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What's 🥵 What's 🥶 in LMM Private Equity

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What's 🥵 What's 🥶 in LMM Private Equity

Jul 25, 2023
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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:

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  • 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!

Thanks for reading The Lower Middle Market! Subscribe for free to receive new posts and support my work.

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