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Gov Tech Biz Quarterly Roundup: Q1 2021 With Jeff Cook

In this new series, gov tech adviser Jeff Cook will run through the deals in the space during the preceding quarter. In the first part of 2021, he examines the biggest deal in gov tech history, as well as seven others.

A person holding up a card that says Q1
Shutterstock/Constantin Stanciu
Over the last year, it’s been hard to find a week that goes by without a transformational investment or acquisition in the gov tech space. Already in 2021, there has been a record-setting pace of activity in the gov tech market, and the number of transactions, size of transactions and valuation multiples have continued to increase.

Among the beneficiaries of this activity have been the owners, operators and shareholders of gov tech businesses, who are seeing valuations increase as venture, private equity and strategic buyers compete with each other and bid up values for well-performing businesses. On the flip side of that coin, the competitive landscape is changing by the day, as larger businesses continue to be acquisitive and as high-growth businesses accelerate their growth with additional capital. This transaction activity is having an incredible impact across virtually every corner of the gov tech market.

This is the first in a quarterly series recapping the major transactions from each quarter and examining the associated impact on the broader market.

THE BIG DEAL

NIC Acquired by Tyler Technologies for $2.3 Billion: The largest transaction in gov tech history felt inevitable in a lot of ways. For simple math, Tyler was valued at approximately 15x revenue at that time of acquisition, while NIC was valued at about 4.6x revenue. From that perspective alone, it is a deal that had strong rationale for Tyler shareholders (purchasing $460 million of revenue at a discount to Tyler’s revenue multiple) and NIC shareholders (a market premium to its share price immediately before the announcement). Beyond that, there’s a considerable amount of revenue synergies that seem achievable — NIC expands Tyler’s market opportunity at the state level, and brings with it ingredients (long-standing state relationships, “boots on the ground” in state capitols, contract vehicles) that should make it much easier for Tyler to sell its existing products into the NIC customer base.

Why it Matters: Two of the original and established gov tech companies come together. Consolidation has been a tried and true way that the largest gov tech companies have and will continue to grow, and this is the extreme example of that decades-long trend in the market. We also think this merger will create space for the vibrant community of next-generation gov tech businesses that are starting to erode the positions of the large incumbents: Focus begets success, and the huge, diversified gov tech businesses can find it hard to innovate at the pace of a smaller, more nimble business focused on a small sliver of their businesses.

OTHER NOTABLE M&A DEALS

ESO Receives Majority Investment from Vista Equity Partners

Why It Matters: The first responder software market (EMS, fire, private ambulances and hospitals) is an interesting and fragmented sector of the public safety market, but to date has not seen the broad platforms addressing the full “incident life cycle” that the law enforcement market has. There are dozens of point solutions addressing discrete pieces of a first responders’ day-to-day workflow, which suggests that there’s rationale for broader platform plays and a “better together” product opportunity for these solutions to come together and deliver more value to customers by having workflows and data come together in a more cohesive package. Vista Equity Partners (who also is an investor in Granicus) has historically been a catalyst of market consolidation, and we would not be surprised to see ESO accelerate its historical pace of M&A with a new investor behind it.

Rock Solid Technologies Acquires PrimeGov

Why It Matters: Citizen engagement/digital citizen services has been a very active subsector in the gov tech market, particularly given the demand for digital services that were catalyzed by the pandemic. Over the last few years, larger businesses in the market such as Granicus, CivicPlus, Kofile, OpenGov, PayIt and many others have taken investment in an effort to expand their product offering through internal development and through acquisition, and Rock Solid is emerging as one of a growing number of meaningful companies in the market that is on this same path. We expect that the number of acquisition-hungry companies in this market will continue to be a catalyst for future transaction activity.

Vision Government Solutions Receives Majority Investment from Rubicon Technology Partners

Why It matters: Tax and appraisal software is as fundamental to local government operations as ERP. Unlike ERP, it’s a market that does not have a clear national leader, historically being a market populated with many small, regionally-focused vendors. There is an opportunity to grow that clear leader within tax and appraisal. It is also a market that is in the early stages of transitioning from on-premise software to SaaS. As we have seen in other markets, a fresh round of investment can enable companies like Vision to accelerate the modernization of the market, and Vision is one to keep an eye on as this takes shape.

INVESTMENTS

SOMA Global Raises $22.5 Million from Weatherford Capital

Why It Matters: There is a growing wave of SaaS-first business looking to modernize CAD/RMS, the foundation of the public safety market, and significant growth capital has assembled behind it. SOMA joins companies such as Mark43 and RapidDeploy who both have raised capital in the last few years.

RapidSOS Raises $85 Million from Insight Partners; Carbyne Raises $25 Million from Hanaco Ventures and ELSTED Capital Partners

Why It Matters: The RapidSOS investment (one of the largest in the public safety space in recent memory) as well as the Carbyne investment, underscore another major opportunity in the public safety market: the usage of data to collaborate across agencies, improve response times and improve outcomes. There have been billions invested in the underlying communications infrastructure for public safety (FirstNet, NG911, etc.), which has catalyzed a growing group of businesses like RapidSOS and Carbyne — we expect continued capital to flow into this market given the underlying opportunity.

Camino Raises $3 Million

Why It Matters: While a smaller transaction, SaaS-based licensing and permitting picked up steam last year as governments sought out these solutions to keep a core operation up-and-running during the pandemic. Camino is the latest in a highly active market in the next generation of licensing and permitting, joining ViewPoint (OpenGov), OpenCounter (GTY), Calytera (Granicus) and others.

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.

Shea & Co. may have participated in deals presented in this article.

Jeff Cook is a managing director at Shea & Co., an investment bank that has advised in more than 20 gov tech deals (investments and exits) in the past 5 years.
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