The Myth of the Summer Slowdown

Summer may be a season of rest and relaxation, but many deal professionals aren’t taking a break.

Though some sources report deal volume in the middle market is at a historic low, anecdotal conversations with several Axial investment banking members suggest that not all wells are dry.

“Deal activity right now is as high as I can recall,” says Taylor Curtis, who is managing director at investment bank MHT Midspan, where he co-leads the firm’s healthcare industry practice. Curtis says that business has become increasingly cyclical, with many deals originating at the beginning of the year and closing in late Q3 or Q4. However, he also also anticipates kicking off 7-8 deals in June and July. “We have a few deals that should close here in the next several weeks, but the majority of our activity right now is focused on recently initiated processes and those that we anticipate launching over the next four to six weeks.”

Deal flow for SMEs and the lower middle market is particularly strong, suggests Robert Champoux, founder of R.C. Advisory Services, which typically works with companies below $2 million in EBITDA. “Our firm anticipates being very busy this summer closing three deals originated last year. We are actively working with four other companies and have three additional potential clients.” One factor driving deal flow in the lower middle market, says Champoux, is the increasing number of baby boomer retirees, who make up the majority of the firm’s clients this summer.

Sector Activity

Industry dynamics matter too. Robert Kinsella, President of Kinsella Group, Inc., an investment bank specializing in healthcare, also foresees strong deal flow for his firm. “Seasonality has a lot less to do with deal flow than activity within the space,” says Kinsella. “If there’s a lot of activity during the early part of the year, that stimulates potential sellers. For example, in the medical device space, there have been 3 recent deals where $20 million dollar business had valuations in the $100 million dollar range — that’s not an unusual valuation in our space, but it excites the rest of the market. That makes our phone ring.”

“Seasonality has a lot less to do with deal flow than activity within the space.”

MHT Midspan’s Curtis has also seen “a tremendous amount of activity” in healthcare from service companies and physician groups alike as the industry undergoes consolidation.

More generally, he says, “we have a debt market and a private equity market that is hungry for deals, and so at least the middle market remains an incredibly active place.”

Persistence vs. Pestering

All three bankers acknowledge that the summer months can require more perseverance on the part of deal professionals. Champoux says that his deal sourcing strategy doesn’t change, but “more patience and persistence is required. People may be traveling or have something else on their minds. Persistence is simply, politely, and astutely getting through without bugging them.”

Says Curtis, “it’s a fine line between being persistent and being a pest. You have to stay on top of people, and you have to make sure you’re setting deadlines with enough cushion to allow for vacation schedules. It’s rare that you see people disappear for three months, but the challenge is the inconsistency — not everybody takes off the same week or two week period. You have to stagger communications in a way that allows you to remain effective.”

Vacations can throw a wrench in schedules, agrees Champoux, though he makes a distinction between a lag in deal flow vs. time to close. “People tend to say the deal flow and everything else drops off in the summertime. I don’t think it really drops off. Principals may be distracted, but they’re still going to sell their company. If we start talking to someone in September, we’ll probably do the deal in nine months — but if we engage with them in May it may be a year.”

International Snags

Cross-border deals can become particularly complicated in the summer, says Kinsella, whose firm frequently engages with companies in Europe and Asia. In the U.S., “you have to be cognizant of the fact that people may be gone for a week or sometimes two.” Meanwhile, in Europe, labor laws and varying vacation months mean that deals might be put on hold for a month or more. In Germany, for example, labor laws strongly discourage out-of-hours working — meaning counterparts can’t be expected to return emails or make phone calls from the beach. “In those cases, it’s not worth wasting your time making the contact because you’re not going to be successful.”