Software Investor Hg Acquires Audit, Risk and ESG Cloud Company AuditBoard

European software investor Hg has acquired AuditBoard for more than $3 billion. AuditBoard develops a cloud-based platform for audit, risk, ESG and InfoSec management. Nearly 50% of the Fortune 500 leverage the platform, the businesses said.

This is M&A deal number 204 that Sustainable Tech Partner has covered so far in 2024. See all M&A deals involving sustainability, climate tech and green IT services listed here.

AuditBoard, founded in 2014 by former PwC and EY auditors Daniel Kim and Jay Lee, is based in Cerritos, California. The company's annual recurring revenue (ARR) reached roughly $200 million in late 2023. Roughly 2,000 enterprise businesses leverage the company's software.

AuditBoard had been a venture-backed business. The company raised $40 million in Series B funding led by Battery Ventures in 2018. Valuation details were not disclosed at that time.

Meanwhile, Hg's investment portfolio currently spans roughly 50 businesses, which are worth approximately $140 billion in aggregate enterprise value. The portfolio companies typically grow around 20% per year, the investor asserts. Hg has more than 400 employees across London, Munich, New York, Paris and San Francisco.

ESG Software: Market Growth Forecast

Demand for ESG software continues to grow as companies strive to align their sustainability strategies with internal goals and government regulations such as CSRD (Corporate Sustainability Reporting Directive).

The Global ESG Reporting Software Market is expected to reach $1.5 billion by 2027, up from $700 million in 2022. That's a 15.9% compound annual growth rate (CAGR), according to MarketsandMarkets.

But remember: ESG is only part of AuditBoard's focus. The company's software also assists customers with audit, risk and information security (InfoSec) efforts. Read between the lines, and AuditBoard's total addressable market (TAM) extends far beyond ESG market growth forecasts.

Still, we don't know AuditBoard's revenue mix between those various target markets. Nor do we know whether ESG pushback from some U.S. politicians has impacted AuditBoard revenues.

Hg Acquires AuditBoard: Executive Perspectives

Numerous executives from Hg, AuditBoard and Battery Ventures weighed in with perspective on the deal.

In a prepared statement, AuditBoard CEO Scott Arnold said: “We are grateful to our customers and their teams for the trust they have placed in us, and view our partnership with Hg as further validation of our practitioner-first focus. The foundation and culture that our founders created has meaningfully scaled to create an opportunity for AuditBoard to become the platform of choice for global organizations to connect and manage risk. This is an important milestone for the company, and we couldn’t have done it without the unwavering support of our employees, partners, and incredible investors - especially Battery Ventures. We look forward to continuing to build and expand the platform of the future with Hg.”

Added Nic Humphries, senior partner and head of the Saturn funds at Hg: "AuditBoard's astonishing growth is a result of its commitment to its SaaS-native beginnings, focus on customer success and a differentiated, truly modern tech stack. We have been tracking the company’s progress for the past five years and see a massive opportunity ahead. We are excited to partner with Scott and the AuditBoard team, to support the company on its next phase of rapid global growth and platform expansion."

Noted Alan Cline, head of North America at Hg: "We are absolutely delighted to invest in such an incredible SaaS success story, led by our San Francisco team less than two years after opening our West Coast office, demonstrating the strength of our North American franchise. AuditBoard is exactly the type of business we partner best with – one that truly knows its customers and innovates to bring them the best possible products. We can’t wait to get started.”

Michael Brown, a Battery Ventures general partner and AuditBoard board member, said: “AuditBoard is a special company - customer-first, product-led, and one that has bucked recent industry trends by running in an extremely capital-efficient manner, instead of continually raising more funding. While other B2B tech companies raised ever-bigger funding rounds, AuditBoard has kept its head down and focused on the fundamentals, no matter the market cycle. Our partnership with the AuditBoard team since our first investment in 2018 has been collaborative and enriching, and I look forward to seeing the company continue to grow and mature in partnership with Hg.”

Daniel Kim, AuditBoard co-founder, said: “When we founded AuditBoard back in 2014, our goal was to use software to solve the serious challenges that exist for an auditor. This acquisition represents a realization of not only our vision, but validates how taking a customer and practitioner-centric approach is the right way to develop technology that users will be passionate about.” 

Concluded Jay Lee, AuditBoard co-founder: “Our sincere congratulations to Scott, Hg and the AuditBoard team. I can’t wait to see what’s next.”

M&A Trends Involving Sustainability Software, ESG Cloud Platforms

M&A activity in the sustainability software and consulting markets has remained steady. Example deals involve:

• May 2024: Foresight Management and Cornerstone Environmental Health and Safety merged. The M&A deal blends Foresight's sustainability, carbon accounting and energy management expertise with Cornerstone's EHS knowhow.
• April 2024: Ernst & Young (EY) acquired Denkstatt, a sustainability and ESG consulting firm that serves customers in Austria and across Europe.
• February 2024: Private equity firm Thoma Bravo completed the EQS Group acquisition for roughly €400 million (US$430.9 million). EQS develops a cloud-based software platform that allows customers to manage corporate compliance and investor relations tasks.
• November 2023: Environmental software provider AMCS acquired sustainability software company FigBytes. The acquisition essentially extends AMCS's ESG software efforts from Europe to North America.
• August 2023: Tango, backed by Berkshire Partners, acquired WatchWire, a sustainability management software company.
• July 2023: EcoOnline, backed by private equity firm Apax Partners, acquired Ecometrica in July 2023.

Funding in the ESG software market has also generated some activity. Example deals include:

• Measurabl, which develops an ESG technology platform for real estate, has raised $93 million Series D funding. 
• Novisto, which develops cloud-based ESG software, raised USD$20 million in a Series B funding round, led by Inovia Capital.
•  Sentra.World raised $2 million in seed funding, Entrepreneur India reported.

So what's next? Stay tuned for AuditBoard updates during the Audit and Beyond 2024 conference, which is scheduled for October 22-24 in Las Vegas.