AI, Scale, and Sponsors: The Mid-Year M&A Reset

In this episode of Solomon Connects, Solomon Partners Financial Institutions Partner Tannon Krumpelman and Technology Managing Director James Butcher join M&A Director Chris Moynihan for a mid-year M&A cross-sector outlook. They discuss the divergence between headline-making deal value and mid-market volumes, the evolving impact of AI on transaction dynamics, and the challenges in sponsor-driven activity amid financing constraints. The conversation also explores the themes shaping the second half, including scale-driven consolidation, defensive strategic moves, and a more opportunistic approach to capital deployment.

Transcript

Chris Moynihan (00:02):

Welcome to Solomon Connects. I’m Chris Moynihan, a director in the M&A group. Today, we’re doing a mid-year outlook, and I'm joined by Tannon Krumpelman, a partner in our financial institutions group, and James Butcher, an MD in our tech group. James, welcome back. And Tannon, welcome to the podcast for the first time. So, maybe to start, Tannon, it would be great to get your background as a first-time guest, and talk a little bit about yourself and the FIG group.

Tannon Krumpelman (00:29):

Thanks, Chris, and it’s great to be here. I’ve been advising financial services clients for over 27 years at this point, and it has been across the different subsectors in financial services, including specialty finance, banks, asset and wealth managers, payments, and all the financial technology that supports and integrates the sub-sectors. I’ve been at Solomon for a little over a year now. I’m really excited with what we’ve built so far, and where we’re taking our business. We’ve got about 20 bankers at this point, and have announced some very interesting transactions with a robust pipeline. We’re feeling great about the momentum of what we’ve built here at Solomon and how the teams come together.

Chris Moynihan (01:24):

James, you’re with us six months ago when we did our 2026 outlook. It’s great to have you back. Maybe talk a little bit about what the group has done since then. I understand you have a couple of transactions you recently announced and you’ve been seeing a lot of momentum.

James Butcher (01:38):

It’s good to be back, Chris. So, just to recap, I’m a managing director in the technology group. The technology group covers software, data analytics. I spend most of my time in the information services and events ecosystem. As you mentioned, we’ve been very active over the first half of the year. We announced a couple of transactions recently. One was the sale of a business, called Zonder, to CoStar for about $800 million in the real estate data space. And then, we also advised Onyx selling an events business, called Emerald, to Apollo, which was a $1.5 billion transaction. And, as a team, we’re very busy, as I mentioned, we have, I think, four deals that are now signed, not publicly announced. One is actually just in exclusivity, but close to being signed and much like Tannon, a very strong pipeline heading into the second half of the year.

Chris Moynihan (02:27):

So, maybe using that as a jumping-off point, your group certainly seems active. What about the broader technology industry as a whole? I think last time when we were talking in December, we started to see the beginnings of AI and how those going to impact the industry. But what has it been like so far this year, and where do you think the industry’s going to go broadly in the back half?

James Butcher (02:48):

If you look at the headline M&A stats in technology, and I think probably true of other sectors, it’s been a good start to the year, but I think that masks what’s going on because there’ve been some very large transactions. So, in the technology space—a lot of AI, the big well-known names—there’ve been some large transactions, fundraising, IPOs. In the mid-market, it has definitely been slower. Now, our team has been very busy, but I think that’s a function of our build out of the team and our maturity rather than necessarily representative of the market. I think smaller deals have been easier to do because they’re not so dependent on tapping into broadly syndicated financing markets and some of the private credit parts of the financing market. So, we are seeing it more challenging to get some of those larger deals done—and then, you have the AI overlay.

(03:33):

It is the diligence topic that everyone’s continues to be focused on. I probably said that last time we spoke, but I think theses are developing around AI winners versus AI losers. And so, two examples: one—actually, I touched on them with a couple of deals that we’ve been working on—live events, trade shows; a lot of activity there. There’ve been three large deals, one that we worked on in the sector. As you know, we’re working on another transaction at the moment, and the thesis there is really around it being an AI-proof industry—the power of live, the power of people wanting to be together and have that human connection, if anything is enhanced by AI. And then, the other is data. Truly proprietary data is going to be a net beneficiary from AI. So, those are two pockets where we continue to see growth in the activity levels.

(04:20):

Other areas of the industry across technology, where they’re more susceptible to AI, the transaction activity is definitely more muted.

Chris Moynihan (04:26):

Tannon, you mentioned your group is busy as well. Are you seeing similar themes in the M&A market in your sector, where a lot of big activity, less so in the middle market, or is it a different story altogether?

