This month, Utah Business partnered with Dentons Durham Jones Pinegar to host a roundtable event featuring Utah’s M&A leaders. Moderated by Rachelle Morris of Crestone Capital, they discussed the state’s M&A landscape, the ways Utah companies are attracting diverse talent, and outlooks on the exciting growth ahead. Here are a few highlights from the event.
What has the M&A environment been like in Utah over the last year, and how does it compare to national trends?
Mark Erickson | Partner | Tanner LLC
It’s definitely been the busiest year we’ve ever had in the M&A field. One of the big shifts we’ve seen is, historically, we did most of our work for the buyer or the investor—we were doing buy-side work. That has shifted, and there’s significantly more work being done on the sell-side now, where the sellers are engaging firms to do work to help them get ready and be prepared to go to market.
Regan Guth | Executive VP | Diversified Insurance
We spend a lot of time working with growth companies, and so a lot of transaction-related issues hit risk management and insurance. A lot of our growth companies’ clients are either raising capital, buying companies, or selling. Historically, Utah has been a seller’s economy. Companies start here, grow, then they sell and exit. You have a lot of buyers that come in from out of state. That shifted quite a bit starting in maybe mid 2019, and we saw more companies being inquisitive here. They’re growing here, they’re staying here, and they’re now starting to bolt onto their existing organizations.
David Topham | Founding Partner | Tower Arch Capital
I would say that the Utah economy is very strong, but a lot of the M&A trends were driven by national tax issues. A lot of what we’re seeing right now in the busyness of the M&A markets was driven by decisions that were made back at the beginning of the year, post-election, where people had rational expectations that tax policy was going to change. That drives a lot of conversations and a lot of activity that’s really culminating right now. And I think that’s national, not just Utah.
N. Todd Leishman | M&A and Corporate Law Attorney | Dentons Durham Jones Pinegar
Our national-based firm—which has 44 offices around the country—is experiencing, in every market, unprecedented growth and deal volume. So I don’t think that we’re unique about what’s happening here, but I do think things are a little bit more of a fever pitch here, particularly around the technology community. I will also say that we used to be a more sell-side shop here, and we’re about a 50/50 split right now of buy-side and sell-side. I think the technology community has got a lot of access to capital right now, and they are buying a lot of companies. Some of our larger deals in the last year were technology companies doing state loans.
Mark Erickson | Partner | Tanner LLC
E-commerce is another area that’s really exploded. You’ve got companies acquiring smaller e-commerce companies and combining them together to create a larger group—we’ve seen a lot of transactions in that space. The other area that’s kind of interesting to me is a shift back to the old-school—like HVAC, windows, and construction-type stuff. We’ve seen some groups that are acquiring several of those types of companies and putting them together to create a larger group as well. Tech didn’t surprise me at all because the market is so vibrant here in Utah, but that more traditional construction-type business was a little surprising to see.
Brendan Sullivan | Managing Director Tax, Transaction Advisory Services | BDO
I think that’s one of the more overlooked industries—optometry and some other doctor-run offices, and the amalgamation of all those across states. There’s been a couple big turns on some companies put together that way. And I think people are using it and applying it across other types of industries where you generally have to have some sort of a doctor or a professional.
Clair Rood | Senior Managing Director | CBIZ MHM, LLC
We’re a national firm, and we’re seeing across all of our offices that M&A is up, transactions are up, and business is great. And it’s not necessarily a particular industry. I think it’s driven by tax policy. There were expectations that capital gains rates were going to go up significantly. Right now they haven’t, but we know that’s the appetite of the current group in power. That’s likely to drive transactions, and then the cost of capital.
Tara Rosander | M&A Diligence & Integration | Brandless, Inc.
We have seen, like everyone, that valuations are high right now. At times, you’re maybe paying more for something that’s in line with the synergies that you’re acquiring for. We find that there are a lot of aggregators out there going out and buying up some of these brands that are in the e-commerce space from Amazon to DTC. It’s a bit of a frenzy right now, but it’s fun.
