publishing of public notices on important government activities in order to ensure transparency and a well-informed citizenry. Column’s public notice platform helps to modernize the historically manual publishing process and provide publishers and their agency clients a single easy-to-use tool. This investment will help support continued expansion of their core public notice offering and will also enable them to pursue a broader product vision within public information, addressing other types of required disclosures across areas such as procurement, budgeting, auctions and real estate.
PayIt Raises $90M from Macquarie Capital
Why it Matters: Citizen services continue to move online at an accelerated pace, and many of the interactions that citizens have with their state or local government agencies involve some kind of payment (tax collection, permitting and licensing, utility billing, vital record requests, and the list goes on). PayIt has been facilitating these important transactions through their payments and digital services platform for nearly 10 years, and this $90 million growth investment from Macquarie Capital Principal Finance marks the latest milestone in the company’s growth journey. Existing investors Insight Partners and Weatherford Capital will retain stakes in the business.
Ryan Acquires Fundingportal
Why it Matters: While not a household name in gov tech, Ryan, a global provider of business tax software and services with 18,000 clients spread across more than 60 countries, is adding to its government funding and grants practice with its acquisition of Fundingportal. Fundingportal connects nonprofits, startups, SMBs and enterprise customers to more than 21,000 sources of public funding through its SaaS platform, which automates much of the heavy lifting involved in sourcing and winning government grants. Integrating Fundingportal into the broader Ryan ecosystem will expand Ryan’s reach into government-adjacent segments, further diversifying its customer base and enabling greater private-sector access to publicly available funds.
CivicEye Raises $12.4M
Why it Matters: The journey to modernize the lifeblood of public safety — CAD/RMS — is well underway, albeit with a preponderance of on-premise systems in the market today. CivicEye is one of a few companies (alongside the likes of Mark43, SOMA Global and Axon) dedicated to accelerating this shift with their modern records management system and a suite of adjacent public safety solutions, including document management, case management and a data aggregation and search tool. The $12.4 million Series A investment will be used to support geographic expansion and continued product development. The round was led by Cercano Management, with Relevance Ventures participating.
Velosimo Raises $11M
Why it Matters: A pervasive trend across virtually every citizen-facing segment of gov tech is the push to deliver a unified and seamless experience to citizens. Velosimo has taken a unique approach to this trend, offering integration technology that bridges disparate software systems and unlocks a connected citizen experience without the need for traditional integration services, which can often be complex and onerous. Velosimo offers off-the-shelf connectors and a low-code integration development platform, enabling agencies to knit together many of the household names in gov tech, including Accela, Granicus, GovOS, Cartegraph, Laserfiche and many more. Velosimo’s $11 million Series A funding round, led by Macquarie Capital Principal Finance, with participation from Valor Equity Partners, will support continued expansion of the company’s go-to-market and product development efforts.
Michelin Acquires RoadBotics
Why it Matters: Michelin is one of several big names in automotive manufacturing making a foray into mobility software and data solutions, alongside the likes of Ford, GM and Volkswagen. RoadBotics joins Michelin’s Driving Data to Intelligence (DDi) group, which is focused on providing mobility intelligence solutions to facilitate safer driving habits and ensure high-quality road infrastructure. RoadBotics brings its two main product offerings, RoadWay and AgileMapper, which enable government agencies and construction and engineering organizations to visualize and analyze infrastructure data to improve decision-making and better manage critical infrastructure assets.
Black Mountain Software Receives Investment from Peterson Private Equity
Why it Matters: Government ERP is one of the more mature segments in the broader government technology landscape, but there is a cohort of companies — including OpenGov, Springbrook Software and Edmunds Gov Tech — that are building (both organically and inorganically) modern SaaS alternatives to facilitate government agencies’ most critical operational workflows. Black Mountain Software has been pursuing that same mission for nearly 30 years, providing accounting and billing software to municipalities and schools. This investment from Peterson Private Equity will enable them to build out their product portfolio and expand their geographic footprint.
Quorum Acquires Capitol Canary
Why it Matters: Both Quorum and Capitol Canary have a shared mission of providing tools that enable public affairs professionals to keep up with the legislation and issues that matter to their organizations, as well as build more meaningful connections with officials and policymakers. Capitol Canary’s grassroots mobilization and digital advocacy tools bolster Quorum’s existing offering in that segment and complement Quorum’s suite of products across legislative tracking, stakeholder engagement, media monitoring and reporting. Quorum is currently backed by Serent Capital, a San Francisco- and Austin-based private equity firm.
ESO Acquires Occam Technologies
Why it Matters: ESO continues its more than 10-year track record of M&A with its latest acquisition of Occam Technologies. Siloed data and lack of visibility across disparate systems of record are issues at the forefront within the emergency response category. Purpose-built for EMS agencies, fire departments and hospitals, ESO’s suite of products aims to optimize data and record collection and reporting and improve outcomes for first responders and patients. Occam’s Enterprise Master Patient Index advances that mission by enabling EMS and health-care organizations to match patient data across various sources and build a more unified and accurate picture of a patient’s history. Occam is ESO’s third acquisition since receiving a strategic investment from Vista Equity Partners early last year.
