It’s Tinder for mergers and acquisitions: swipe right if you want to buy this company
A number of firms have crowded into the computerised M&A matchmaking service in recent years
Axial says it has about 1,300 paying entities and 20,000 members. Photo: EPA
If you’re in to hooking up, you’ve probably tried Tinder. If you’re a small company, and you want to hook up with another company, Axial Networks can be your go-between.
The closely held software maker has created what’s essentially a matchmaking application for management, bankers and private-equity firms looking to buy or sell companies. Executives plug in their company’s financials and related essential information that only Axial sees. Then the firm uses an algorithm to match the company with prospective buyers. Like Tinder, users swipe right on their mobile phones, or click on a desktop, to “like” a company, allowing them to send a message to a company’s broker or executive directly.
Peter Lehrman, Axial’s founder and chief executive, is unapologetic about his firm’s role model. “It’s Tinder,” he said. “It’s swipe right.”
A number of firms have crowded into the computerised matchmaking service in recent years looking to bring more efficiency to a fragmented mergers and acquisitions market. Axial’s competitors include Intralinks’ DealNexus and MergersClub. They’re not a threat to the big Wall Street firms.
Almost all the 500 deals arranged through Axial’s platform this year were between US$5 million and US$100 million, a fraction of the average US$5.3 billion transaction Goldman Sachs advises on, for instance.
With Axial, the plush offices and US$1,000 dinners that are so typical of Wall Street deal-making aren’t required to pull off an acquisition. “I just spoke with a guy who told me, ‘I was sourcing deals from my boxers this morning’,” Lehrman said.
And also unlike investment banks, Axial doesn’t take a cut of completed transactions. It makes its money off subscription fees, ranging from US$15,000 to US$90,000 a year depending on the package of services provided. Axial said it has about 1,300 paying entities and 20,000 members. Most acquirers are private-equity firms that focus on buying small companies.
If anyone might be disrupted, it’s brokers who rely on their knowledge of small local businesses to get hired. They lack the wide network of potential acquirers that an online service can bring, said Steve Connor, director of business development at private-equity firm Hamilton Robinson Capital Partners, which recently completed a deal using the platform.
“Smaller brokers typically don’t run an efficient process,” he said. “Now, a single guy can put something out on Axial and get it in front of thousands of potential buyers.”
Connor, who’s based in Stamford, Connecticut, recalled how his firm did a deal where the broker was in Duluth, Georgia. “There was no way we’d ever be calling on a broker in Duluth,” he said.
The efficiency of the process cuts both ways. While a firm like Hamilton Robinson can easily scout businesses around the world, the competition for assets becomes fiercer.
“As a private equity firm, we like it and we don’t like it, because it makes the auction process a little more robust,” Connor said.
Besides M&A, Axial also helps match investors and lenders with companies looking to raise capital, using similar algorithms. Axial itself has raised US$22 million through its Series B round and is backed by investors including First Round Capital, Redpoint Ventures and Comcast Ventures. The company says it took in about US$7.2 million in revenue last year, but is not yet profitable.
Axial’s biggest competitor is still old fashioned off-line networking. The firm may have a difficult time convincing certain advisers and companies it’s worth the money, said Richard Upton, a general partner of venture capital firm Harbor Light Capital Partners.
“We focus on the people and the opportunity ahead of the company, elements that are difficult to capture through an online medium,” Upton said.
Axial also needs to cross a hurdle of general scepticism – much like online dating in its infancy.
“Honestly, I came into the relationship not really knowing what the value-add would be,” said Chad Elms, who sold 60 per cent of his company, Momentum Physical Therapy & Sports Rehab, for US$7.2 million to Houston-based US Physical Therapy.
As it happened, Axial’s biggest help to Elms wasn’t an algorithm but a human – the business development consultant assigned to him as part of the higher-priced professional package he purchased. This person walked him through the process of meeting brokers and other companies – always by telephone or email.
“I’d love to meet him one day,” Elms said.
For that, he may still need to rely on Tinder.
PUBLISHED : Sunday, 06 December, 2015, 10:00am
UPDATED : Sunday, 06 December, 2015, 10:00am
Bloomberg in New York