Serene Papenfuss | Principal | Kickstart
I think about the quote that says, when the tide rises, all ships do as well. I feel like we’re seeing that across the board. The whole pie is increasing with financial, as well as strategic, buyers across industries. In addition to e-commerce and other specific categories, we’re seeing FinTech roll-ups, marketplaces, and SaaS as well. It’s mirroring the broader investment landscape, where you’re seeing a virtuous cycle within the state with talent exits. It’s happening less at the seed stage, but we anticipate it’ll happen increasingly.
Regan Guth | Executive VP | Diversified Insurance
There’s been a huge transfer of wealth, for lack of better terms, from institutional capital to private—call them entrepreneurs, founders, whatever. And they’re not used to just holding that money. They’re used to putting that money to work, because that’s what they did with their own businesses. We’ve seen a true end where a lot of these individuals are now becoming angel investors and maybe funding pre-seed rounds. Do you see that helping build those companies that you’re now putting the seed money in? And has that expanded the cap table and made it a little more difficult maybe at the end of the day?
Serene Papenfuss | Principal | Kickstart
It could be, but generally I view it as a positive thing. I think the more we increase the pie itself and the virtuous cycle of people coming in and out with wealth, the more I view that as a good thing and funding business. Kickstart cannot invest in every single business. And so the more folks contributing to other folks’ cap tables too, that’s great. Let’s all improve the Utah ecosystem together.
But yeah, [the size of angel checks] are definitely getting bigger. You still see angels who want to put in 10-25K, which is typical and has been for a while. But just yesterday I was talking to a founder who said, “I have an angel who wants to put in 500, and another angel wants to put in 500.” Two angels together want to match the amount that Kickstart wants to put in. And that’s kind of crazy to see now. When the tide rises, all ships do. People need to put their money somewhere, and they want to put it in early stage companies.
Katelin Roberts | Executive Director | BioHive
There’s a report that just came out from the Kem C. Gardner Policy Institute—I think Davis County saw the most growth over the last year, and then Salt Lake County. And most of it came from out-of-state migration. And it seems like if you stay here, you’re going to opt-in to the way of life and the culture that’s here. It’s very much a build-on, collaborative culture and community—what we like to refer to as “the Utah way.” I think that’s why people are so successful in their businesses and how we go about doing things, but we are going to face challenges with that growth. I think that’s a lot of the conversations we’re having—how can we drive that growth in a way that is not an impediment to us continuing to grow?
What do you think are some potential impediments to our local economy over the coming years?
Jace Johnson | VP Sales Officer | KeyBank
I would say the biggest thing I’m concerned about is affordable housing. It’s great that we have all this money coming into the state, and it’s great that we have this very diverse economy, but where are people going to live? How are they going to afford it? How are the people who are going to college right now ever going to be able to afford a house? It’s a huge challenge and I think one of the concerns we have to have is that there are other great states and cities out there competing against us. Boise is on fire right now, same with Austin, Texas—we all know what’s going on there with technology. We can’t just get comfortable and cozy with what we’ve got—we’ve got to get innovative. We’ve got to really roll up our sleeves and figure out how to make things more affordable. Utah used to be the place you’d go to get a good house for a reasonable amount of money. Those days are gone. It’s great that we can bring employees on and pay them more, but you’re not still going to be able to keep up with the cost of inflation and housing.
David Topham | Founding Partner | Tower Arch Capital
I think the number one issue is finding talent and hiring people, and hiring people at a cost that makes sense for the way the business is set up. That does tie directly to housing and cost of living, which is what made Utah so attractive and why so many people are moving here. As for businesses, like small manufacturing businesses, as wages go very, very high, they start looking for other places. It’ll be a unique challenge because it is a beautiful place, and with remote work now, it’s much more attractive to people who before had to live in a tier one city and can now live in—what I would call—a much better city in terms of a recreation, accessibility, natural beauty, et cetera. It also becomes more expensive as more capital comes in. So it’s an interesting balance, and it is going to be somewhat self-defeating as more and more capital comes in and prices continue to go up.
