Compliance software company seeks private equity investor

2023-08-03 12:19:25

Frankfurt Stock Exchange

When communicating with investors, companies use EQS to publish ad hoc announcements, for example.

(Photo: Reuters)

Frankfurt All DAX companies use the “EQS Cockpit” for their communication with investors and for controlling compliance processes. According to financial circles, the provider behind it, the Munich-based EQS Group, is now looking for an investor who could offer additional growth capital and expertise.

The investment bank Goldman Sachs is helping to determine the financing options, but the EQS Management Board and Supervisory Board have not yet made any preliminary decisions, said several people familiar with the situation. One of the options is for a private equity investor to acquire a majority stake in the company and then take it off the stock exchange in order to further develop it outside of the transparency requirements applicable to listed companies.

The Munich-based company currently has a market capitalization of EUR 260 million and is particularly suitable for financial investors specializing in medium-sized technology companies

Investors such as Hg, Bridgepoint, Vitruvian, Permira and General Atlantic have been among those with whom EQS has previously engaged. Since business software is generally very popular with financial investors, a large number of other interested parties can be expected.

The largest shareholder with a 24 percent stake in EQS is the investment company for long-term investors TGV, which manages the assets of media investor Norman Rentrop (VNR Verlag für die Deutsche Wirtschaft, Bibel TV).

Achim Weick, who founded the company in 2000, holds 15.3 percent. TGV and Weick are currently not looking for a sale, it said. EQS, TGV, Weick and Goldman Sachs all declined to comment.

Digitization, regulation and ESG

EQS benefits from the megatrends of digitization, regulation and ESG – i.e. criteria in terms of environmental protection, social standards and good corporate governance.

The Munich company with 600 employees offers software that can be used to control compliance processes, such as anonymous reports from whistleblowers. When communicating with investors, companies use EQS to publish ad hoc announcements, for example.

EQS products are also used in the management of ESG data, the fulfillment of due diligence obligations along supply chains and compliant sustainability reporting. The ESG area in particular has been booming recently.

The market for so-called RegTech (regulation technology) is a growth market due to the constantly increasing legal requirements.

EQS sales have increased continuously in recent years – from 30 million in 2017 to 61 million in 2022. An increase to 71 to 74 million is planned for 2023, the operating result (Ebitda) should be around 9 to 11 million double.

In 2022 – due to low demand and later than expected legislation to drive EQS’ business – it was under plan at almost 5 million. The bottom line is that EQS recorded a minus of 3.3 million in 2022.

Since the EU Whistleblower Directive will be transposed into German law later than expected, customers are postponing the purchase of the relevant software, which is why EQS announced in the spring that the medium-term goal of 130 million euros in sales and a return (EBITDA margin) of at least 30 percent can only be achieved with a delay of 12 to 18 months.

In order to be able to implement the planned investments in the growth areas, the money from private equity could help.

More: The great hunt: why investors are targeting German IT companies