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Regtech Preview

Spotlight intensifies on compliance as digitalisation accelerates.

Market overview

Regulatory needs have grown exponentially during the pandemic, as remote working and digitisation of services have led to new complications for businesses. Firms, for instance, must now verify employees remotely and regulate compliance from afar.

As regulatory challenges evolve and proliferate, financial services companies are increasingly turning to regtech firms to help them tackle new compliance woes, meet the rising demand for online verification systems, and prepare for tightening regulatory requirements.

“We expect a continuation of the trend that has seen those regtech firms receiving more investor attention at this time, offering solutions for COVID-19-related needs, such as identification and management of vulnerable customers, fraud detection, or complaints management,” Chris Steele, director in Risk and Regulation Banking at KPMG, said.

The demand for regtech that provides broader governance risk and control services is expected to grow while lenders consider the impact of actions taken in response to the pandemic.

“It will be essential that businesses monitor and measure how those actions may have weakened regulatory processes or impacted the effectiveness of governance or clarity of responsibilities around the services, and what that might mean for customers,” Steele added.

Recent deals

As for deal activity, regtech remains active despite an overall gloomy M&A performance in 2020, driven by appetite from financial and strategic investors to create powerful products. The first half of this year saw 75 deals worth USD 6.8bn globally in the space, according to Mergermarket data. This compared to 70 transactions worth USD 4.3bn in 1H19. 

Notheworthy transactions in 1H20 include the sale of RSA Security, a US-based provider of mobile security technology by Dell [NYSE: DELL] to a private equity consortium for around USD 2bn. In Europe, private equity (PE) players have led significant financing rounds, including the USD 150m investment in Snyk, a UK-based cybersecurity and compliance software provider, by PE firm Stripes, which valued the company at USD 1bn, and Onfido, a UK-based virtual identity verification software firm, which raised USD 100m in a round led by TPG.  

However, despite signs of M&A activity this year, the European regtech market remains heavily fragmented compared with other fintech subsectors, a sector advisor said. “Private equity funds are very excited to invest in the space but it’s very tricky to find quality assets of scale as most of the companies are very early stage,” he added.

Among deals in the pipeline is AML RightSource, a US-based financial compliance provider backed by Clarion Capital Partners, which is in a sale process via Raymond James, as reported by this news service at the beginning of August. 

Relevant players in the space that have been acquisitive in recent years, include UK-based information and analytics company RELX [LON: REL], which owns regtech service providers Lexis Nexis, Acuity and Threatmetrix, and US automation software provider Bottomline Technologies [NASDAQ: EPAY], a second adviser said.

Companies to watch

SteelEye (11/08/2020)

SteelEye, a compliance technology and data analytics company, is considering opening a Series B round of GBP 20m-GBP 50m in 16-24 months for geographic expansion, CEO Matt Smith said. Management is interested in private equity and venture capital investors that can support the company on its future journey. The UK-based company already has relationships with a lot of advisors and bankers and will continue to actively engage with them.

kompany (10/08/2020)

kompany, a Vienna-based provider of business registration information, is planning a EUR 20m-EUR 25m Series B round within 16-24 months, CEO Russell Perry said. The regtech company will offer between 20%-25% of equity in return for the funds and is likely to hire a merchant or investment bank to advise on the raise. The company expects the cash raised to be dedicated towards M&A, IT and product development, and expanding the company’s register network.

Shield (10/08/2020)

Shield, the UK-based regulation technology company, will consider a USD 15-USD 20m Series A round at the end of the year or early 2021 to accelerate non-organic growth and acquisitions, VP of global sales and business development Eran Noam said. Shield aims to partner with an investor who can help it turn it into the go-to solution for regulated firms.  Shield will use the funds to accelerate non-organic growth and future acquisitions.

Compliance.ai (07/08/2020)

Compliance.ai, which operates a regulatory compliance platform, plans to announce its Series A round in September and expects to launch a Series B round towards the end of 2021, Kayvan Alikhani, co-founder and CEO, said. The San Francisco-based company intends to use a large portion of the Series A funding to expand its sales and marketing teams in the US and across borders. It has customers in the US and Southeast Asia and expects to soon have customers in Canada and the UK. The company has raised close to USD 18m since it was founded in 2014.

Kompli-Global (06/08/2020)

Kompli-Global, a UK-based regtech company, will initiate a GBP 10m-GBP 20m Series A round in the next 12 months, CEO Jane Jee said. The company, which provides anti-money laundering (AML) software to identify adverse information for regulated entities, is looking for investors’ knowledge and experience within the regtech space, and will offer a minority stake in the business.

DataGuard (30/07/20)

DataGuard, the German privacy software firm, is looking opportunistically at small acquisitions as a means of complementing its organic growth, CEO and co-founder Thomas Regier said. Possible acquisitions could include companies which have small teams of developers or firms with early-stage tech products to build up its presence in the DACH region as well as potentially enter other European countries.

6clicks (28/07/2020)

6clicks, an Australian risk and compliance Saas platform, is seeking distribution partners, including for joint ventures (JVs), to enter the UK and the US as the COVID-19 pandemic fuels demand for cyber threat assessment and solutions, co-founder and CEO Anthony Stevens said. While the COVID-19 pandemic has limited travel opportunities to execute these plans, the crisis has also created growth opportunities for 6clicks as enterprises worldwide are forced to take their businesses online along with heightened risks in global supply chains.

PerformLine (17/07/2020)

PerformLine, a US-based compliance monitoring provider, is searching for a financial partner to help fund acquisitions and international expansion for its next stage of growth, Alex Baydin, founder and CEO, said. The company will consider either a private equity firm or a strategic investor. If the company pursues a sponsor, it will look for one with success investing in vertical-specific SaaS companies that can help identify and execute tuck-in acquisitions.

Armadillo (10/07/2020)

Armadillo, a UK-based regtech and compliance services provider, has hired Panmure Gordon for a GBP 15m equity raise after the summer, CEO Emmanuel Cohen said. The round is slated to kick off in early September, with at least part of the proceeds expected to come in around 4Q20 or early 1Q21. It plans to exchange the funds for a minority stake.

Silent Eight (03/06/2020)

Silent Eight, a Singapore-headquartered artificial intelligence-based regulation technology company, is receptive to exploring discussions with strategic investors for business expansion,  co-founder and CEO Martin Markiewicz said. The company, which focuses on anti-money laundering (AML) compliance and risk obligations, has seen an increase in demand for risk control security systems due to quarantine measures and people working from home.

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