3 Tips for Choosing the Right Lower Middle Market Private Equity Firm

Successful brands don’t achieve their goals on their own. Strategic partnerships and solid investment decisions are key to growing your business into a well-known international brand. Lower middle market private equity firms are an excellent choice for business executives who feel their organizations require additional capital injection.

Lower Middle Market Private Equity: The Investment Sweet Spot

The lower middle market is quickly gaining popularity among private equity firms. These are companies with annual revenues averaging between $5 million and $100 million. According to Forbes, there are approximately 350,000 such businesses nationwide. With increased value addition opportunities and favorable environments to create returns, the lower end of the middle market is an investor’s gold mine.

Lower middle market private equity firms carry out stringent due diligence on the companies in which they wish to invest. Sadly, most businesses do not reciprocate in evaluating the investor partners that they bring to the table. The PE firm you bring on will have a significant impact on your business operations moving forward.

Here are three smart tips to help you pick the right lower middle market private equity firms.

1. Understand What You Wish to Achieve

Acquisition by a middle market private equity firm is a huge step for your company. You may need to take control of the process by having a clear idea of what you need from your financial partner. Determine the size and type of investment. How much funding do you require?

You may need to think about the time it may take to achieve a successful exit and determine any exit plans that are in place. You may be looking for a single round of investment in year one or two to provide a smooth path for a follow-up investment down the line. Factor in the ideal exit horizon to avoid rushing the process. A rapid exit may provide undue pressure for you to create the necessary liquidity for the lower middle market private equity firm.

2. Ask About the Management Board

Some private equity firms NYC businesses rely on will insist on a management shake-up within the company. You may need to inquire about the representative that your new partner will appoint to the board. Do they seem like someone that you can work with effectively?

Look for patterns in their prior investments. Does the individual tend to flip on and off the boards of directors? You need a partner that will provide a good rapport with your management. Determine the specific value they bring and the compensation they will receive.

3. Follow Up On References Provided

You may also need to talk with other businesses that can speak to the type of partnership they had with the private equity firm. These conversations will be invaluable in helping you sort out the different lower middle market private equity firms. It is advisable to schedule a physical meeting. Inquire the period that they have been with the investor. Find out if the PE firm is a hands-on or hand-off investor. You can learn a lot from the reference’s personal experiences.

Private equity can easily transform your business operations. As the lower middle market private equity firms conduct due diligence on your company, it is also advisable to look into their business model. Researching the PE investors allows you to land the right partner for your business.