May 24, 2024 - Business

AuditBoard's $3 billion buyout shows that boring can be better

Illustration of two hands shaking with sleeves made from calculators.

Illustration: Annelise Capossela/Axios

AuditBoard, a Southern California provider of audit and risk management software, has agreed to be acquired for over $3 billion by European private equity firm Hg.

Why it matters: When we think about the hottest startups, it's usually the ones pushing edge technologies and earning "unicorn" status from venture capitalists. But sometimes boring is best.

By the numbers: The sale price represents more than a 20x multiple on AuditBoard's valuation when it last raised primary funding from VCs — a $40 million Series B round in 2018 led by Battery Ventures, which AuditBoard never actually tapped because it was already profitable.

Behind the scenes: The company had planned to go public in 2025 or 2026 with Goldman Sachs on board as lead banker, and was in the process of recruiting another independent director, per sources familiar with the situation.

  • It had regularly eschewed takeover interest from strategic and financial buyers, but Hg came in with an offer so "compelling" that the plans changed.
  • AuditBoard did a limited market check but signed the Hg agreement just four weeks after it was presented.

The intrigue: AuditBoard almost sold much, much earlier.

  • The company had been founded by Daniel Kim and Jay Lee, two best friends from middle school who also served as co-CEOs.
  • By 2020, however, they no longer wanted to run a company and felt the only plausible option was to sell. Some members of the board balked, convincing them to instead launch a search process that settled on Scott Arnold, a serial CEO who at the time was leading Shutterfly's enterprise business.
  • By earlier this year, it was on a $200 million annual run rate.

The bottom line: This deal, on both sides, was ultimately about perseverance and finding value in an unsexy sector.

  • Both Battery and Hg initially identified AuditBoard while seeking software companies that serve CFOs — an office where lots of info is still communicated via Excel spreadsheets attached to emails — and both struggled to get its attention.
  • Battery initially couldn't figure out who to contact and, when it got a meeting, prepped an entire pitchdeck because it felt it only had one shot.
  • Hg began calling more than two years ago. but couldn't get a sit-down until recently.
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