Private Equity is making a strong comeback with total capital invested in 2010 up 2.5x since 2009, and Q1 2011 up 55% from the same quarter a year ago. The Lower Middle Market seems to be a driving force with continually growing funds, while reaching record deal volumes. The Business to Consumer sector is leading the way, increasing from 19% to 24% of total deal volume, with other sectors remaining relatively flat.

Deal volume within the Lower Middle Market reached its highest level within 7 years. As illustrated in red (above), the Lower Middle Market’s share of total Private Equity activity has been continually rising with 2011 levels reaching heights not attained since 2004.

Lower Middle Market Funds increases to 20% of total capital raised. Lower Middle Market PE funds still seeing increases in fundraising, possibly signifying an up-tick and more incremental activity within this market.

PE using less debt on deals below $1B. The chart above illustrates the debt usage trends within Private Equity deals since 2002, broken down by deal size. In 2010, Lower Middle Market deals were, on average, consummated with debt contributions near pre-credit crunch levels of 52%.

PE add-on deals accounting for larger % of total deals; Climbing for the 6th straight year. Private Equity is adopting the strategy of building on to an existing platform companies, as illustrated above by the increase in percentages of Add-on acquisitions.  SDR views this as favorable news for all companies in the Lower Middle Market.

PE fundraising slowly rising. The first quarter of 2011 looks promising with $25B new dollars being invested in Private Equity with an additional 30 funds closing. This comes after a disappointing Q4 2010 where only $10B was raised.

Business to Consumer businesses deal flow growing in Q1 2011. As illustrated above (red), business to consumer businesses seems to be leading deal volume growth, increasing from 19% of total volume share in the first quarter of 2010 to 24% share in the same quarter of 2011. This is true, while nearly all other sectors have remained flat or seen a slight depression of their volume shares.