Legal & Regulatory Comply and Thrive

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Comply and Thrive

Unlocking the benefits of compliance solutions

Thorsten Toepfer, Partner at Hg.

Over the past 10 years, compliance has become an increasingly important and closely monitored function of business. Whilst the US has arguably taken the lead with this trend, Europe and other markets are following closely behind.

Business compliance has evolved. Previously a simple exercise in following rules, compliance is now an increasingly recognised and essential part of business and wider society - ensuring transparency, employee well-being, corporate responsibility, whilst also mitigating risk.

At Hg we have been backing this trend, investing in companies that provide mission-critical compliance services and software to the business world, most recently demonstrated by our investments in Citation, a provider of HR and Health & Safety compliance to SMEs and CogitalGroup, a provider of business process outsourcing and advisory services, as well as past investments in Radius, a provider of compliance solutions for companies expanding into international markets; and Kinapse, an advisory and operational solutions provider to the global life sciences industry.

Customers see increasing value in software and service businesses that can save them time and energy that can be better spent on their

core business ambitions.

Thorsten Toepfer, Partner at Hg

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The advantages of implementing an outsourced compliance solution are clear, says Thorsten Toepfer, Partner at Hg. "We have been observing the migrating prevalence of compliance trends across the globe for many years and we can see that there are number of businesses across Europe who are well placed to benefit from this. Customers see increasing value in software and service businesses that can save them time and energy that can be better spent on their core business ambitions."

A new phase of compliance adoption

From financial services to manufacturing, businesses are required to implement and maintain more stringent and timely compliance processes when compared to the previous decade. We've seen this happen in two distinct phases.

Initially individual companies were scrambling to ensure that they satisfied newly introduced and rapidly changing compliance requirements in their own way. For instance, an employee or group of employees might log issues into a spreadsheet or database, often manually. As well as being labourious, this process was also open to risk of inaccuracy and delays.

Today, compliance is becoming more institutional, with many of the big global markets going through what we at Hg consider to be `phase two' of its evolution, which is about professionalising this process. Globalisation is an important contributor to this second phase. Stricter regulation and compliance requirements are now prominent in many different geographies around the world. When companies grow and expand across the globe, a single business may face multiple variations of rules and regulations for its products and services. This can be highly complex and, as a result, we see a trend of globalisation in suppliers of these services, where companies are seeking to consolidate to one provider for their global compliance needs.

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We have a number of examples in our portfolio of companies serving these needs for various sectors:

Helping SMEs to succeed with Compliance and Quality services

The Citation Group provides long-term, subscription-based Compliance (HR/Employment Law, Health & Safety) and Quality (ISO certification, supplier verification) services to over 35,000 SMEs throughout the UK. In doing so, it helps SMEs navigate the critical and complex regulatory environment with which they need to comply through its proprietary `Atlas' technology platform and by providing 24/7 advice from highly-skilled and qualified experts.

To maximise the benefit of the compliance trend, Hg has worked with the Citation management team to scale the business and launch several initiatives focused on developing new products and services, while expanding the company through acquisitions to bring in new capabilities and services for their customers.

"When you are providing compliance services to other businesses you are providing something that is absolutely critical for that company. As such, customer

satisfaction and trust are crucial. Once you have established trust, customers often see what other services you can help them with and what other

problems you can help solve."

Chris Morris, CEO at Citation

Creating a Pan European presence

Hg helped to launch CogitalGroup in December 2016, through the acquisitions and merger of Nordic-based Azets (formerly Visma BPO) and UK-based businesses Baldwins and Blick Rothenberg. The group's focus is the provision of business-critical support, BPO and advisory services to the entrepreneurial and private company business segments.

In the past two years CogitalGroup has looked to establish a presence in Europe. Today, in total, the group has around 100,000 customers with more than 6,000 employees operating across Europe, with 168 offices across the UK, Norway, Sweden, Denmark, Finland, Romania and Lithuania.

