AuditBoard, a Cerritos-based company that sells compliance software to streamline audits, has agreed to be acquired by London-based equity firm Hg in a $3 billion deal.

The deal is expected to close in the next 45 to 90 days.

AuditBoard’s executive team will remain in place and the company will be independently operated out of its current headquarters.

“We are not expecting a lot of changes,” John Reese, the firm’s chief marketing officer, said in reference to the company’s local operations.

What the Hg deal will do, he added, is help the company grow.

“When you are growing as fast as we are… there’s no shortage of new investors and companies knocking on your door,” Reese said.

He added that the company was positioned for a potential IPO but decided to go with a partnership instead and Hg was the perfect fit.

“We started thinking about who we might partner with and we really determined there were five key criteria: one, they had to have a deep commitment to our customers; two, they really had to share our vision for what we call connected risk; three, they had to support our desire and opportunities for continued rapid growth…four, they had to have some sort of catalyst for use to grow even faster and increase the platform and our geographic expansion; and five, we wanted a team that aligned with our values and we found all those things in Hg,” Reese said.

Hg has invested in a number of related companies throughout the years, including tax and accounting firms and automation platforms.

“We are absolutely delighted to invest in such an incredible SaaS success story… AuditBoard is exactly the type of business we partner best with – one that truly knows its customers and innovates to bring them the best possible products. We can’t wait to get started,” Alan Cline, head of North America at Hg, said in a statement.”

Getting its start

AuditBoard’s software allows companies to manage risks such as cyber threats, regulatory compliance, supply chain issues and more.

It was founded in 2014 by former PricewaterhouseCoopers and Ernst & Young Global Ltd. auditors Daniel Kim and Jay Lee. It is led by Chief Executive Scott Arnold, who is staying on.

“Our two founders are both former auditors and when they had the idea for AuditBoard it was out of one of the founders’ own needs,” Reese said.

He was doing audits and realized he needed better technology to do the job more smoothly and effectively.

“He said if no one else will build the software to help me and my teams, I’m going to do it,” Reese added..

“When we founded AuditBoard back in 2014, our goal was to use software to solve the serious challenges that exist for an auditor,” Kim said in a statement. “This acquisition represents a realization of not only our vision, but validates how taking a customer and practitioner-centric approach is the right way to develop technology that users will be passionate about.” 

The company has been on a rapid growth trajectory. Last year, it reported $200 million in annual recurring revenue. AuditBoard serves more than 2,000 clients, including nearly 50% of the Fortune 500. Clients include Cisco, Amgen and Lennar. Compliance is an issue now at the forefront for many companies. The 2023 Thomson Reuters Risk & Compliance Survey Report found that 70% of corporate compliance professionals have taken a more strategic approach to compliance in the past two to three years and 80% now view risk and compliance as valuable advisory functions.

Kristen Jaconi, executive director of the Peter Arkley Institute for Risk Management and an associate professor at USC, said compliance software platforms are “increasing in number” and have become essential for many companies.

“These allow companies to move away from spreadsheets to track risks and risk controls and regulatory obligations,” she said. “You are moving away from spreadsheets to an automated system. It allows for an enterprise-wide and non-siloed approach because you can centralize everything in one platform.”

She added that large companies often have to deal with regulations that are different in different states and countries and governance, risk and compliance (GRC) software helps companies track and deal with various regulations.

“These GRC tools allow you to track these regulatory and legal obligations which for the largest companies number in the thousands,” Jaconi said.

“Any organization attempting to have an effective enterprise risk management program needs to have a GRC platform. Some may even have multiple,” she added.

Becoming ‘the platform of choice’

AuditBoard’s last funding round was a series B raise in 2018, which brought in $40 million.

Arnold said the deal with Hg would allow the company to “become the platform of choice for global organizations to connect and manage risk.”

In addition to its Cerritos headquarters, the company also now has an office in London. Reese said there were no additional offices in the works but that the company was continuing to grow in other markets, eyeing areas in Europe and other continents as well that “historically we haven’t had a presence in.”

“We expect continued rapid growth,” he added. “We have a ton of market momentum right now and an expanding market opportunity.”

The company has nearly 40 open positions at the moment and is looking to add more than 100 people by the end of the year.

And going forward Jaconi said she expects to see more adoption of GRCs.

“We are in a business environment with increasing legal and regulatory complexity and obligations and the GRC platform is a proven method to monitor and comply with those obligations,” she said. “The tools are integral to effective enterprise risk management.”