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Utah Business

This month during our Roundtable we invited mergers, acquisitions, and deals specialists to discuss national local economies, and the availability of capital.

Roundtable: Mergers and Acquisitions

Every month, Utah Business partners with Holland & Hart and Big-D Construction to host roundtable events featuring industry insiders. This month we invited mergers, acquisitions, and deals specialists to discuss national local economies, the availability of capital, and market outlook. Moderated by Cheri Waldron, executive director at MountainWest Capital Network, here are a few highlights from the event.

What Has The Landscape Been Like In Utah Over The Past Year?

Paul Skeen | Partner | Eide Bailly

You’re starting to see a late entrance approach to this M&A cycle. You’re seeing some companies looking for funding they maybe shouldn’t be looking for and that creates a flood of deals that aren’t ready to go to market. I don’t envy the private equity investment groups who have to sort through the flood of deals and decide what’s good and what’s not.

Todd Reece | Partner | Ballard Spahr

There were a lot of smaller deals in the state, and that’s been consistent over the last few years. But we have two IPOs with Pluralsight and Domo. You have German tech giant SAP acquiring a local company for $8 billion. It puts us on the map as a real player.

Barry Lutz | Managing Director | Wells Fargo

Q1 is down 18 percent globally year-over-year. If you look at the US, Q1 is up seven percent year-over-year. If you think about Utah 2015, $10 billion in transaction value, 524 transactions. In 2018, $14 billion in transaction value, 483 transactions. So think about the global backdrop down seven percent, US down 10 percent, Utah up 40 percent. The number of transactions actually is down about eight percent but the volume is up 40 percent, which is fantastic.

Drew Yergensen | Senior Vice President | KeyBank

KeyBank publishes a sentiment report for middle market companies. And 70 percent of companies think there is a real downturn [coming] in 2019 or 2020. A lot of business owners feel like they’re prepared for it. The follow up question was, how do you feel like you’ll do in this next downturn? And there was over 20 percent that want a downturn. You hear that a lot from business owners, as we’d like a correction and feel like valuations are too high, it’s too frothy, we feel more capitalized for it and prepared for it.

Matt Bartholomew | Director | BDO

Seventy to 80 percent believe that there will be a correction within the next few years. I would term it as a lot of cautious optimism where private equities are just taking their time, being very discerning, and closely managing their portfolio to be able to weather a downturn.

Andy Deren | Partner | Ernst & Young

Through the lens of the private equity clients I serve, they’re looking for specific high-growth assets that are going to generate a return for them during a specified period of time. And what’s attractive about Utah is when you look at the technology landscape, when you look at the people that are creative, and it can be accretive to and compete directly with some of the companies not only in Silicon Valley, but also abroad.

Curtis Roberts | Partner | Kickstart Seed Fund

We’ve seen the relatively recent development of the private IPO. There is so much capital available to fund tech companies and they’re still equally, if not more attractive than they ever were, that many times the founders that wish to take some of their ownership in cash can do so without selling the company and can stay in charge. And companies are staying private and founder-controlled for a longer period of time. The result that we’re seeing may be a temporary reduction in deal volume, but ultimately full exit through a strategic sale or an IPO will still happen. There are just more ways for founders to get liquidity now because of so much capital chasing.

How do the national local economies impact M&A activity in Utah?

Barry Lutz | Managing Director | Wells Fargo

The ecosystem is growing. When you think about the actual macro environment and where we are today, you have the Dow, the S&P, the Russell, and NASDAQ all up double digits. You have volatility which is back down into deal territory. And you have very attractive valuations when you think about the macro environment. April jobs hit, they were positive. Unemployment is at 3.6 percent, the lowest in 49 years. Labor force participation nationally is about 60 percent, Utah is 68 percent. And so you have these really positive macro indicators somewhat offset by trade concerns. We’re 119 months into this expansion, the longest ever is 120 months in 1990 and yet, you see that we had a 3.2 percent GDP growth rate in Q1. We’re forecasting very positive growth rates throughout the rest of the year. 

