Utah companies remain strong targets for acquisitions, with a variety of factors working in the state’s favor.
Three of the past six years, the number of acquired Utah companies has been 100 or more, and the 2018 figure of 91 transactions followed a 102-deal 2017, according to statistics discussed last week at the ACG (Association for Corporate Growth) Utah Intermountain Growth Conference and Capital Connection.
“Utah is a very vibrant market,” said Geoffrey Loos, director of investment banking at D.A. Davidson & Co. and president of ACG Utah. “It’s generally in that 90-100-transaction range.”
During the past decade, the number of Utah companies acquired has ranged from 79 to 102 and the state has a five-year average of 95 transactions. The figures from 2009-10 are “not that much lower than it was last year or especially 2017, so growth investing is a great countercyclical investment thesis,” Loos said.
In North America and Europe, global mergers and acquisitions (M&A) has remained steady but the number of deals has declined a bit. The number of transactions was as low as 12,896 in 2009, reached a high of 26,887 in 2015 and slipped to 19,501 last year, although dollar volume has been relatively steady during the past four years.
“That is still a very good number, a very healthy market,” Loos said of the 19,501 number. “So, [there are] no real concerns from a volume standpoint.”
In North America, the most dominant activity location, there were 11,208 transactions in 2018, down from 14,452 in 2015. Middle-market M&A in the U.S. saw 4,971 transactions in 2018, slipping since 2015.
Members of a breakout panel at the event said Utah has several attributes fostering small-company growth and attractiveness for investors.
“It’s been a fantastic place to put money to work,” said LeGrand Lewis, managing director at Lehi-based Sorenson Capital. “Unfortunately, a lot of other people have discovered that over the last decade. Utah, I think, when I first started in this business, was a bit of a flyover state for investors and now it is a destination for investors.”
Sorenson has worked on 15-16 deals in Utah since it was founded in 2003. “It’s home field and we love to invest here,” he said.
“What makes Utah a great place to invest in? It’s a hotbed of entrepreneurial activity, there are very good educational institutions that produce a lot of talent, and the business climate here is fantastic,” he said. The state being consistently ranked in the top three among best states for business also “helps, a lot,” Lewis added.
Chad Heath, managing director at Endeavour Capital, which has four offices in the West, all outside Utah, cited other factors benefiting Utah.
“It’s consistent with any market that you’re looking for, but what Utah has particularly is it has a very consistent labor force, and it’s a labor force that is pretty dependable and doesn’t move out. There are more jobs coming to Utah. It’s known consistently as a top five place to live, a place to work and for business climate,” Heath said.
One element helping Utah is trouble in nearby states, he said. “We talk about how great this [state] is, but they’re getting so bad that we’re seeing portfolio companies actually moving out of the state of California, for example, just to find a better business climate.”
Endeavour also has discovered that Utah fares well compared to other places when it comes to recruiting strong management teams, he said.
“A lot of companies that we’ve found, over time, if you’re trying to recruit a high-quality management team to a small, small town, it’s a challenge. I think Salt Lake has a wonderful airport and schools — everything that’s there that has families that want to come and relocate here, which is a big boon for building quality business teams and management teams,” Heath said.
Bill Hunscher, partner at New York-based TZP Group, referenced Utah’s lower business costs, noting the effects of Uber and Lyft going public.
“The last thing San Francisco needs — which is actually going to be a benefit, I think, to Salt Lake and Denver and Vegas — is another thousand multimillionaires,” Hunscher said. “It’s just going to price that city — as wonderful as it is — out of business existence. I’m very bullish on Salt Lake.”