• Auctivo formed through combination of three companies
• Final platform investment from Fund I
• Fund II now active, next deal expected in 4Q24

Heightened demand for tools that help regulated industries manage compliance complexity is drawing private equity interest in GRC (governance, risk, compliance) software companies.

Boston-based sponsor Equality Asset Management (EAM) sees ample opportunity at the intersection of GRC software and sectors such as financial services, healthcare and construction. The firm recently launched Auctivo, a new GRC platform created from the simultaneous acquisition and integration of Rhoads Online Institute, Elation Systems; and the government software division of Aithent.

“The thesis we see here is really about that intersection: what needs to happen to operate in a market, and what operational and human requirements are needed to deliver on that,” Jeff Del Papa, EAM co-founder and managing partner, told this news service.

The Auctivo deal enabled the creation of a vertical market software business focused on healthcare, the public sector, and construction – markets with niche compliance and regulatory requirements. EAM sees further expansion opportunities in financial services and insurance.

This marks EAM’s third investment in companies with vertical-specific compliance offerings. In 2021, the Boston-based firm made an investment in PCMI, a provider of finance and insurance administration software for the automotive and consumer markets. Earlier this year, Thoma Bravo recapitalized the Park Ridge, Illinois-based business, with EAM retaining a minority stake. In 2022, EAM invested in Evention, a Chicago-based back-office services provider to hotels, restaurants, and retailers.

“There are many ways to look at GRC software, but ultimately, it’s a collection of niche categories and use cases within very large markets,” Del Papa said.

The GRC space aligns with EAM’s strategy of acquiring capital-efficient, profitable, and typically founder-led companies that it can scale through operational excellence. It focuses on lower middle market software buyouts, targeting companies with USD 10m – USD 50m in recurring revenue.

The Auctivo deal was the final platform investment from EAM’s inaugural buyout fund, which is now fully deployed for new platforms, according to Del Papa. The Boston-based firm, founded in 2018 to focus on lower-middle market software investments, is now in the market with Fund II, according to regulatory filings. It has a robust pipeline of deals and expects to close another transaction in 4Q24.

Combination

The opportunity that led to the creation of Auctivo began with Rhoads, to which EAM was introduced early in 2024 via its financial advisor Sherman & Co. EAM had identified Rhoads as a target through its thesis around compliance, informed by its experience and network. Rhoads had mandated DA Davidson to advise on a sale effort.

“We spent several months getting to know the company and the CEO ahead of their planned process,” said Del Papa. “During that time, we started thinking about additional assets and having that early relationship gave us the strategic flexibility to explore what else we could do with Rhoads and related businesses.”

That led EAM to back Rhoads’ co-founder N. Venu Gopal – also a co-founder of Aithent – in establishing Auctivo by combining his two companies with Elation, whose founders were looking to exit. The vision of integrating three businesses under one ownership structure helped EAM stand out in a competitive process. Gopal is CEO of Auctivo.

By summer 2024, EAM had a clear closing plan, and the deal wrapped up at year-end, despite the complexity of combining three entities.

Some leverage was used in the buyout, but the “capital structure was designed more for efficiency rather than driving returns,” according to Del Papa.

Looking ahead, EAM sees opportunities for Auctivo to grow in areas such as financial services and insurance. More broadly, it remains flexible in its approach to value creation.

“This particular opportunity involved a combination of three businesses, but that’s not a requirement for our strategy,” said Del Papa. “We’re happy to invest in a single business and build organically or pursue strategic M&A.”