Tyler Technologies eyeing all corners of its public sector strategy in largest-ever acquisition

Tyler Technologies takes a holistic approach to how it views the public sector with federal seen as a natural extension of what the software provider already does for state and local governments.

Two acquisitions by the Plano, Texas-based company help illustrate that and especially the second deal for MicroPact closed in 2019 to bolster Tyler's federal footprint.

All three buckets of that strategy became more apparent on Wednesday, when Tyler announced its largest-ever acquisition of fellow government software and IT solutions provider NIC. The all-cash deal has an enterprise value of $2.3 billion and breaks out to $34.00 per share for NIC’s stockholders.

NIC posted $460.5 million in revenue last year and $68.6 million in net income. The company’s federal clients include the Agriculture, Interior and Transportation departments. Other federal customers include the Bureau of Land Management, Forest Service and Library of Congress.

In Tyler’s investor presentation on the deal, it said federal revenue would increase by 47 percent with NIC in tow. Both Tyler and NIC have heavy footprints with state and local agencies across the U.S.

The deal does come amid a slower environment regarding federal budgets that Tyler sees as directly tied to the change in administration, CEO Lynn Moore said Wednesday in a conference call with investors. But they view that as temporary.

“We saw that with some deals in (the fourth quarter) once the election happened, and you get a change administration, you get change in organization leadership and priorities,” Moore told analysts. “There's just a little bit of a pause.

“But I'd expect as the year continues to roll out, and particularly with some of the initiatives that we're seeing come out of Congress that's going to pick back up as the year goes on.”

Many of those initiatives at all levels of government are similar from the Tyler team’s standpoint: agencies pushing to migrate into cloud infrastructures and adopting more subscription-based digital services.

Moore said that translates to more “transaction-based revenues” for Tyler, along with additional data and insights for the customer and company alike.

For Tyler specifically, this is its third acquisition in less than three years that carries implications for the federal market. Deal number one came in 2018 for Socrata, a data-as-a-service platform company.

Tyler took a bigger step function in federal the very next year with its $185 million cash acquisition of MicroPact, the case management and business process management software provider. Half of Herndon, Virginia-based MicroPact’s revenue came from contracts with federal agencies.

The pending deal for NIC is just the latest, albeit biggest step Tyler has taken in its broad public sector strategy.

“NIC is a leading digital solutions provider to state and federal government entities and will meaningfully increase Tyler's presence in both of those sectors, building on the entry points we achieved via our acquisitions of Micropact and Socrata a couple of years ago,” Moore said.

The acquisition is anticipated to close in the second quarter, pending regulatory approvals and a vote by NIC stockholders.

Goldman Sachs is serving as exclusive financial adviser to Tyler, and Munck Wilson Mandala LLP is serving as legal counsel. Cowen is serving as exclusive financial adviser to NIC, and Shearman & Sterling LLP is serving as legal counsel.