Katelin Roberts | Executive Director | BioHive
I think we have a government that is very willing to engage with industry. I think we’re an incredibly lucky state on how willing our government officials are to listen to industry, to hear needs, and to help—I mean, write grants if that’s what you need, and listen to concerns or get you to the right office that can help you with your problems. I would really hope that as we sustain this growth, we focus on supporting our small businesses. We all interact with high-growth businesses, like businesses that are taking on capital and really trying to grow, but a lot of our bigger businesses rely on small businesses. I think that’s going to be the backbone of our economy, and it’s really going to help provide jobs for the majority of people that live in Utah.
What are some things that your firms—or your clients’ companies—have implemented that you feel is helping attract more diverse talent and building a pipeline of women and minority leadership within organizations?
Serene Papenfuss | Principal | Kickstart
I’ve talked to multiple founders at the series A or B level and asked, “Is there anything you wish you would’ve done differently from the founding?" And I’ve heard multiple people say, “I wish I had just brought on someone diverse on the founding team from the get-go. It would’ve been so much easier to hire, if I had just done that from the beginning, rather than waiting until now and promising people that I care about diversity or other initiatives."
We need more women founding companies. A theme of this whole conversation has been M&A activity in Utah, symptomatic of the broader economic landscape and all the positive things that are happening here. And as M&A occurs, or exciting liquidity events broadly occur, the people most typically likely to benefit from the activity are the people starting these companies, and it’s typically men, right? We’re all on the same team and we’re all contributing to economic development here in Utah, but if we want more women to be angel investing, to be creators of wealth themselves, they also need to be getting a good chunk of equity from the get-go when joining or starting companies.
Regan Guth | Executive VP | Diversified Insurance
You hear those founders say, “I wish I would’ve brought on somebody with a different mindset from me," right? We live in Utah and it is what it is—you look around the room and there are a lot of white guys, right? If you bring in someone that has different perspectives, a different background, you’re going to build a better company. You’re going to be a better, more attractive organization from an M&A perspective—or even an investing perspective. It might also put you on that path to be the acquirer and build something really great. Qualtrics, for example, did that very early on and look where they’re at now. That’s probably one of the largest companies in the state, one of the best success stories.
N. Todd Leishman | M&A and Corporate Law Attorney | Dentons Durham Jones Pinegar
I think the next step for us is to transition from being an innovation incubation play—where we’re essentially a sell-side, go to 10 or 20 million of revenue and then hurry and sell out—to become a place where Fortune 500 and Fortune 100 companies can set up shop and base. We need to create more business infrastructure—not just public transportation, but more talent infrastructure. The more high-paid talent we have, the more San Francisco-like we become. But on the other hand, what we really do need is labor—not just coders, but the entire business ecosystem.
What excites and energizes you about Utah’s business community as we look to the future?
N. Todd Leishman | M&A and Corporate Law Attorney | Dentons Durham Jones Pinegar
Our problem set is a very enviable one, if you compare it to communities around the country. I think that the future’s very bright, and I think there are a lot of creative, bright people and a lot of good momentum. That’s how I derive my sense of optimism each morning—there’s just going to be a lot to do here. I think that we’ve really come a long way convincing people we’re not a flyover state, and now the task becomes how to control the attention that’s being focused on us. In a sense, it’s a huge success story, and we just need to continue it the most thoughtful way.
David Topham | Founding Partner | Tower Arch Capital
I think it’s a great comment, Todd. Our biggest problems are not crime or drugs—not that we don’t have them—but rather that too many people want to come, too much money wants to come, too many companies want to come. I mean, that’s a great problem. I think that more companies from outside the state are looking to our educational institutions to recruit, which means we’re doing something right on the education side as well. So there’s a lot of positives here, and our problems are the types of problems that you want to have, not the types that you don’t.
Mark Erickson | Partner | Tanner LLC
I meet with a lot of students in recruiting and stuff like that, and a huge number of them say they want to own their own business. And we do live in a place where it’s not that hard to do. I think the government has made it fairly simple to start a business. You don’t have to jump through a lot of hoops and a bunch of red tape, there’s good capital, and we have a friendly banking environment. If you have a good idea and some good people, you can get something going.