Two compliance companies merge to build a $100M firm

Once upon a time there were two compliance companies. Smarsh was owned by Los Angeles-based private equity firm, K1 Investment Management. It worked with mostly SMBs. Another called Actiance worked with larger companies like the world’s biggest banks. This is the story of how K1 is bringing these two companies together.

Both companies are focused on archiving and compliance around communications. Originally that meant email, but over time it’s shifted to social, chat, mobile and other forms you see in the modern enterprise. Both help companies archive and organize this correspondence, and if there is a legal action, create a workflow to help compliance and legal get at the information law enforcement, lawyers or regulators are asking to see.

According to IDC, the market for governance, risk and compliance, which is where these two companies fall, is projected to reach almost $12 billion by 2021. Big enterprise companies in this market include the usual suspects like IBM, Oracle, OpenText, HPE and others.

When you have two companies doing fairly decently in the same sector, and you’re a PE firm, the math and logic says if you put them together, you could have a bigger more successful company. That’s basically the reason behind K1 going out and buying Actiance, which was founded in 1998 and raised over $43 million. K1 already owned Smarsh and by merging the two companies, they believe they could generate $100M in annual revenue. (K1 did not disclose the terms of the deal.)

Each company has been growing 30 percent, year over year alone, but does combining them mean they can continue that level of growth together? We are about to find out.

As Stephen Marsh sees it, who is founder and CEO at Smarsh, when you combine the two companies, you won’t find a lot of overlap. “I think when we look at the combination, there are complementary technologies and customer bases and a wealth of resources in the combined organization that will enable us to cover more markets as we sell and market our solutions,” he said.

Kailash Ambwani, CEO at Actiance not surprisingly saw it similarly. “If we look at active compliance and capture, we have real-time mitigation around social media that’s applicable to Smarsh’s customer base. Smarsh has capabilities around mobile and voice,” he said.

Of course, nothing is ever really that simple when combining companies in this manner. While the two CEOs said they would be putting the two product sets together at some point, for the short term at least, they are operating as separate companies.

Eventually, however, K1 is likely going to want to create some efficiencies inside the combined organization, and that could mean layoffs in redundant positions. The two product sets will also presumably have to become one and operate on a single platform. It’s unclear what impact the merging will have on existing customers, although Ambwani says they are talking to customers now to put them at ease.

Marsh and Ambwani (and K1) are hoping that one combined company is better than two. That idea will be put to the test in the coming months.