The pandemic continues to create tenser economic times, with many small and medium-sized enterprises struggling to stay afloat. The middle market companies tend to be more susceptible to downturns as they have less diversified product lines and markets. To compensate for the dwindling sales and stay afloat, the executives in these firms turn to new capital injections.
While most firms kickstart their search for the “perfect” buyer, the immediate, larger competitive brand across the street comes to mind. However, your middle market company may generate a better return by approaching more targets. One group of buyers that is often overlooked are the lower middle market private equity firms.
The prevailing view for most executives is that private equity (PE) firms only focus on mega deals in specific, more attractive industries. However, a growing number of these investors are now focusing on the lower and core middle market sectors, offering business owners with ready-to-buy firms a lifeline.
Why You Should Be Excited as a Middle Market Business Owner
As a middle-market private equity firm, our definition of a lower middle market is a set of all companies with revenue between $5 million to $50 million. There are about 200,000 middle market firms in the U.S., most of them being privately owned or closely held. Here are several reasons why you should consider lower middle market private firms as the ideal buyer.
1. The Lower Middle Market Is Enjoying More Investor Interest
Most executives relate to private equity firms based in NYC from the headlines of large buyouts, totaling over $1 billion. However, there are more firms within the small and lower middle market class than companies with over $500 million revenue streams. According to the Small Business Administration, the lower middle market (LMM) comprises of early 125,000 U.S. companies, compared to the 30,000 firms that make over $50 million.
As such, there is increased competition within the market as private equity firms scramble over the LMM companies. With the growing attention from buyers, there hasn’t been a more ideal time to exit with the highest possible return than now.
2. A “Direct Investment” To Your Operations
Most business owners fear that private equity firms will tear down their years of hard work. Competitor acquisition often focuses on the selling of assets, divisions, or subsidiaries over time. However, most middle market private equity firms operate on a different model, through buyouts of related additional acquisitions. The PE firm will sometimes combine approximately five to 10 companies with a new structure, management experience, marketing muscle, and sales and operational improvements. The model enables further growth in revenue and profits.
3. Favorable Returns
According to the American Investment Council, private equity firms invest in companies perceived to have growth potential, working with them to expand and turn around the business. The exit strategy for most being a larger buyout or taking it public. Fitting their criteria for a business with potential can provide you an upper hand in the negotiation table.
A middle market private equity firm provides an excellent opportunity for business owners who want an exit. If you are searching for a lower middle market private equity firm in NYC, reach out to Praesidian Capital. We have invested over $800 million in lower middle market companies for nearly two decades, and are actively seeking new acquisitions.