Why Compliance Tech Startups Are Gaining Momentum in 2023
Thoma Bravo’s $435M Acquisition Signals Growing Regtech Demand
Private equity giant Thoma Bravo recently made waves by acquiring German software company EQS Group for €400 million ($435.1 million) - a staggering 53% premium over its pre-announcement valuation. This strategic move highlights the increasing value of regulatory technology (regtech) solutions in today’s complex compliance landscape.
The EQS Growth Story: Compliance Software Leads the Charge
EQS Group, a provider of compliance and investor relations software, demonstrated impressive performance in Q3 2023:
- 14% year-over-year revenue growth (€16.88 million)
- €3 million in new annual recurring revenue (+50%)
- 49% increase in adjusted EBITDA (€2.32 million)
What makes this acquisition particularly noteworthy is the disproportionate growth of EQS’s compliance segment, which saw an 18% revenue increase compared to just 1% growth in investor relations solutions.
Regulatory Changes Fueling Compliance Tech Demand
The German Whistleblower Protection Act, implemented in July 2023, has been a significant growth driver. This legislation requires companies with 50+ employees to establish internal reporting systems for legal violations - creating immediate demand for compliance software solutions.
EQS CEO Achim Weick noted: “After the whistleblower protection laws came into force in our core markets… the number of new customers rose strongly as expected.” The company anticipates continued strong growth through year-end and into 2024.
Thoma Bravo explicitly cited regulatory trends in their acquisition rationale:
“As new regulations like the EU Whistleblowing Directive continue to drive demand for innovative compliance software solutions, EQS will benefit from Thoma Bravo’s software and operational expertise to accelerate product innovation.”
What This Means for Regtech Startups
The EQS acquisition serves as a strong validation of the regtech market’s potential. Recent funding rounds in the space demonstrate growing investor confidence:
- Droit: Raised $23M (March 2023)
- Cypago: Secured $13M (August 2023)
- Hyperproof: Landed $40M (August 2023)
- Certa: Closed $35M (September 2023)
The Global Regulatory Landscape
While the German legislation provides a specific case study, the broader trend points toward increasing regulation worldwide - particularly in the EU and financial sectors. This creates substantial opportunities for startups offering:
- Automated compliance solutions
- Risk management platforms
- Governance technology
- Regulatory reporting tools
Key Takeaways for Investors and Entrepreneurs
- Regtech is entering a growth phase: The EQS acquisition demonstrates private equity’s confidence in compliance tech’s long-term potential.
- Regulatory changes create immediate opportunities: Legislative shifts can rapidly transform market demand for specific compliance solutions.
- The market is becoming more competitive: With multiple well-funded startups emerging, differentiation will be crucial.
- Global expansion potential exists: While EU regulations are currently driving growth, similar trends are emerging worldwide.
As regulatory requirements continue to evolve and expand, compliance technology appears poised for sustained growth - making it one of the most promising sectors for both startups and investors in the coming years.
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