Hi there. Welcome to our January review of The Lower Middle Market. We’re the only news source tracking lower middle market M&A. Our goal is to keep you up to date on what’s happening in the market by highlighting the latest news, transactions, and activity in less than 5 minutes.
We’ve been taking notes for this edition in our Karst notebooks. And let me tell you they are the BEST. And let me also tell you, NO, we didn’t get paid to say this. What makes them so great? Glad you asked. The paper is made of stone and is incredibly smooth to write on. They’re also waterproof, so if you spill your water or coffee on any pages, no worries! The notebooks are also more sustainable from a carbon footprint perspective if you’re into that sort of thing. The only downside is they’re slightly more (or much more) expensive than our second favorite notebook, the yellow-lined legal pad.
Moving on, here’s what we got for you today:
Secondaries are sizzling
2022 software M&A review
The pandemic boosted the case for PE
PE secondaries
With the Super Bowl kicking off a week from today, football is on the mind. But we aren’t talking about those secondaries. Private equity secondaries are a hot topic right now. This is on news that Blackstone raised a record-breaking $25 billion in its latest secondaries strategy funds, dedicated to providing LPs and GPs liquidity solutions on the secondary market.
But why?: At a high level, secondaries in private equity refer to a transaction in which an investor is buying an existing interest or asset from primary private equity fund investors. This can be in the form of a sale of funds interest or through a sale of direct portfolio investments. The former seems to be driving much of the latest activity. Secondary deal volume came in at $108 billion in 2022. This was an 18% decline from 2021 but was still the second highest ever. 52% of the deal volume was LP portfolios, representing a larger market share than GP-led deals for the first time since 2019.
Given the increasingly difficult exit environment, and the illiquidity nature of private equity investments, LPs will continue looking to liquidate on the secondary market. This allows GPs to retain control of the asset until the market environment turns more favorable. Don’t expect this to dissipate any time soon. In fact, Blackstone is betting that it won’t.
Software taking over the world
Software-focused M&A advisory firm, Software Equity Group, recently released its 2023 SaaS Annual Report. With over 30 years of sell-side M&A experience, the firm advises bootsrapped and financially backed entrepreneurs in selling their B2B software businesses. With a good vantage point on SaaS M&A, the firm recently announced it’s 7th consecutive record breaking year for deal performance.
Here are some notable highlights from the report:
SaaS M&A deal volume remains elevated, reaching 2,157 deals in 2022 and growing 21% over 2021
Median EV/Revenue multiple for SaaS deals jumped to 5.6x in 4Q22
Private equity accounted for 59.5% of transactions, a record for annual activity, and accounted for some of the highest multiples in 2022 - lots of dry powder on sidelines
Fundraising
Seaside Equity Partners raised $325 million for Fund II Link
Shoreline Equity Partners raised $450 million for Fund II Link
Kingswood Capital Management raised $620 million Fund II Link
Gemspring Capital announces its third buyout fund Link
Other stuff
The Pandemic Boosted the Case for PE Link
Winners of the inaugural Independent Sponsor awards Link
Search fund investor, WSC & Company, launches WSC Heritage to invest in middle-market businesses Link
Have a great end to your weekend! We’ll leave you with this Tweet..