Andrew Wan | Partner | Larson & Company

What’s very unique in Utah is that not only are we able to attract deals to come here, but we’re able to attract them to stay here in Utah and expand. But one factor that Utah has to overcome is the culture. We have this negative connotation that Utah is very closed-minded, and so companies are attracted to select Utah as a potential, but ultimately, they lose because they think all the great outdoors and everything does not overcome some of the cultural aspect. But it’s that image that Utah has as being closed-minded that may be preventing more deals from coming to Utah. 

Val Hale | Executive Director | Governor’s Office of Economic Development

One area where the state is struggling and trying to seek answers is in the area of deep tech. They’ve eliminated the TCIP grant. It was a couple of million dollars that we gave to early companies that were coming out or just ready to commercialize and move forward. And now they’ve also eliminated the USTAR grants for the early early-stage technology companies.

Most states have something there to try to help early-stage companies get over that valley of death. Our legislators said that’s not the role of government but these companies need funding, they need access to help them get through that process.

Bradley Bertoch | President |

A lot of us here remember special grant expense. We remember when we had a whole bunch of startups and one or two big companies and there was nothing in the middle. Well that gap got filled and we’ve got a nice continuous flow of great deals that grow up. And we’re going through a real harvest. But if you harvest until there’s nothing else left to harvest, then you wonder what happened. And either you play catch up real fast and to try and revive things, or you move on and move someplace else.

Spence Hoole | CEO  | Diversified Insurance Group

I think we’ve done really well with startup and emerging-growth and middle-market but we’ve not done well on the anchor tenants. Think of it like a shopping mall, we don’t have the Nordstrom’s here, the big tech companies. I think some of these [companies] celebrate the harvest and the exit a lot. I think it’s awesome for shareholders. And I would think it’s much better for our ecosystem as a whole if we can encourage companies to scale, sustain, be the acquirers not the acquired, and look to build those anchor tenants.

Reed Chase | Partner | Tanner

It’s easy and really good at times to be thinking, “Hey, this is great. Let’s just keep doing what we’re doing.” But things won’t always be the way they are and you have to look ahead and invest. And so it is good to see that the state is having these discussions and thoughts around how we create new sectors that don’t currently exist. That doesn’t happen overnight. And those aren’t investments that you make, that you see a return in one, two, three, or five years. Take very long-term and significant investments now. 

How Much Competition Exists Between Local And Outside Investors?

Curtis Roberts | Partner | Kickstart Seed Fund

The competition continues to increase, it keeps local investors on our toes. It keeps us motivated to keep our funds going, to continue to raise the funds needed to support the local companies. 

It does have an effect on valuations, but it creates that much more robust of an environment for local founders to say, “Look, I don’t have to put all my eggs in one small basket to be able to raise money for my company. If I’ve got a good opportunity here, I’ll have a number of options.” And that just means we’re going to have more and more funding available. 

Val Hale | Executive Director | Governor’s Office of Economic Development

We’re seeing a lot more interest from international investors in Utah now. At least once a month we get these international people coming here saying, “We have money, we want to invest, point us to good deals.” And I don’t know if we had that type of interest in the past. 

Braden Moore | Project Development | Big-D Construction

For the last 20 years, investors on projects and infrastructure have been locally-based in Utah. And now we’re getting a tremendous amount of capital from out of the state and out of the country, which we’ve never seen before. It has a lot to do with people wanting to be here in Utah, but also just how successful we’re being, it’s a huge spotlight and we’ve never seen investors like this before.

Darin Gilson | Managing Director | Banyan Ventures

The number of investment firms, or entities out there has grown significantly. It always felt like there were plenty of deals to go around and share. There’s actually a good collegiality amongst the investment community here. I don’t know if we consider ourselves competitors as much as colleagues. But I would just say maybe in the lower tech sectors that it doesn’t seem like it’s as competitive between the firms for deals.

Is Capital Available To Fund Growth In Utah? How Can We Increase The Amount Of Capital Available?

