LMM Deal Digest: November 2023
A little over two years ago, the lower middle market was faced with the ultimate stress-test: could M&A withstand the total elimination of in-person interactions and still get deals done? In short, the answer was no.
While up-funnel interactions – email introductions, Zoom calls, virtual meetings – were able to quickly shift and even thrive throughout the pandemic, deals were simply not closing at the same pace. And while it wasn’t rocket science as to why, after dozens (probably hundreds) of conversations with buyers and sellers, our suspicions were confirmed: the overwhelming majority of buyers and sellers would not sign on the dotted line until they were able to shake hands and verify all of their virtual thoughts and feelings in person.
It is because of this sentiment that Axial eagerly dove back into in-person events as soon as we were able. We knew and heard our member’s desires to get back on the road and saw the opportunity to celebrate our members in a time that they yearned for a reason to celebrate. So on April 20th, Axial hosted a select group of “Closers” (members who recently closed a deal via the Axial platform) from across the country for a day of fun in the sun in Miami.
And while The Axial Closers’ Summit was designed and executed with one thing in mind – fun – we were awarded with the opportunity to catch up with our members in between exotic car racing, “hot laps” in drift cars, bourbon tasting, and drinks in our center-field suite at the Marlins/Cardinals game to learn what’s most important to lower middle market deal professionals in a post-pandemic world. Here are three key takeaways that we learned from our member’s at last month’s memorable event:
As we emerge from a very enlightening two-plus years, one thing continues to reverberate amongst our members: tech-enablement is an extremely important part of the transaction process, but the private equity world will never go fully autonomous.
“The video zoom calls were a forced way to get engaged from our home offices and they remain part of our go-forward strategy,” says Axial Closer Neil Johnson of Lawrence Evans & Co. “However the in-person handshake and personal conversations will not be replaced. These interactions become important in the deal process when difficult decisions and problems develop and a mutual solution by the teams are necessary.”
Axial Closer David Bernstein of RLS Advisors agrees. “There are times in every deal at which it is important that the two adversarial sides can understand the difference between posturing and reality, and decide on the credibility of the counterparty and what they are saying. That requires a level of mutual trust and understanding; you just can’t achieve that as well remotely.”
Being able to use technology to create efficiencies in the top and middle of the funnel (think: sourcing, tracking, organization) provides a helpful lift, then allowing more time for thoughtful interactions throughout the process, and as a deal nears closing.
“When entrepreneurs, founders and management teams sell companies to us,” says Craig Korte, Director of Business Development at Industrial Opportunity Partners (and an Axial Closer), “they are making decisions that represent the culmination of careers. Of years or decades of work. Those that set the path for dozens or hundreds of their employees. And in investing, we are entrusting our own and our investors’ money to companies and their leaders for years at a time. That’s pretty important stuff. Seems like it’s worth us all spending some time together before closing a deal!”
“There are countless benefits of in-person interaction from both investment banking and investment professionals’ perspective,” says Axial Closer Muhammad Azfar, Managing Partner of Auctus Capital Partners. “I’ve found that relationships curated through in-person interactions over a day or periodic events tend to be stickier than surface video meetings or calls. In my experience, those relationships build a sense of familiarity and comfort. They are particularly useful on multiple fronts of business development and deal-marketing perspectives – from getting insights on valuation multiples, preliminary reads, and pipeline discussions to talking through deal dynamics and investment opinions.”
And it’s not all about meeting deal professionals from the opposite side of the table; sometimes it can be just as valuable to meet firms who practice in the same space as you. Neil Johnson notes that bonding with fellow investment bankers was a valuable part of the Closers’ Summit for him. “Exchanging stories and best practices is extremely helpful to stay current on how to provide the best service to our clients,” he explained.
David Bernstein, also an investment banker, echoed that sentiment, saying that he valued time with all attendees equally. “Being with the people at the Closers’ Summit event, there are a number I already knew, but many I didn’t with whom I now have both a friendship and a mutual understanding of how we can help one another which would not have developed as quickly or as strongly if this was merely a virtual interaction.”
While many organizations opt for more predictable events and gatherings – think cocktails & networking in a hotel ballroom or a golf outing – Axial has always pushed to host out-of-the-box events that give attendees something to talk about. Providing (non-business) conversation starters helps to create deeper bonds and ultimately, deeper, more valuable relationships.
“The Axial Closers’ Summit was one of the most unique opportunities to spend time with successful M&A market participants with an outstanding agenda that allowed everyone to have fun while getting to know each other better,” said Nick Canderan, Axial Closer and Director of Business Development at CIVC Partners. Craig Korte also added that having the opportunity “to catch up in a relaxed, fun setting” was a welcome change from more typical day-to-day business development.
“I believe that thoughtfully curated, fun events such as the Axial Closers’ Summits provide outstanding networking and relationship-building opportunities that lead to deeper and more meaningful connections,” said Muhammad Azfar, adding that the relaxed atmosphere at Axial events has allowed him to create and strengthen many bonds over the years.
The resounding sentiment across the market matches that of Patrick Keefe’s, Axial Closer and Managing Director of Envest Partners: “The people and relationships are the most critical part of value creation in the lower middle market.”
Relationships may start virtually, but in order to really solidify a deep connection, in-person interaction remains an integral part of the process. “After 33 years in the M&A industry,” said David Bernstein, “I know there is no substitute for in person events, and the Closers’ Event really hammered that reality home for me.”
So what does that mean for the year ahead? We can’t put it any better than Neil Johnson. “Racing the deals and cars to the finish line in 2022.”