Illustration: Aïda Amer/Axios

Seventy-five dealmakers and small business owners yesterday crowded into a Zoom call to be greeted by their host, who had originally planned to make his remarks in front of a live audience in Dallas. The participants, many of whom represented private equity firms and family offices, then split off into a lengthy series of 1-on-1 meetings.

Why it matters: Large-market private equity is mostly sitting on the sidelines right now, outside of some opportunistic minority deals, but lower middle-market activity remains relatively vibrant.

Details: Yesterday's event was hosted by Axial, an online deal-sourcing and transaction platform that mostly focuses on businesses with less than $20 million in EBITDA.

  • CEO Peter Lehrman says that attendance was similar to what its Dallas events normally get when in-person, and that Axial's platform is still averaging more than 500 NDAs signed per week.
  • "Lower middle-market deals are driven as much, if not more, by personal reasons than by financial ones," he explains. "Death, disease, divorce, retirement. ... It's not always about maximizing for price, which is what usually catalyzes larger deals."
  • In terms of pricing, he says that buyers are "honoring multiples of EBITDA but transferring risk into deal structures." For example, there has been an increase in earn-out provisions that often are extending into 2021.

Caveat: Deal sourcing doesn't necessarily lead to dealmaking, particularly given lead times that average around six months.

The bottom line: The lower middle-markets are changing more in terms of how they're working on deals — moving into the virtual realm — than in terms of the number of deals they're working on.

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