"We continue to create a large, international, technology-supported business services group, providing critical compliance, BPO and related advisory services to this sector. Our model will bring more specialist skills and value-add services, but local intimacy is vital. So we need offices located across the

geographies in which we operate."

John Connolly, Group Exec Chairman at CogitalGroup

Creating one provider for global compliance needs

Radius delivers support and expertise through managed services, advisory services and OverseasConnect, Radius' integrated cloud-based software platform, to create solutions that meet the needs of over 600 clients operating in 110 countries around the world. Clients from startups to large multinationals take advantage of Radius' international accounting, finance, banking, tax, HR, legal and compliance support to simplify their core operations, reduce their risk exposure and improve the management and control of their overseas businesses. In May 2018, Radius became part of Vistra's International Expansion Services business.

"International expansion presents companies with enormous opportunities, but with those opportunities comes the steep learning curve of setting up operations in each country. Navigating these compliance requirements swiftly, efficiently and with minimal risk can be tricky at best. For companies already operating in multiple countries, the pain of managing multiple vendors with minimal visibility into operational detail can be a huge burden."

Stephen Chipman, Radius CEO

Helping customers navigate an increasingly complex environment

Kinapse is a leading advisory and operational solutions provider to the life sciences industry, focused on regulatory compliance and quality. The company delivers its services globally across the full clinical and commercialisation continuum, collaborating with its biopharmaceutical customers to improve patients' lives.

Kinapse was acquired in 2018 by Syneos Health, a fullyintegrated biopharmaceutical solutions organisation. This has further enhanced Kinapse's ability to provide customers with end-to-end solutions to accelerate time to market.

"Kinapse's aim is to provide solutions to all of the challenges faced by a Life Sciences organisation. As the company's customers increasingly face risk, competition and rising development costs, the innovative, technology-enabled solutions provided by Kinapse are seeing increasing demand. This, along with the company's global presence, helps take

complexity out of customers' tasks."

Dawn Marriott-Sims, Executive Chair

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Failure to comply A growing demand vs the costs of non-compliance

In today's environment companies must ensure they are always fully up-to-date ? not just with regulators ? but with all other stakeholders who are increasingly taking a greater interest in the solutions implemented to manage a company's compliance needs. The costs and penalties of not doing so are becoming more severe, as we've seen from some of the large fines arising from the banking sector. Investing in compliance services is increasingly showing great ROI, when compared with the costs associated with failure.

We therefore see the requirement for compliance services as structurally growing across the board, with successful suppliers becoming mission-critical partners for the businesses that use them.

This is resulting in big opportunities for growth. When a supplier of these services can achieve high levels of customer satisfaction, this leads to opportunities to develop new products and services to sell into the existing customer base, compounding their existing revenue stream. The development of new products is therefore important, and can be achieved through R&D, whilst also being made possible through M&A, something that Hg has helped many of its portfolio companies achieve in this space.

A pan-European perspective

As global investors with European origins, Hg also has an interesting vantage point. We can see a great opportunity for both European suppliers of compliance solutions, as well as US operators looking to establish themselves in Europe, particularly as companies seek to consolidate those global provider relationships.

Overall, this is a positive trend, not only for the companies supplying the solutions, but also for their customers. Compliance leads to lower costs, greater efficiency and lower risk for the business. For wider society, a corporate universe of more responsible companies, better employers and safer investments, is also positive.

Thorsten Toepfer

Thorsten is a Partner at Hg and focuses on investments in the compliance space. He sits on the Investment Committee, holds responsibility for CogitalGroup and also sits on the board of A-Plan. He co-led the acquisitions of Citation as well as Radius and held responsibility for JLA.

About Hg

Hg is a sector expert investor, committed to helping build ambitious businesses across the technology and services market in Europe and the US.

Hg's team of over 60 technology focused investors and operating partners is the largest and most experienced in Europe. These deeply resourced sector teams focus on specific sub-sectors and investment themes to identify companies which have the potential to grow, create employment and become a leader in their space.

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