Everyone has an opinion about transacting in the Tri-State, and many outside of the greater New York metropolitan area will often contrast their own approach against the perceived caricatures of “sharp-elbowed” New York City, Wall Street types. What some may be surprised to discover is that the lower middle market activity emanating out of New York, New Jersey and Connecticut doesn’t fit the stereotypes most associated with this geography.
For one, lower middle market activity tends to be overshadowed by the billion-dollar deals that characterize M&A across the bulge bracket. Yet, the Tri-State — based on deals occurring across the Axial Network – is among the most fertile areas for lower middle market deal flow. This activity, however, isn’t typically documented by the home-town newspapers such as the New York Times or the Wall Street Journal, so it tends to fly under the radar.
Moreover, while it stands to reason that deal activity would revolve around financial services, healthcare and retail – three sectors often considered to be synonymous with the Tri-State market – the industrials, business services and technology sectors proved to be among the fastest growing areas fueling deal activity in the lower middle market.
In fact, the propensity of technology companies and business services providers also helped to prop up Pursuit Rates for target companies in New York and New Jersey, both of which saw demand for prospective deals either exceed or fall in line with the broader Pursuit Rate index. However, Connecticut’s average Pursuit Rate was weighed down by a disproportionate number of consumer companies.
Beyond the surprises that cut against the conventional wisdom, Axial data did confirm some long-held suspicions about the Tri-State market. For instance, no other state had a higher volume of transactions marketed by investment banks than New York. In fact, only three other states, when looking at activity across all seller types on the Axial platform, have a higher proportion of lower middle market dealflow that stems from investment banking sources. Alternatively, a few stops up the Metro-North line, Connecticut stands out as having the highest proportion of activity stemming from M&A Advisory firms, representing approximately 85% of all new targets emanating out of the Nutmeg State.
The latest report from Axial, “Get to Know Your LMM Region: A Tri-State Close Up,” also includes commentary from Carter Morse & Goodrich’s Ramsey W. Goodrich; Adam Breslawsky, of Oberon Securities; and MidCap Advisors’ John Poppe.
If there’s one common thread that the data reveals, it’s that at least in the lower middle market, dealmaking in the Tri-State area doesn’t fit into a neat box.