June 25, 2013

Compliance, Compliance, Everywhere…Compliance Solutions Drive M&A Market Interest

As we have discussed previously, we are seeing an increasing demand for companies that provide Compliance Solutions to their clients. There seem to be several strategic reasons that these companies are in demand. The most prevalent and often cited reason is the end customers “mandatory requirement” to solve for compliance monitoring/reporting responsibilities – which means budget dollars are allocated in any economic environment. Not only are the markets for these solutions recurring, they are constantly changing and growing as both regulatory and risk avoidance mandates continue to proliferate.

In addition to firms that are explicitly focused on providing compliance solutions, what we have found is that many of our clients that have secondary applications of their solution or service as “compliance” related are garnering increased interest as a result of the compliance “story”.  For example, we are currently working with a client that enables Big Pharma to comply with regulatory reporting requirements related to clinical trials. Prospective buyers are highly interested in that piece of the business. Another client of ours provides IT Services to Big Pharma. Some of the solutions they implement and or consult around are designed to provide compliance with complex customer contracts as well as government regulations. Those features are often cited as a key attraction to the business. We also have a client that provides enterprise software solutions to various state and municipal courts. A key driver is the need to be compliant with national information exchange laws surrounding criminals and other court participants.

The above are just a few examples of what we are seeing out in the markets. Our message to owners and operators of compelling business services & technology businesses is that parts of your business that you may view as a necessary evil are currently being deemed very attractive compliance features in today’s market. We even increased our contract with our third party compliance vendor to ensure optimal compliance with FINRA requirements. Everywhere we seem to look we see compliance challenges. Turned on its head, we see companies extracting premium values from investors and acquirors that are providing solutions, even if that is not their primary mandate, that help solve complex compliance challenges.