What's 🥵 What's 🥶 in LMM Private Equity
Discover more from The Lower Middle Market
What's 🥵 What's 🥶 in LMM Private Equity
Welcome to the latest edition of The Lower Middle Market! We’re writing this during a heat wave in Los Angeles that makes us wish we were still on Hawaii time.
Here’s what we have for you today:
What’s hot/what’s not in lower and middle market private equity
Recent fundraising news
Why private equity is watching documentaries
What’s Hot
Continuation Funds - Continuation funds are a type of investment vehicle that allows private equity firms to keep investing in companies that they have already invested in. In light of more challenging market conditions, continuation funds offer private equity groups a way to extend their investment horizon, avoid selling companies at a discount, and release investors from commitments if they are interested in moving on. According to Middle Market Growth, they’re here to stay. Link
Carried Interest - Any changes to carried interest taxation seems to be off the table for the time being. Link
Software Industry M&A - Software Equity Group recently released their 2Q23 Quarterly SaaS Report, and software (SaaS, on-premise license models, and internet companies) M&A deal volume continues to rebound from the bottom of 4Q22. 2023 is expected to finish just ahead of 2021’s total, which would make it a fantastic year on a historical volume basis.
What’s Not
Enterprise Software Exits - Sales of PE-owned enterprise software companies got tangled up at the start of 2023, hitting the lowest deal level since Q2 2020. Link
Upper Middle Market Deals - EisnerAmper recently released a private equity investing outlook. The report mentioned that the lower middle market is the current area of the market with the most opportunities. Why? For one, this end of the market provides 10x the opportunities than the upper end. Although high inflation and rising interest rates are often cited as challenges in the M&A landscape, investors in the middle and lower ends of the market are not finding these challenges to be as limiting as those transacting at higher valuations. Link
Middle Market Firms Servicing Debt - PitchBook data shows at least 18 PE-backed companies filed for bankruptcy in the US during the first five months of 2023—the highest number since 2020. Link
Fundraising
Godspeed Closes Oversubscribed $250m Fund II Link
Kinzie Capital Closes First Institutional Fund at $150M in Commitments Link
Nexa Equity Closes Inaugural $180 Million Fund to Scale LMM Fintech and Software Companies Link
Capital Alignment Partners Completes 4th Fund for Healthcare, Manufacturing, and Light Industrial Services Companies Link
Hidden River Announces $245 Million Inaugural Fund Link
Stone-Goff Partners Closes Fund IV at $175 Million Link
North Branch Capital Raises 2nd Fund at $213 Million Link
Varsity Healthcare Partners Closes Fund IV at $700 Million Link
MPE Partners Closes Fund IV at $633 Million Link
Audax Private Equity Raises $774 Million for the Firm’s Debut Lower Middle Market Strategy Link
St. Cloud Capital Announces 3rd SBIC Fund Link
The Riverside Company Closes Value Fund I at Target of $350 Million Link
May River Capital Closes 3rd Fund to Focus on Industrial Companies Link
ASH Investment Partners Closes $150 Million Fund Targeting Digital Services Link
Other stuff
Why Private Equity is Watching Documentaries Link
Masters of Their Own Realities Link
Interview with the Founder of Atar Capital Link
Thanks for reading and have a great week!