“2020 was full of surprises, a year of extremes: Social upheaval, destructive wildfires, unparalleled political polarization, heartbreaking deaths, a brutal and bizarre election year, a worrisome drought, and more,” writes Mark Tullis, TechBuzz co-founder in an article for the platform. “And yet, for many Utah businesses, 2020 [was]an incredibly good year. For some, breathtaking.”

Tullis’ remarks inspired me to read MountainWest Capital Network’s (MWCN) 2019 Deal Flow Report. Mike Walsh, MWCN deal flow and chair says, “As the [next] report is still in the gathering stages, it appears that we are looking at another great year for Utah. It’s no surprise that we are again at the top of many lists as one of the best places to do business.”

In 2020, we saw record-breaking M&A activity, including 11 transactions that were over $1 billion each says Josh Smith, EVP at Colliers. “Large acquisitions featuring Ancestry, Vivint Smart Home, Pluralsight, Vivint Solar, and 1-800 Contacts led the way.” We also saw significant venture capitalists funding early-stage growth companies along the Wasatch Front, including Podium, Route, and DiscGenics, says Smith.

According to Smith, the record-breaking M&A activity had minimal impact on real estate in 2020, mainly due to the impacts of Covid, combined with the majority of the acquired companies already commanding significant real estate positions.

New funding rounds, however, fueled several large real estate transactions in 2020 Smith says. For example Divvy’s new 150,000 square-foot building in Draper, Podium anchoring a second building for 100,000 additional square feet at their headquarters in Lehi, and Weave leasing 125,000 square feet for their new headquarters in Lehi.

Smith says that in recent years, funding events have become the catalyst for major real estate transactions. Early-stage companies that are venture-backed are often expected to deliver rapid growth, which requires significant headcount increases, ultimately triggering the need for additional real estate.

The nucleus of office absorption continues to be at the Point of the Mountain with Lehi and Draper anchoring activity for each county, Smith says. “Growth companies understand the benefit of locating in this area as it relates to recruiting and retaining quality employees in both Salt Lake and Utah County. In addition, the vast majority of new contemporary product with enhanced amenities and finishes continues to be developed in these markets.”

In the 1930s, infamous outlaw Willie Sutton was asked why he robbed banks. His response was, “Because that’s where the money is.” Since that time, the medical community has created a principle known as “Sutton’s Law” which states that when making a diagnosis, one should first rule out all common ailments before looking for uncommon conditions, says Josh Christensen, principal at Mercato Partners, Traverse Growth Fund.

“Now, venture capital is not bank robbery or medicine, but I do see a parallel. Venture capital is investing in Utah companies because ‘That’s where the money is’―it’s obvious,” says Christensen.

According to him, the reason we’re seeing such activity in Utah is the result of decades of prework. “Consider that the University of Utah and BYU have fostered several innovative technologies. A great deal of the pioneering graphics processing work and computer gaming came out of the University of Utah and the former premier word processor, WordPerfect, was founded in the shadows of the BYU campus.”

When discussing why Utah is such a great place for investments like these, Christensen says that “Out-of-state companies are looking for complementary organizations, technologies, capabilities, or some combination of all three.

“In our experience, when an international or national company seeks a strategic asset, they are more interested in the quality of the asset rather than the location. Because of Utah’s long, quiet, focused incubation of entrepreneurs and growth-stage companies, it comes as no surprise to us that Utah would see investment interest from all around the world.”

One of the things that investors mistakenly assume is that size or location are incontrovertible facts ―that success in one market translates readily into success in all markets,” says Christensen. “What we have found in our 11 years of investing is that building a growth stage company requires a unique set of skills and presents a unique set of challenges.”

Christensen says it’s a huge mistake to assume that two companies identical in all respects other than their location have the same path to success through the hypergrowth stage.
“Things are different if you’re growing a company in Santa Clara than if you’re growing a company in St. George. We understand this, and the way we manage this process is through our selection and identification process, and with our stage and geography-specific value-added practice.”

At the end of the day, Smith thinks Utah has an unrivaled entrepreneurial spirit. When you combine that spirit with a population base that is well educated, multi-lingual, hard-working, and willing to overcome adversity it creates the perfect environment for startups.

“Recent success stories have created tremendous attention and momentum making Utah a top target for investment and M&A activity,” says Smith. “We are currently seeing demand to invest in Utah like never seen before. With so much risk and uncertainty surrounding the coastal markets, smart money is looking elsewhere. Utah recently had five cities named in the top 10 best performing cities in America by the Milken Institute, boasting one of the highest job growth rates, and has the most diverse economy in the country according to the Hachman Index. These factors have made Utah a dynamic secondary market attracting major attention and investment.”

Utah companies are a hot investment was originally published in the 2021 issue of The Advisor