TA joins Hg to accelerate growth plan for Sovos

The new capital injection, the majority coming from Hg, will support Sovos in adding more capabilities, accelerating its existing double-digit growth through additional M&A.

TA Associates’ recent investment in Hg-backed Sovos Compliance values the company between $2.5 billion and $3 billion, sources familiar with the deal told PE Hub.

Sovos, headquartered in Boston, provides regulatory tax compliance software. The company’s software leverages the industry’s repository of more than 210 million tax rules in over 13,500 jurisdictions across more than 200 countries, according to the company.

As a new minority investor, TA is set to help Sovos’ majority owner Hg add more capabilities and accelerate its existing double-digit growth through additional M&A, one of the sources said.

“One thing that the firms are thinking about is adding an additional pillar to the company,” the source said. “They’ve got compliance, Form 1099, and they can potentially go into other adjacent areas. They’ve got deep pockets to try and drive that further.”

Covid-19 hasn’t had a meaningful impact on Sovos. Rather, the pandemic has added to a bigger theme supporting the company’s growth, the people said.

“One of the reasons the firms like Sovos is that it deals with taxes,” one of the sources said. “Taxes are complicated and there are errors in reporting that can cause tax leakage for governments. Sovos’ software simplifies the tax process and helps companies spend more time on the tax reporting and helps governments receive the right amount of taxes owed.”

The investment, announced on August 20, comes shortly after the process for Sovos Compliance was launched.

PE Hub first reported in late July that Hg was exploring a partial sale through partnership with a minority investor.

Sovos generated around $125 million in EBITDA during its 2020 fiscal year ended June 30, sources told PE Hub at the time. The company posted approximately $300 million in revenue over the corresponding period, they said.

TA and Hg know each other from their work on Mitratech, a software provider of legal, compliance, and operational risk technology. TA first invested in the company in 2015 and two years later, in 2017, welcomed a minority investment in Mitratech from Hg.

TA, for its part, has remained particularly active this year, including through the downturn.

Most recently, the firm invested in Ivanti, backed by Clearlake Capital, valuing the software provider at more than $2 billion, sources told PE Hub.

The firm also sold a part of Aptean to Charlesbank, bringing the company’s valuation to $2 billion, according to sources.

Last month, TA and Francisco partners joined hands in a $1.4 billion deal for healthcare IT provider Edifecs, PE Hub wrote.

In January, Harvest Partners invested in MRI Software, backed by TA and GI Partners, valuing the company at over $3 billion, PE Hub reported.

Hg, TA Associates and Sovos declined to comment.

Action Item: Read about another recent TA’s deal here.