Tannon Krumpelman (04:39):

No, it’s very similar to what James described, where if you were to look at just the volume levels, it’s going very well. It looks like it’s gangbusters, but it has been concentrated in larger deals. If you were to look at the actual deal activity, the number of deals, that’s going to be down. I think for financial services, the drivers may be a little bit different. They’re not AI-specific. There’s a lot of deal activity that’s driven by a positive or supportive regulatory posture and wondering how long is that window going to be so favorable. That environmental factor, plus interest rates being stable, valuations being higher—really a supportive backdrop. And then, the key strategic rationale points haven’t actually changed: It’s all about scale. And then, we’re also seeing some activity that’s defensive in nature: whether it gets into digital assets or gets into financial technology capabilities to kind of defend a client’s existing moat.

Chris Moynihan (05:43):

When I sat down with Mark Cooper and got his take on his mid-year outlook, one of the key themes that he mentioned was sponsors. And he discussed how, over the last few years, he’s anticipated the return of sponsor activity; but sponsor activity continues to be not as frothy as we expected. And so, I’d like to get both of your takes as to whether you’re seeing the same theme in your sectors, and if that’s influencing the lower middle market or the lower middle market activity we’re seeing, or if it’s something else altogether.

James Butcher (06:13):

So, certainly in technology, I think it is very much a function of sponsors still sitting on the sidelines. Part of that is the AI risk that we’ve talked about. Part of that is around the mismatch in valuation expectations. And then, specific to sponsors, what we’ve also seen in technology is a challenging financing environment, particularly for larger deals. And that’s really, frankly, tainted the entire sector. Even some of the more defensive models that we’ve seen have struggled to get financing on attractive terms because they’re in that technology bucket, and there’s been a pullback from the sector from private credit, given some of the challenges that they’ve experienced there. So, I think that’s a technology-specific issue.

Tannon Krumpelman (06:52):

I would say that it feels like, for financial services-focused sponsors, it’s emerging. It’s a confluence of both a DPI—LPs looking for DPI—plus, new fundraising needing to be deployed. And so, we’re seeing the activity on both sides of that. Yes, there is a lot of pressure on valuations. There are winners and losers, in terms of those who doubled down right on the back of COVID, where valuations were at the peak. You see that holdover in sectors such as payments. But I feel like, based on conversations and activity levels, that that’s emerging, and we’ll see a fairly robust activity set from sponsors in financial services in the second half.

Chris Moynihan (07:39):

Tannon, picking up on something you said, when you’re talking about your outlook, you mentioned transactions where your clients are trying to achieve scale and also defensive transactions. And I’m curious where specifically you’re seeing that corporate activity within the sector. Are there particular subsectors where that’s emerging, or is that broadly across the entire sector as people contend with things like, what could potentially be a higher rate environment or different challenges specific to financial institutions?

Tannon Krumpelman (08:08):

You hit the nail on the head that it’s actually subsector focused, where banks, it continues to be the scale wins, plus a regulatory environment, that if that window closes and you haven’t gotten your deal done, who knows when the next window is going to be. I think in the global alternative asset management world, there’s been a lot of activity in the GP area for the largest global alts to have all of the capability sets, both in terms of asset origination as well as liabilities to put to work—and that means going into insurance and running those books or managing those books. So, each subsector has a different driver of what scale means, but it’s present in all of them.

Chris Moynihan (08:55):

James, you mentioned that a lot of the big deals have become more challenged to get done. Not to mention that you’ve done some quite big deals yourself over the last six months. Is that starting to improve as we get past the early Q1 valuation issues with some of these big public acquirers? Or, do you think there’ll continue to be challenges in the back half of the year, as these corporates just navigate uncertainty, and navigate the tech industry as a whole?

James Butcher (09:22):

I think, right now  is still challenging in sponsor land. I think primarily because of the financing environment. We are seeing more activity from strategic buyers, but we’re also seeing a little more pressure on some of those strategic buyers, just given what’s happened to their stock prices. Now, most of them experienced a decline in their stock back earlier this year when there was the Anthropic release. There was a pretty dramatic re-raising across most of the tech sector, but there’s always a little bit of a lag effect in the sector, where strategics think the stock’s going to tick back up and that allows them to be a little bit more aggressive around valuations. I think, as those share prices have stayed where they are, it’s put a little bit more pressure on management teams and boards to justify higher multiple deals. So, we are seeing a little bit of pressure there.

(10:05):

On a more, sort of, positive note, I think what we’re seeing on the sponsor side is a more nuanced view to business models, and particularly to AI risk. So, go back two or three months, I think a lot of the sponsors we were talking to were just pulling back altogether from investing in anything that had a sort of software element to the business. I think there’s a realization now that there are winners and losers within software, winners and losers within data, and it’s a bit more nuanced in terms of the approach. So, we feel a bit more optimistic about how sponsors are going to view opportunities as we head into the second half of the year.

