HW’s TMT Group advised Kalkomey, a portfolio company of Inverness Graham, on its sale to Cove Hill Partners.

Transaction Overview

Kalkomey is a leading provider of online recreational safety education reaching all 50 U.S. states, as well as Australia, Canada, Guam, Mexico, New Zealand, Puerto Rico, and the U.K.. The Company works hand-in-hand with governmental agencies to provide tailored online safety education courses and certifications for boating, scuba diving, hunting, snowmobiling, and off-roading.

Kalkomey’s regulatory-approved safety education courses provide official safety certifications to nearly a million students annually. The Company’s cloud-based government agency software offerings drive operational efficiencies of key workflows from licensing and registration, to certification and event management, to compliance and reporting.

Cove Hill is a long-term-oriented private equity firm focused on partnering with management teams to build market-leading technology and consumer companies. The firm manages a long-duration fund with over $1 billion of commitments from its investors and founders. Based in Boston, Cove Hill has an innovative structure that provides the flexibility to enable a patient, concentrated, and value-add approach in a small portfolio of long-term investments.

Relevant Sub-Sectors

• Government Technology
• Financial Technology
• Vertical Software

The govtech market is vast and represents significant opportunity for next-generation solutions.

U.S. Government Technology at a Glance

At over 35% of GDP, government represents the largest segment of the U.S. economy

• 90,000+ State and Local Government Entities¹
• 22M+ Total U.S. Government Employees²
• 450,000+ IT Systems Across State and Local Government³
• $1.5T+ Citizen Payments to State and Local Government
• $750B+ Federal Grants for State and Local IT Initiatives⁴
• $95B+ Total Annual Federal IT Budget⁵

U.S. Government Technology Spending⁶

$ in Billions USD

Industry Observations

• Demand for modern government software and technology offerings continues to increase as Federal, state, and local leaders look to upgrade legacy systems to improve efficiency, contain costs, and seamlessly deliver services to their constituents
• Cloud-based software in particular continues to gain momentum in the public sector, driven by a combination of legislative action and mounting strategic imperatives, compelling government officials to adopt solutions that can be configured for workflows and provide greater interoperability across agencies
• Development of customized technology solutions continues to present challenges as government officials grapple with expensive and complex maintenance of legacy systems that are ill-equipped to meet current technology needs
• COVID-19 has accelerated the shift to digital government services and the speed at which agencies are moving technology to cloud environments, resulting in a ripple effect on the demand for solutions that enhance civic engagement, security, transparency, and operational efficiency

Market Observations 

• The govtech market continues to attract strong interest from financial sponsors and strategic acquirers eager to invest in next-generation software solutions capable of modernizing government operations and services
• Consolidation of software vendors persists given the level of fragmentation across the industry and the amount of specialized point solutions operating across government verticals, many of which lack meaningful scale
• With the backing of leading financial sponsors, several diversified platforms have emerged to take on incumbents, creating greater competition and drive for innovation across the govtech landscape
• Digitization of government services has become an increasingly attractive segment in light of the current macroeconomic climate given the need for minimizing in-person contact, imperative for cost reduction in response to potential budget constraints, and the breadth of citizen- and business-to-government transactions

Government entities are increasingly seeking cloud-based platforms that can be deployed across agencies to replace disparate legacy systems, minimize organizational silos, and reduce operating costs.

Migration to the Cloud

• Government entities continue to transition away from legacy on-premise technology systems to unified cloud-based platforms that can be leveraged across Federal, state, and local agencies and configured—not customized—for government department workflows
• Since the establishment of the Federal Risk and Authorization Management Program (FedRAMP), government cloud adoption has increased exponentially, yet less than 5% of government agencies operate entirely in the cloud and nearly 30% have not taken any action⁸

Modernization of Operational Workflows

• U.S. government agencies are forecasted to spend nearly $125B on software and IT services by 2023F—with an emphasis on adopting software that improves operational efficiency—as new legislation, consumer demand for digital services, and cost-saving initiatives accelerate modernization
• Next-generation technologies like Robotic Process Automation (RPA) have tremendous potential to transform government operations; for example, RPA has been estimated to save 1.3 billion hours on manual tasks if deployed across all U.S. government agencies

Digitization of the Government Experience

• The current macroeconomic conditions highlight the need for government agencies to remotely deliver services to citizens and businesses that meet the standards and offer similar digital experiences in other industries
• Digitization of government payments has become a strategic imperative and represents high-impact cost savings; for example, the IRS estimates that the cost of an online transaction can be as low as $0.20, compared to $42 for a payment processed over the phone and $57 by check

