Technology and lifestyle changes are allowing deal professionals to set up shops in cities that are ripe for M&A and create new strategic relationships. This is leading to more dealflow, as one adviser tells us.
The grip large cities like New York and Los Angeles have had on middle-market deals is starting to loosen thanks in part to how technology is enabling seamless remote work, and a post-Covid mindset has employers allowing employees to set up shop far away from the home base.
Los Angeles-based Palm Tree, an M&A advisory firm, has expanded into new geographies such as Chicago, Detroit, and Dallas, and plans for Denver coming soon. As the firm’s clients — many private equity shops — have expanded into smaller cities across the US, Palm Tree has broadened its operations.
“When we went out to Detroit, that was really about a focus of building on operations closer to the East Coast,” says Stephen Rossi, a managing director and head of investment banking with Palm Tree. “We chose the Midwest for a variety of reasons. One was a lot of sponsor relationships that we have in the Midwest that we built some of those offices around. We also do a lot of work in the lower middle-market as well as the middle market. So where places like New York tend to be more focused on bulge bracket transactions, the Midwest tends to be more centered around the middle and lower middle-markets, and so it was an actual fit from that perspective.”
Rossi says that Dallas represents a huge market where the firm has strong relationships with existing clients. He notes that the funnel of activity that goes through Texas due to the size of its economy has resulted in lower and middle-market opportunities that were too good to pass on. Additionally, Rossi says the growing financial sponsor community in and around Denver is a driver for setting up a new shop in the Rockies.
Palm Tree’s strategy emulates the migration it is seeing by its private equity clients. Tax considerations, technology capabilities and post-Covid lifestyles are among the top drivers that Rossi attributes to emerging cities like Denver getting a growing sponsor population.
“I think that sort of remote work environment has allowed the mentality of sponsors to shift enough that they’re starting to branch out into other geographies where that kind of work-life balance might be a little more relevant than being really focused in L.A., Chicago, and New York,” he says.
Palm Tree works to source opportunities from its sponsor relationships and directly with transaction-eligible companies. As a result, these new geographies have opened new dealmaking doors for the firm.
“That kind of ripple effect has contributed a lot,” says Rossi. “When I first started with the firm in 2019, I think we were 48 people, right now we’re 120, through the pandemic. So that growth curve is a testament to the quality of work we do. It’s a testament to how our relationships pull us into other relationships, and that referral network expands, which is also why we’ve had to expand our footprint. And then if you’re talking to a founder-owned company, having people in the market where they are is always helpful.”
Contact Rossi at [email protected].
What smaller cities are you seeing on the horizon? Let me know at [email protected].
–Cole Lipsky
