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Q2 2022 With Jeff Cook

My most recent article discussed the migration of capital to safe havens like gov tech, and the transaction activity in Q2 2022 was a testament to that fact. In Q2 2022, we tracked $2.9 billion in deal volume, an almost 4x increase over the Q1 2022 volume of $850 million, although still short of the record-setting $4.5 billion quarter a year ago in Q2 2021. This quarter’s activity had it all — large and transformational deals, continued strategic consolidation, many new private equity platform investments as well as material venture financings across many of the major sectors in gov tech. We anticipate that market activity will increase throughout Q3 and into Q4 of this year, and it would not surprise us if total transaction volume makes 2022 the second-busiest year for gov tech, only behind the record-setting activity of 2021.

The volume metrics above and transactions below are for deals announced between April 1, 2022 and June 30, 2022.

THE BIG DEALS

CivicPlus Acquires Optimere

Why it matters: The pandemic accelerated the digital transformation of how government and constituents engage with one another, with websites, social media and other digital channels seeing a step-function change in growth over the last two years. However, the rapid growth of digital engagement has brought with it new challenges regarding compliance, ranging from records retention to accessibility laws like the Americans with Disabilities Act. Optimere, formed through Level Equity’s original investment in ArchiveSocial, and subsequent acquisitions of NextRequest and Monsido in 2021, was created to address these compliance needs for government agencies’ most important digital channels, and ultimately create trust and transparency in digital communications. Accordingly, the acquisition by CivicPlus, the largest provider of websites to government (in addition to a rapidly growing product portfolio), is a hand-in-glove strategic fit. The Optimere acquisition is CivicPlus’ second major acquisition since being recapitalized by Insight Partners in Q2 2021.

GTY Technology Holdings Taken Private by GI Partners

Why it matters: GTY was formed through the simultaneous merger and public listing (via a blank-check company) of six best-of-breed gov tech SaaS businesses. GTY had an interesting tenure as a public company where initial enthusiasm was then tempered as the company scaled up its rate of investment but missed its initial growth forecasts, and ultimately saw its share price fall well below its initial listing price.

Govtech needs long-term, patient capital. Relative to other sectors of technology, investments in product, sales and scale take longer to translate into accelerated growth — it’s a big reason why you do not see many (or any) gov tech companies growing 100 percent at IPO-like scale. In contrast, public market technology investors have been conditioned to expect rapid growth and see that growth materialize quickly through quarter to quarter via earnings reports. In our minds, that was a big reason why GTY experienced so much turbulence as a public company, and why we think it will be a very interesting company to watch going forward now that it is outside the scope and expectations of the public markets, and armed with a well-funded private equity partner in GI Partners. We think it now has the right form of capital to see through GTY’s original thesis — bring together good, modern products in important and complementary industry subsegments to create a modern platform where product cross-sell can flourish.

Siemens Acquires Brightly

Why it matters: Over the last 18 months, we have seen the impact of the federal infrastructure bill on M&A and investment activity in the broader asset management and infrastructure technology segments. Technology platforms that touch our nation’s infrastructure in some form or fashion — from asset management (AgileAssets) to parking management (T2 Systems) to data providers (StreetLight Data) to IoT data collection (Southern Traffic Services) — have seen an increase in interest from strategics and sponsors alike who are looking to expand their existing platforms and ride the wave of readily available funding and a renewed focus on upgrading our nation’s public infrastructure. The $1.58 billion acquisition (and up to $1.88 billion with earnout payments) of Brightly (formerly known as Dude Solutions) by Siemens is the latest, and among the larger infrastructure technology deals to date. Brightly, a leader in cloud-based asset management and maintenance management solutions for local government, education, manufacturing and other regulated industries, joins Siemens’ Smart Infrastructure division. Brightly was a portfolio company of Clearlake Capital.

OTHER NOTABLE TRANSACTIONS

Schneider Geospatial Receives Investment from Align Capital Partners

Why it matters: Community development — the technologies and processes aimed at accelerating business and residential development — has been one of the most active sectors in the gov tech market. Historically, transaction activity in this segment was focused on licensing and permitting, a large segment of the gov tech market that has undergone rapid digitization. However, that same digitization trend has started to move “upstream” to the processes that happen before a license or permit is granted, and the transaction activity is starting to follow. In Q1 2022, we saw electronic plan review leader Avolve merge with DigEplan and receive investment from Polaris Growth Fund, and this quarter we see Align Capital Partners’ investment in Schneider Geospatial. Schneider is a rapidly growing company that is modernizing the first step in the community development life cycle, focused on centralizing and digitizing reams of traditionally paper-based property and parcel data to make it easier and faster to access. Align Capital Partners, a highly active firm in the gov tech market, will look to invest in Schneider to further accelerate its growth.