Consumerization of Government

• As web-based and mobile technology has rapidly improved and pervaded nearly all industries, government is playing “catch-up” to reinforce connectivity to and trust with the citizens and businesses they serve
• Constituents not only expect but now require highly personal and contextual digital experiences across from government, catalyzing demand for intelligent, cloud-based technology capable of delivering relevant and timely information and services

Utilization of Data and Analytics

• Governments collect and have access to massive amounts of data, but existing legacy solutions are unable to quickly and accurately analyze information and glean real-time insight, hindering decision-making and magnifying operational inefficiencies
• Predictive analytics and AI can dramatically improve government effectiveness by enabling agencies to be proactive—as opposed to reactive—to reduce crime, enforce food and safety regulation, monitor inspection compliance, and prepare for natural disasters, among other initiatives

Key Themes

• Digital Citizen Identity
• Data-Driven Decisions
• Unified Engagement
• Modern Architecture
• Interoperability
• Cybersecurity
• Digital Workforce

Government Employment Stable After Two Months of Losses

• Source: govtech.com
• Key Themes: Government Workforce
• Link to Article: Here

Key Takeaways and Insights

• The global COVID-19 pandemic has had a material impact on nearly every industry, including the public sector, particularly at the local government level where non-education related employment has decreased by over 7% year-over-year through June 30, 2020
• More recently, public sector employment has stabilized, but the reduction in the labor force has two important implications for the future government technology; first, government agencies are now more pressed to “do more with less,” a reality that has been looming within government, but has been accelerated by the impact of COVID-19; and second, as government agencies downsize, they have the opportunity to realign skills with modern technology infrastructure and applications

Lawmakers Push State IT Funding

• Source: fcw.com
• Key Themes: IT Modernization
• Link to Article: Here

Key Takeaways and Insights

• While budget constraints are quickly becoming a realty for many state and local government entities, there is widespread recognition that the path to more efficient and cost-effective government is through adoption of technology, and—perhaps more importantly—mounting bipartisan support for investment
• In a letter from lawmakers to leaders of the House of Representatives, Democrats and Republicans urged legislators to dedicate stimulus funds to technology infrastructure expenditures, the rationale being that enabling digital service and benefit delivery is just as important as the economic relief itself

Private Equity-Backed Tech Companies Help Governments Combat Coronavirus

• Source: penews.com
• Key Themes: IT Modernization
• Link to Article: Here

Key Takeaways and Insights

• In the wake of technology turmoil caused by COVID-19, private sector technology companies, many of which are backed by private equity firms, have stepped in to help government technology departments quickly improve their systems to achieve digital business continuity
• The increase in private- and public-sector collaboration and dramatic adoption of new cloud-based technologies will likely serve as a pivotal moment in govtech as state, local, and Federal officials get a crash course in the benefits of modern IT infrastructure and software

Govtech providers continue to consolidate the highly fragmented industry to establish platforms of scale.

Most Active Govtech Consolidators

Since 2015, the six most active govtech consolidators have acquired over 60 companies

Drivers of Consolidation

Comparable Public Company Operating Metrics⁹

Notable Recent Transactions^9,10

Business Summary and Transaction Overview

• nCourt connects government entities and the public through an integrated SaaS civic engagement and payments platform
• The Company’s solutions improve the operational efficiencies and revenue generation capacity of government entities by streamlining payments and reporting through intuitive web and mobile applications
• The Company was acquired by Providence Strategic Growth and Greater Sum Ventures as the platform for Government Brands

Key Value Drivers

• Differentiated, multi-tenant SaaS platform with compelling value proposition for both sides of the government transaction
• Large addressable market underpinned by favorable industry tailwinds as payments move online and governments become more digitally focused
• Impressive unit economics and cohort performance with 102% net revenue retention, and accelerating recurring revenue with high visibility
• Compelling growth trajectory with several recent key customer wins in attractive adjacent markets
• Attractive opportunity to consolidate fragmented court and judicial software ecosystem and pursue strategic acquisitions to expand its solution offering

Process Notes

• HW commenced work in late November and began contacting a targeted group of buyers in early December
• After receiving several compelling offers, shareholders proceeded with Providence Strategic Growth and Greater Sum Ventures
• HW conducted an expedited diligence process, signing the transaction three weeks after granting exclusivity