Increased Transactions for the Lower Middle Market

Private equity firms are targeting lower middle market companies according to an article in Crain’s Cleveland Business.   The number of transactions for small to mid-sized companies is up and expected to continue growing.

PitchBook data reveals that in 2012 deals in the lower middle market accounted for the largest share of all middle market private equity deals.  The number of deals rose 16%, to 496 completed transactions up from 429 in 2011. And deals have continued to increase during the first half of 2013. PitchBook reports that lower middle market deals grew to 45% of all middle market deals (up from 36% in 2011).

The reason for this influx of smaller transactions stem from larger deals receiving higher valuations, which are becoming too expensive for private equity firms, thus they have begun to move down in deal size.  Preqin, a data provider on private equity attributes the higher proportion of smaller deals to a “greatly reduced availability of credit required for larger leveraged buyout transactions.”

And while lower middle market deals are typically seen as more risky due to smaller companies having fewer resources and being less efficient, private equity firms are hoping to be rewarded for their risk by quickly improving the bottom line.

The conditions are ripe for sellers in the lower middle market, with the increased interest valuations should increase resulting in higher sales prices for businesses.

To read the full article, please visit Crain’s Cleveland Business.