Investors Continue to Look to Lower Middle Market

Michael Wursthorn of Dow Jones & Company recently reported that Riverside Co. concluded fund raising for its sixth flagship fund at $1.5 billion. While interesting, that is hardly news since raising and investing vast sums of money is what firms like Riverside do.

The interesting kernel in the article for my clients is buried deep two thirds of the way down the page. Wursthorn commented that “For Riverside, however, an increasing number of limited partners continue to look to the midmarket, especially the lower end of the spectrum, for outsized returns.”

Similarly, in KPMG’s recent survey of over 1,000 dealmakers, the vast majority of the participants expected their 2014 activity to be focused on the lower middle market.

This sentiment is what I am seeing from the firms that I talk to on a regular basis. Private Equity firms are sitting on record amounts of dry powder. (Reuters reports that firms are sitting on $1.074 trillion in unspent capital, surpassing the previous high set in 2008.) As more and more firms crowd into the investment space, many are looking into the lower middle market more and more for great opportunities.

2014 promises to be an excellent year for lower middle market M&A opportunities.

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