On the Road Again — Business Travel in the Lower Middle Market 

As you may have heard: travel is finally making a comeback.

However, given the limited guidance and precedent around this specific topic, many firms have been forced to create their own protocols and guidelines for what constitutes necessary travel. While some have concluded that only mission critical, deal-related trips are allowed for the time being (as opposed to business development and relationship building), one thing seems to be consistent: everyone is being extremely intentional with their travel decisions and are proceeding with caution as they get back on the road.

Using survey data from a recent virtual Axial conference, along with interviews from half a dozen Axial members, we’ve compiled some of the thoughts and practices that our members are deploying to safely get back on the road.

(Unofficial) Rules and Regulations

CIVC Partners, a private equity firm based in Chicago, has mandated that all business travel be approved at the partner level. “We are only traveling for what I would call ‘deal critical’ purposes,” says Nick Canderan, Director of Business Development at CIVC Partners. “Personally, I’d like to see us get through this second spike in cases before traveling for relationship building purposes.” 

This seems to be a fairly common theme throughout the industry, where folks are dipping their toe in the water before opening the travel floodgates. “Our firmwide view is deal-specific and deal-related. We aren’t really planning any marketing trips, as of yet.” agreed Phil Kain, Managing Partner at Rush Street Capital. 

However, there are others who have begun planning more extensive itineraries for the coming weeks and months. For example, Pierre Villere, Managing Partner at investment bank Allen-Villere Partners, and recent virtual roundtable participant has built out a fairly travel-heavy schedule for the remainder of the summer. “Over the course of the next thirty days, I have some pretty extensive business travel scheduled to many parts of the United States; some connected to transactions… and then another portion of that is what I would call a marketing trip,” he told us, quickly followed by: “Of course, I’m being careful. I wear a mask the whole time I’m travelling unless I get into a socially-distanced conference room with someone.”

How will the Reintroduction of Travel Impact M&A?

One of the major roadblocks to  getting deals done over the past four months has, without a doubt, been the inability to meet with management teams face to face. As Kain puts it: “capital providers are still used to the traditional way of doing business.”

While an in-person is still necessary for most before a transaction can close, the past four months have prompted much of the diligence process to go virtual, which means that many processes should be coming to the end of the road soon. As those deals near the finish line, there should only be a handshake (or elbow bump) needed to cross it. 

“The reintroduction of travel is going to boost M&A activity for sure,” says Canderan. “From mid-March to mid-June we were grounded, but still pursuing select deals… Now that we broke the ice, I think the countdown starts for the first substantial wave of deals closing in the market.”

This optimistic sentiment is shared by other deal professionals as we enter the second half of the year. And this pertains not only to equity, but to the debt providers — who many associate with a traditional boots-on-the-ground mentality — as well.

Marissa Mann Andrews, Vice President at Saratoga Investment Corp is keeping a prudent, but positive, outlook on the remainder of the year. “We are open to traveling for a management meeting related to a deal, however I think it will depend on the person and the distance… It seems like both equity and debt groups are interested in deploying capital, and I think we are moving towards a more active market.” 

While the market has been quick to write off debt providers’ ability to close deals digitally, it seems that over the past quarter, lenders like Saratoga have begun adapting to the new normal. “We have closed three new platforms since the end of March,” says Andrews. “One of those three we were able to meet with the management team before the shutdown. However, for the other two, we participated in virtual management meetings.” 

In-Person Events and Business Development

Axial’s virtual event programming is here to stay, even after in-person events resume. How much longer before those in-person events start up again?

We polled attendees from our virtual Concord conference last month (Axial Concord on June 25th). While 50% of the survey respondents had resumed travel, more than 70% said they would not be comfortable attending an in person event in late August. Of the remaining 30% who would consider it, two-thirds would only attend if it was within driving distance. 

“My feeling is that all in-person networking events, including conferences, are going to be cancelled or go virtual through the end of the year,” says Andrews. Neil Johnson, Managing Director of Lawrence Evans & Co. largely agrees and says that the firm does not intend to do any marketing- or event-related travel from the remainder of the year. “We’re looking out to January for the annual JP Morgan Conference; I think that is an indicator of how 2021 may look,” he says. Though, “at this time, we may take a pass and watch from our home offices.”