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The HQ Conundrum
It was a big year for mergers and acquisitions in the Beehive State, with a handful of iconic Utah companies folding into larger firms or getting snapped up by big private equity gunslingers.
In March, Verisk Analytics acquired South Jordan-based MediConnect Global in a $350 million deal. Genealogy website Ancestry.com was purchased by Permira, a European PE group, for a reported $1.6 billion in October. But it was Provo-based security and automation company Vivint that grabbed the biggest headlines, fetching a Utah-record $2 billion sale price from The Blackstone Group last fall.
While it is certainly not a new phenomenon for big national or global firms to buy Utah companies on the rise, the deals are getting bigger and more high profile in nature. But while these big transactions make sense for the entrepreneurs who get filthy rich in the process, the big question for Utah is whether one of the nation’s hottest spots for business can also be a good home for major corporate headquarters. As some in the state’s technology sector have observed, Utah’s business ecosystem “has seedlings, saplings and young trees, but no solid oaks.”
“There is definitely an early-exit phenomenon in Utah that is not necessarily typical, even among cities of comparable size,” says Gary Crocker, a veteran entrepreneur and president of Crocker Ventures. “I think there is a cultural dynamic at work where entrepreneurs default to selling their companies.”
While the state has been increasingly successful in attracting regional offices and operational arms of big companies like Adobe, Goldman Sachs, eBay and IM Flash Technologies, Crocker argues that Utah’s next big step should be the establishment of major corporate headquarters here. The barrier to getting there, he says, is a mentality among entrepreneurs that almost always leads to an early sale.
This dynamic isn’t altogether negative. Omniture’s $1.8 billion acquisition by Adobe in 2009 was an important factor in wooing the technology giant’s regional office to Lehi, where an impressive $100 million facility was completed in November and could ultimately employ more than 3,000 people.
Still, Utah can add a new level of depth and sophistication to its economy if some high-potential firms hold out, resist the urge to merge, and headquarter here, Crocker says.
“What we are missing in Utah is the texture that comes from having big, national and global firms headquartered here,” he says.
While the payoff would be deferred, this arrangement would ultimately benefit the firm, Crocker says, because its founders would retain ownership and control franchising. It would also lead to a more attractive employment picture in Utah, with high-level corporate management positions that are currently in short supply. To get there, Crocker says, local business leaders and trade groups need to do a better job of educating entrepreneurs about ways to cultivate financiers early on who can help propel the firm through various stages of growth.
“What typically happens in Utah is a startup receives its initial angel investment and maybe one or two more infusions, but there is no additional cultivation until, by default, the entrepreneur exits,” Crocker says. “Part of the reason, I believe, is we don’t do enough to educate people that there is another way. But also, frankly, it just requires more work.”
A Tipping Point
Utah does have a few outliers who’ve bucked the early-exit trend, including Myriad Genetics and Watson Pharmaceuticals, and Utah has much of the infrastructure in place to take the next step in its economic evolution, says Mike Alder, director of the Technology Transfer Office at Brigham Young University. For one, Utah has been proactive in building intellectual bedrock through programs like USTAR, the state’s science, technology and research initiative. In addition, Utah’s image is growing as a popular place for business at the crossroads of the West, and Utah has a base of young, smart people in its growing workforce. So is Utah at a tipping point?
“I think there’s evidence that we could be right on the cusp of more companies staying and growing here,” Alder says. “It looks to me like we could shortly see a period of in-migration and internal growth for Utah.”
Amy Rees Anderson, founder and managing partner of REES Capital and formerly CEO of MediConnect Global, shares this hypothesis. She interprets the recent uptick in M&A deals as an important step in Utah’s rise to becoming one of the nation’s top spots for business over the long term.
“The secret is out about Utah, but it’s just barely out,” she says. “There is huge value here that could be taken much further. As more and more people find out about Utah and the great people here, it’s just going to get bigger and bigger because it’s a very unique place.”