AuditBoard, a Southern California firm specializing in audit and risk-management software, was on the brink of going public.
But European private-equity giant Hg had other plans.
After eyeing AuditBoard for five years, Hg made its move when whispers of an IPO emerged.
In a half-hour negotiation at an airport bar, the deal was struck—a $3 billion acquisition, over 20 times AuditBoard’s last valuation from venture capitalists.
This swift, high-stakes transaction underscores a growing trend: private equity is increasingly snapping up startups.
In a market where high interest rates keep companies private longer and antitrust pressures limit Big Tech’s acquisitions, startups are reconsidering their exit strategies.
Michael Brown, a general partner at Battery Ventures—AuditBoard’s largest institutional shareholder—notes the appeal of private equity’s quick decisions and attractive prices.
He said, “They’re paying very good prices for things—as attractive as a strategic. And you get immediate liquidity, whereas if you go public, management can’t just sell day one.”
Data from PitchBook reveals a surge in software buyouts, with 59 deals recorded in the first quarter alone.
While corporate mergers and acquisitions have dropped to 20% below pre-pandemic levels, software buyouts are reaching new heights.
The SaaS market, particularly, is ripe for consolidation, as companies that thrived during the pandemic face slowing growth and tighter budgets.
Aaron Fleishman of Tola Capital highlights the dilemma for software firms with annual revenues between $20 million and $50 million.
He pointed out, “They’re not big enough to go public, and they’re not likely to be picked up by an incumbent.”
For private equity, these companies are prime targets for acquisition, optimization, and eventual resale or public offering.
In today’s competitive landscape, private equity firms are focused on building business empires by acquiring and consolidating these smaller, high-potential companies.
In some cases, the roles reverse, with startups adopting private equity tactics.
Metropolis, a parking app startup, recently acquired SP+, one of North America’s largest parking networks, following a $1.7 billion funding round led by Eldridge Industries.
Yoni Rechtman of Slow Ventures explains, “Owning the assets means owning all the upside.”
The lines between venture capital and private equity are blurring.
Sequoia has adjusted its model to hold onto public companies longer, General Catalyst is acquiring healthcare systems, and Andreessen Horowitz is venturing into private equity.
As high interest rates and liquidity challenges reshape the landscape, private equity is seizing the moment, leaving startups to navigate the shifting tides.
You May Also Like:
