• Axial's software makes online matches in mid-market mergers
  • `I was sourcing deals from my boxers,' says one broker

If you’re into hooking up, you’ve probably tried Tinder. If you’re a small company, and you want to hook up with another company, Axial Networks Inc. 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 message a company’s broker or executive directly.

Peter Lehrman, Axial’s founder and chief executive officer, is unapologetic about his firm’s role model. “It’s Tinder,” he said. “It’s swipe right.”

A bunch of outfits have crowded into the computerized matchmaking service in recent years looking to bring more efficiency to this fragmented M&A market. Axial’s competitors include Intralinks Holdings Inc.’s 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 $5 million and $100 million, a fraction of the average $5.3 billion transaction Goldman Sachs Group Inc. advises on, for instance.

Underwear Sourcing

With Axial, the plush offices and $1,000 dinners that are so typical of Wall Street dealmaking 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 in an interview.

And also unlike investment banks, Axial doesn’t take a cut of completed transactions. It makes its money off subscription fees, ranging from $15,000 to $90,000 per 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.

Broker Disruption

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.

Matching Investors

Lehrman got his start helping to build New York-based Gerson Lehrman Group Inc., a so-called expert network that uses computer software to connect investors to other professionals. Besides M&A, Axial also helps match investors and lenders with companies looking to raise capital, using similar algorithms. Axial itself has raised $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 $7.2 million in revenue last year, though it’s 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 skepticism -- much like online dating in its infancy.

Human Help

“Honestly, I came into the relationship not really knowing what the value-add would be,” said Chad Elms, who sold 60 percent of his company, Momentum Physical Therapy & Sports Rehab, for $7.2 million to Houston-based U.S. Physical Therapy Inc.

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 on telephone or email.

“I’d love to meet him one day,” Elms said.

For that, he may still need to rely on Tinder.