ClearGov Acquires CityGrows

Why it matters: ClearGov’s acquisition of CityGrows marks the company’s first acquisition since announcing a $20 million investment round led by Frontier Growth in January 2022. CityGrows expands ClearGov’s existing product footprint in budgeting into the permitting and licensing segment, with a unique low-code, no-code framework that enables agencies to easily and efficiently build their own permitting and licensing workflows to fit their needs across any use case. Budgeting and permitting have increasingly been brought under the same umbrella through acquisition, with other comparable transactions being OpenGov’s acquisition of ViewPoint in 2018 as well OpenCounter being combined with Questica and Sherpa through GTY’s initial formation in 2019.

Spatial Data Logic Receives Investment from Gauge Capital

Why it matters: Yet another investment in the community development sector is Gauge Capital’s investment in New Jersey-based Spatial Data Logic (SDL). SDL is a provider of a comprehensive offering for community development needs, providing permitting, licensing, code enforcement and workflow automation software for counties and municipalities. The new investment from Gauge is intended to accelerate growth through investments in product and sales and marketing resources, in addition to pursuing M&A opportunities.

Optibus Acquires Trillium and Announces New $100M Funding Round

Why it matters: Venture-backed Optibus, an Israel-based company modernizing public transportation management, had a busy Q2, announcing its acquisition of Trillium, followed shortly by the announcement of the company’s Series D funding round. Valued at $1.3 billion, Optibus raised $100 million from new and existing investors, including Insight Partners, Bessemer Venture Partners, Verizon Ventures, et al. — just 14 months after raising its $107 million Series C round. Optibus has raised $260 million to date. Trillium, a data provider for public transportation passengers, expands Optibus’ North American presence and product capabilities, and the latest funding round will enable Optibus to continue its impressive growth trajectory.

Magnet Forensics Acquires Comae Technologies

Why it matters: Magnet Forensics continued its pace of activity, this time through the acquisition of Comae Technologies, a UAE-based cybersecurity company specializing in memory analysis to recover evidence from devices. The investigations and forensics market continues to make the quarterly roundup and is quietly being reshaped as companies from different corners of the market consolidate and expand the breadth of their product portfolios. In addition to Magnet, firms from around the investigations space such as Cellebrite, Axon, LeadsOnline, PenLink and others have recently announced transactions of their own. Despite the uptick in activity, there is still considerable consolidation to be done given how fragmented the market is today.

Rekor Acquires Southern Traffic Services (STS)

Why it matters: Rekor’s acquisition of Southern Traffic Services (STS) joins the strong swell of deal activity in the public infrastructure and asset management segments that we have seen in recent quarters. Rekor is a global contributor to the marketwide shift toward smart city infrastructure, primarily through its roadway intelligence offerings, enabling real-time insights to ensure roadway efficiency and safety. The STS acquisition adds more than 30 years of expertise in traffic data and engineering as well as expands Rekor’s geographic footprint, particularly in the southeast region of the United States.

UrbanFootprint Receives $25M Growth Investment

Why it matters: There’s no question that the data and analytics tools that have become commonplace for decision-making in the private sector will inevitably be adopted en masse across the gov tech market. UrbanFootprint joins a growing number of companies aiming to do exactly that, announcing a $25 million growth investment led by Citi and Social Capital. UrbanFootprint caters to agencies and institutions making major decisions around infrastructure and development, and who must consider a variety of inputs and stakeholders, from climate to economic to social factors.

Rock Solid Acquires Swagit

Why it matters: Rock Solid continued its growth in the fragmented citizen engagement space by announcing the acquisition of Swagit, a provider of streaming media and meeting management solutions. The acquisition is Rock Solid’s third in the citizen engagement space, following the acquisitions of PrimeGov in 2021 and CitySourced in 2019. The Swagit deal caps off an active last 12 months for Rock Solid that has included the PrimeGov acquisition, naming Tom Spengler as CEO and rebranding.

Jeff Cook’s firm, Shea & Co., served as an adviser for the CivicPlus-Optimere deal.

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