Vancouver risk and compliance software provider Galvanize Inc. has been sold for US$1-billion to private equity-backed Diligent Corp., the latest in a string of cross-border deals involving Canadian tech companies.
Galvanize is a global leader in providing artificial intelligence-powered anti-fraud and risk-management software to corporations. It has 6,000 customers in 130 countries, including more than half of the companies in the Fortune 100 and S&P 500. It is also one of Canada’s most successful software companies led by a woman – Laurie Schultz – in a sector where senior leadership ranks are still dominated by men.
With the cash-and-stock deal, New York-based Diligent, a corporate governance software provider backed by private equity firms Insight Partners, Blackstone and Clearlake Capital, will become the largest provider of online subscription software for tracking governance, risk and compliance needs by corporations.
By selling, Galvanize is taking a different path than many other Canadian software companies that have been eyeing initial public offerings amid a hot market for tech stocks.
Galvanize, which changed its name two years ago from ACL Services Ltd., had long considered going public and had set itself on a course before the pandemic to potentially do so as early as next year. At the time, there were few Canadian tech companies eyeing a near-term move to the public markets thanks to an abundance of private capital providers globally looking to fund scaling technology companies.
Ms. Schultz said in an interview that Galvanize was hit by the pandemic, as new customers deferred their spending plans last year by a few months, cutting into growth that had typically been 40 to 50 per cent a year. Meanwhile, she said the company “unexpectedly started getting a huge amount of inbound” inquiries from potential investors and acquirers. “There were a lot of investment dollars available and not that many assets to point them at.”
After talks with Diligent chief executive officer Brian Stafford last year, she concluded the best outcome for Galvanize would be to combine forces with his company. While Galvanize software is typically used by chief information security officers and chief financial officers, Diligent’s main customer base is corporate directors and general counsels, which use its software to handle board-related processes. Getting Galvanize’s product in the hands of hundreds of thousands of corporate directors “is an opportunity we could not ignore,” she said.
“They bring a cool capability that I’m excited about offering to our clients,” Mr. Stafford said in an interview.
Like many recent successes in the subscription software-as-a-service market, Galvanize’s roots date back decades. The company started in the early 1970s when University of British Columbia accounting professor Hartmut Will built the first interactive audit software. His son Harald Will, now executive chairman, launched ACL in 1987 to commercialize the software, then hired software-industry veteran Ms. Schultz in 2011 as CEO.
Under her leadership, the company in the mid-2010s transformed its business from charging for one-time perpetual licences for desktop-based software and annual maintenance fees to selling subscriptions over the internet. It was a costly move, which the company self-funded before securing its first outside investment in 2017, raising US$50-million from Silicon Valley private capital firm Norwest Venture Partners.
Galvanize set out to consolidate the fragmented market for integrated risk and performance software, buying U.S. security risk management software company Rsam two years ago, backed by an additional US$20-million investment from Norwest.
Now Galvanize, which generates about US$100-million in annual revenues, is itself being consolidated into a larger company. It’s the second acquisition this month by Diligent after it purchased Steele Compliance for a reported US$325-million. The two acquisitions give the privately held Diligent, which typically buys a couple of companies a year, a valuation in excess of US$7-billion, with revenue expected to reach US$550-million in 2021.
News of the acquisition was first reported by Fortune.
Galvanize is the latest in a string of Canadian technology companies in recent months to sell to foreign buyers for hundreds of millions of dollars or more, including Benevity Inc., Verafin Inc., Element AI Inc. and CaseWare International Inc.
Meanwhile, Canadian software companies including Lightspeed POS Inc., PointClickCare Technologies Inc., Nuvei Corp. and Dye & Durham Ltd. have bought foreign companies at an equally brisk rate. This week, Ottawa retail software giant Shopify Inc. raised US$1.55-billion in stock to fund growth initiatives, which it said could include acquisitions.
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Sean Silcoff