Curtis Roberts | Partner | Kickstart Seed Fund

There is more than enough. And what has made tech attractive as a sector is the fact that the costs to start a company have plummeted. And it is shockingly easy―not that I want to minimize the odds of success, because there are still a lot of failures―but it’s easier than it’s ever been to get a technology company. Many get to first revenue with no outside capital because they’re so capital efficient. 

Bradley Bertoch | President |

There has been a movement in the venture community since the end of the 90’s through 2000, you can flip a deal like you can flip a house. And that has lent the accelerator model and the seed models and a lot of venture models into the SaaS and apps mentality. Well, what about those businesses that are capital intensive? Like sciences, medical devices, clean tech, or advanced materials? I mean, they’re just left to struggle, right? And it’s not only here, it’s happening everywhere.

If you’re an entrepreneur and you need money, there’s never enough money. It’s just the way it is. We can all sit here and say “Oh, they have more money than they can think of,”―and in many respects, that’s true―but if you’re an entrepreneur and you need money, there’s never enough money, so it just depends on which side of the table you’re on.

What Is To Come?

Reed Chase | Partner | Tanner

IPOs get a lot of attention and they’re very exciting. Last year was an excellent year for Utah IPOs and there were almost two. And then 100+ other companies got their money to the private markets and strategic buyers. But over the last 20 years, the public markets have gotten oppressive and difficult and full of regulation and the market innovated and found a better way for both companies to get financing. So while we’ll probably have some exciting IPOs and public transactions this year, it’ll be a fraction of the overall deal volume and continue in real terms to be a pretty minor part of the equation.

Spence Hoole | CEO  | Diversified Insurance Group

There’s significant headwinds in the IPO market right now in terms of litigation, and if you look at last year, there was a landmark ruling that allowed companies to bring federal class-action lawsuits in state courts, which is totally different than just bringing in a federal court in terms of pleading standards and dismissal rate. That’s created a lot of consternation.

And just the cost of insurance for an IPO company has doubled. Retention rates are going up three or four times. It’s the hardest market we’ve ever seen in the insurance industry in my career. 

Curtis Roberts | Partner | Kickstart Seed Fund

As a country, we are facing significant policy questions relating to public markets that should be somebody’s priority. And there are other countries in the world that have figured out regulatory schemes for relatively small companies to go public. We have to have a circumstance where smaller companies can get access to public markets. If we don’t, the wealth concentration issues that we’re having in the US will just continue to be reinforced by the fact that they’re not available.

Greg Lindley | Partner | Holland & Hart

I agree that something should be done for smaller companies, but there has to be some significant changes to make it work. The cost of compliance is just so high that it prices people out of even thinking about it. And then you have the aftermarket issues and trying to have a market for it. There’d have to be a radical change in our system to make that work and I’m not sure who’s got the political will to carry that water.

How Do We Attract More Diverse Talent? 

Bradley Bertoch | President |

There are a lot of people that need to be brought to the table. And it’s a critical thing that we need to embrace because by 2030, 70 percent of the wealth in this country is going to be in the hands of women. The number of women who are actively involved as angel investors is almost zero. Husbands are not bringing their wives to the angel meetings. They’re not bringing their kids. By 2030, you’re going to see the demise of angels unless things start to change and unless we co-opt people into the investment community.

Andy Deren | Partner | Ernst & Young

People are attracted to good assets, whether that’s business, or people, or whatever that might be. It’s important to acknowledge the fact that there is a shortfall in women in other demographics that are present not only as employees but in the boardroom and participating in these deals. In some of the private equity funds, it’s encouraging to see those boards and the decision makers change and shift balance because we’re seeing them be incredibly accretive to value. When you set a platform like that, it truly is magical, because you can see great things come in a very short period of time. 

Lindsay Bicknell is the project coordinator for Utah Business magazine. A native of Cincinnati, Ohio, she graduated from Miami University of Oxford with a degree in communications. She has a background in television, print, and web media, as well as public relations and event planning. As a transplant to Salt Lake City, she can't get enough of the mountains and loves snowboarding.