Chris Moynihan (10:38):

A question for both of you. As you think about that second half, what’s your advice in the boardrooms and with the management teams of these strategic clients? Is it go on the offensive and try to find acquisitions to do, stay the course, or look to rationalize your portfolio, figure out ways to raise capital, et cetera, to navigate what’s coming up ahead?

Tannon Krumpelman (10:59):

I think it’s to be on the front foot. It is not to say that you need to do M&A or this is the only time for it, but it is to be in that position where you have optionality to really drive shareholder value, and it can take many forms. So, be on the front foot, be ready to be opportunistic to drive shareholder value.

James Butcher (11:18):

Yeah, I would agree with that. I think it’s a buyer’s market, and so if you have the financing and the strategic appetite, it’s a good time to be buying assets.

Chris Moynihan (11:26):

And maybe just to wrap, you both started by talking about a little bit of the evolution of your groups. Are there areas, subsectors, or focuses that you’re looking at as you go forward, where you think your group will continue to focus, that you want to highlight?

James Butcher (11:40):

So, in technology, the way we organize ourselves is by business model and by vertical. So, I think we’ve got strong capabilities across some of the things we’ve talked about today…information services, events. I think we’d like to build out more on the software side. And then there are specific verticals across those business models, where I think there are gaps we’d like to plug as well.

Chris Moynihan (11:59):

Tannon.

Tannon Krumpelman (12:00):

Sure. Similar to what James said, I think we’ve got the landscape, all the subsectors covered. Where we’re seeing the most activity and seeing drivers in the market pointing in this direction is this convergence theme. One that shows up with flashing lights is in the global alts, where they’re taking the different pools of capital, putting them all under one roof, and then having all of the different capabilities to generate assets against those liabilities. That’s one theme that we’re right in the middle of. I think another is in financial technology. As James also talked about in the tech team, there are winners and losers in financial technology, particularly what that means in an AI world. The last thing I would say is, from a sponsor-activity perspective, there continue to be favorites, which are wealth management, insurance broking, and certain areas of financial technology, such as asset administration.

(12:58):

We’re active in all of those areas, and I would opportunistically see us augmenting the team to support each one of those areas. James, I wanted to probe your comment on financing. Are you seeing a pullback from the banks or the alternative providers of credit? Because, in our world, it seems like—despite some of the news around private credit and the concern around software investment— direct lending is still big business, very active, highly competitive.But just was curious: what you’re seeing in that?

James Butcher (13:31):

Primarily for us, it’s been a pullback on the private lending side, specifically to tech. And that’s a function of tech and software, in particular, has been a big area for them to deploy capital over the past three to five years, I suppose. And there’s a concern about valuation, credit risk. And so, I think there’s been a pullback from that category that I don’t think—and it sounds like that’s validated by your experience—has been replicated in other sectors. I think the banking market, the sort of broadly syndicated market, is still there; but if you look at how most tech deals have been financed over the last three to five years, it has been tapping into that.

Tannon Krumpelman (14:03):

That’s not surprising at all because, interestingly, when you look at disclosure for managers now, they’re trying to show a percentage in software as small as possible.

James Butcher (14:14):

Right.

Tannon Krumpelman (14:14):

That would explain that.

Chris Moynihan (14:16):

And that’s a theme, I think, James, we were talking about earlier: that a lot of those funds that, prior to had a lot of software exposure, are exploring new subverticals that are tech-adjacent or tech-enabled, where they don’t have to describe it as software revenue or software businesses, but they are adjacent, and they can kind of understand those business models.

James Butcher (14:36):

I think that’s a great point. So, it applies to private credit, but it applies on the equity side as well. And sectors, like events, have been beneficiaries of that. We’ve seen traditional software investors looking at events businesses that, if you put in front of them 18 months ago, frankly, they probably would’ve laughed you out of the room. And now, they’re taking them seriously. We just saw Hellman and Friedman buy a business, called Hive, in the UK for $1.8 billion. Hellmann, going back 20 years, was an active participant in this sector, but then they moved very much into investing in software. And it’s interesting to see them going back and investing in some of these more traditional areas, such as events.

Chris Moynihan (15:10):

Tannon, James, thank you both for joining us today on our Salmon mid-year, cross-sector outlook. You both had great insights, and I really appreciate the conversation.

James Butcher and Tannon Krumpelman (15:20):

Terrific.

Thanks, Chris.

Chris Moynihan (15:22):

And to our listeners, thank you for tuning in. Be sure to check out solomonpartners.com for more M&A mid-year outlook content.