SALT LAKE CITY — Utah just had its biggest year ever for business transactions in the state, ringing up a whopping $25 billion in 2019.
That’s according to the just-released MountainWest Capital Network’s 2019 Deal Flow report. The annual effort, now in its 25th year, assembles deal-level data covering mergers and acquisitions, investments and public stock offerings for Utah-based companies.
And, a market expert suggests Utah’s growing tech sector and investment community is likely to have high resilience to — and quick recovery from — the current COVID-19-fueled economic crisis.
MountainWest Capital’s 2019 Deal Flow Chairman Mike Walsh said the record-level performance is evidence of Utah’s growing vitality when it comes to best places in the U.S. to start or grow a business.
“Utah is consistently rated as one of the top places to do business across many national publications, including Forbes and Inc. magazine,” Walsh said in a statement. “The increasing value of these transactions shows us that Utah is getting more attention than ever, which is a great indicator of future growth.”
Highlights from the 2019 report include a few megadeals that helped push the annual numbers well past the $14 billion in business transaction activity the previous year.
While news of the monster $8 billion acquisition of Provo-based customer experience innovator Qualtrics by European software giant SAP broke in late 2018, the deal itself closed in early 2019. Another 2019 marquee transaction, health savings account provider HealthEquity’s $2 billion acquisition of employee benefit firm WageWorks, helped make it a banner year for business deals, even as the total number of transactions dropped for the second year in a row, down to 483.
Software companies and consumer retail businesses continued to lead Utah’s business transactions, accounting for almost two-thirds of 2019 deal volume. But, deals involving health care-focused companies increased significantly over 2018 and the state saw a strong flow of venture capital and private equity money across many industries.
The report noted 2019 was the biggest year ever for public market transactions by Utah companies as measured by both volume and total deal value. Dollar values were also up for mergers and acquisitions and private funding, mirroring national trends.
A virtual event to mark the release of the 2019 report on Thursday featured veteran entrepreneur, venture capital investor and current principal at Pelion Venture Partners Jeff Kearl as a keynote presenter. Kearl, who runs Cottonwood Heights-based Pelion’s satellite operations in California, spoke about the particular resilience, and continued growth, of tech-focused investments and noted that there’s plenty of historic evidence to suggest that even amid the dire economic conditions brought on by COVID-19, there are plenty of reasons for founders and investors to stay optimistic.
Jeff Kearl launched multiple businesses, and invested in dozens of others, before joining Utah-based venture capital investors Pelion Venture Partners. Kearl is a partner overseeing the Cottonwood Heights-based firm’s California operations.
Pelion Venture Partners
Kearl said the 2019 Utah report mirrored ongoing changes in the venture investment community where average deal sizes have ballooned over the past 20 years, and the number of firms specializing in venture capital has also exploded.
What’s driving all the interest and new money? High-tech companies now rule the world when it comes to value with the top five tech companies in the S&P 500 Index boasting collective stock values in excess of the bottom 350 companies’ stock values, combined.
Kearl said investors who have developed the ability to identify the next big tech thing early stand to see returns that can reach stratospheric levels.
“A very small number of companies drive disproportionate value on investment return,” Kearl said.
And, he noted some examples of those great returns are even coming via investments made during economic trauma, including the last major downturn caused by the implosion of the mortgage-backed securities markets.
Companies founded in 2008-09, in the aftermath of the housing market collapse, include Uber, Pinterest, Airbnb, Slack and WhatsApp. Early investors in those companies — which included a $250,000 bet Kearl made on Uber in its infancy — saw multiples on their returns of 9,000, 3,600, 1,900, 760 and 470, respectively.
Kearl said not only have past recessionary periods been fertile ground for tech startups, but the sector as a whole has been particularly resilient to both major and minor economic fluctuations.
Data reflects tech business transaction volume has been up every year since 2006, Kearl said, and increased in 64 of the last 72 quarters.
Kearl said that while the number of deals has slowed amid pandemic conditions, he expects investors to continue actively looking for opportunities. And he noted some astute entrepreneurs will launch successful companies even as dire economic straits spell disaster for others.
“(As an investor) you have to continue to deploy capital in the downturns and I believe that will continue to be the case today,” Kearl said. “And ... it’s a great time to start a company. It’s easier to hire people, rents are coming down and companies become scrappier.”
Kearl said the historic average time from market peak to recovery following economic recessions has been 34 months, though the post-housing crisis was a 54-month cycle and the dot-com bust of the early 2000s saw a recovery cycle a bit longer than six years.
MountainWest Capital Network Executive Director Cheri Waldron said the nonprofit’s 25 years of assembling the Deal Flow report has reflected an incredible evolution of the state’s economy and the organization “looks forward to continuing to be a resource and supporter” of Utah’s business community.”