Public sector compliance software might not seem the most glamorous of businesses to be in, but it does offer opportunities. As cash-strapped (or in some cases even worse-off) councils look for efficiency improvements, and other public sector services face increasing compliance requirements, there is a large and willing market for a cloud software business that provides processing programs for everything from local authority permits to traffic offences to police firearms.

And if that company manages to leverage its existing contracts to deliver an increasing range of services, through both organic growth and targeted M&A, the potential for such a business is pretty clear. At least that was the theory held by Mickey Patel, a partner at August Equity, when the firm completed the MBO of Oxfordshire-based compliance software firm StarTraq in May last year. The value of the investment was not disclosed, but the business employed around 25 staff then (100 now).

StarTraq’s compliance software provides back-office processing for police forces and the automated enforcement of camera-captured traffic offences. The company is in a similar place to other August portfolio assets in compliance-driven tech and cloud software: in 2018, August created Amtivo through the acquisition of the British Assessment Bureau. It was grown into a global ISO-compliance and cyber-security software business, and made 12 acquisitions before being sold to Charterhouse Capital Partners in July 2022. In October 2022, August also invested in OneTouch, an end-to-end care management software platform. 

Patel says this is no coincidence: “The way that August Equity works is very adjacency-focused. For instance, we saw a lot of opportunities in a business called Wax Digital, in which we invested in 2015, where we could take a relatively small e-procurement software business in the UK and grow it internationally. We then looked at a smaller platform focused on the dentistry compliance software market called Code, which we expanded into other healthcare end customers, into the primary care market and then expanded the product suite – such as HR, payroll and e-learning – through M&A, to sell a broader range of services into those end customers. This business became Agilio, which we sold in February to TA Associates and Five Arrows. 

“We see an equivalent opportunity with StarTraq, to look at some of the niches within the UK public sector. Individually they may be relatively niche, but they haven’t yet had the opportunity and the thrust to grow globally and expand.” 

The hope will be that StarTraq can follow the trajectory of Agilio. August first invested in that business in 2019 and supported it in making 10 acquisitions, before it was sold to Five Arrows and TA Associates in February 2024 for a 9.2x return.

The August tech team looks for niche UK businesses that it can “grow globally through the investment term to create something that simply hasn’t been there in the past”, Patel says.

To help guide StarTraq through this process, August has hired Kevin McCallum from HG-backed Bright. He took on the role of group CEO for the software provider at the beginning of this year. McCallum spent 11 years at software-as-a-service (SaaS) accounting business FreeAgent, helping to guide it through a crowdfunding, an AIM listing and ultimately its sale to NatWest Group. He then moved on to become CEO of Hg Capital-backed Bright Software Group, which was “a case of four or five businesses being put together to create something greater than the sum of its parts. I think I have the full sticker album of the start-up experience in technology,” says McCallum. They have since recruited Richard Bradley as CFO.

StarTraq might be a bit further down the road, but seems to be following the Bright template, coupling acquisitions with organic growth. In this way, the company can take advantage of being a trusted supplier to huge public sector organisations such as the police force and the Home Office, delivering services to the same clients in adjacent niches, while also sourcing similar new clients thanks to the software’s proven performance. That’s the theory, anyway. 

“We spend between 12 and 24 months looking closely at a sector before we invest anywhere,” says Patel. “There’s definitely opportunity in govtech. Because of our focus on it for two years prior to acquiring StarTraq, we managed to make two quick acquisitions in the six months following completion. We’re going to continue with organic and acquisitive growth both in the UK and internationally.”

Investec provided a bilateral senior debt facility to support the initial investment. This financing will support both organic growth and targeted M&A. In September 2023, StarTraq acquired Farthest Gate, which provides govtech solutions to London councils, streamlining permit provision for commercial licences and parking, as well as processing fines. OC&C carried out commercial due diligence on Farthest Gate and K&L Gates provided legal advice.

In January this year StarTraq acquired JML Software Solutions, the sole providers of Chronicle Systems, leading provider of compliance software for police forces’ operations of ‘high-risk assets’ – vehicles, drones and firearms. Patel points out that this now gives StarTraq “a relationship with every single police force in the UK” – a real door-opener for StarTraq. “The UK deserves more police in the field,” he says. “We don’t want them looking through a whole bunch of documents.” McCallum adds that better connections can be made in police and council systems, and StarTraq can have a co-ordinating role as back office for various services.

“Ultimately,” he says, “we’re about process and workflow efficiency. What we do is improve the experience of our customers and of the users of local authority services. Cloud migration allows us to improve the quality of the service, the speed to delivery and ultimately the resilience and the robustness of the services. But it’s by no means ‘once and done’. It’s a process rather than a destination.”

StarTraq founder Allan Freinkel maintained a minority stake in the company when August took a majority stake. Patel recalls that Freinkel considered both trade and private equity buyers during the sale process. “We’re very happy to have built the relationship with him and he can see the bigger scale we can achieve here.”

McCallum adds: “Allan is a great help for me as well. He’s been in this business for more than 20 years, so he’s well connected and helpful to have involved.” Patel says that August asked every management team member to invest alongside them.

“I’m building out my exec team around me and the CFO,” says McCallum, “and a big part of that is the product strategy. Because of the somewhat broad definition of what we do, there are a lot of applications that are not a million miles away from our current offering and can be turned into new things relating to process and workflow automation. Every time we replace a form on a website or replace a manual process with an automated process, that’s a new product at some level.” 

The vision for August is for “scale-up, rather than buy-and-build”. The investment into StarTraq has come out of August’s £300m Fund Five, which allows August to “deploy a lot of capital around this. We think ultimately it will become a significant business of scale.”

Acquisitions will be balanced with organic growth – both within the UK and, predominantly, in the Anglosphere. The company has active partners in Australia and the United States, which has, as McCallum says, “an addressable market that is significantly bigger than the UK. You test the water, and I think we will probably lean into those markets with our own resources at some point in the future.”

Sharp shot

“Rifle shot rather than scattergun” is how McCallum describes StarTraq’s acquisition strategy: “We have pretty healthy organic growth in the group and we can be targeted in the type of business we want to bring in. I’ve built businesses by attaching multiple entities before and a really key component is building the group structure so it’s solid enough to make acquisitions in a sensible way while also keeping the business moving.”

In February 2020, August invested in IT managed services business Air IT and rapidly acquired 11 businesses. “The StarTraq strategy isn’t that. We’ll be buying very focused targets in a number of different adjacencies across police, local authorities and different software solutions. We have committed the capital for this journey, so there will be more acquisitions beyond the two we’ve already completed, with a third coming probably in the next 12 months – and more to follow.”