What to Look for in the Best Lower Middle Market Private Equity Firms

Despite a volatile economy, businesses can still succeed. Companies that have adapted and innovated are thriving in today’s private equity market. In 2021 alone, more than 4,000 businesses received capital injections from lower middle market private equity firms.  

To stay ahead of the competition, strategic lower middle market firms are getting on the shortlists of analysts engaging in lower middle market deal sourcing.  

Suppose you’re considering working with a PE firm. In that case, this guide will help you understand “What is middle market private equity?” and what to look for in the best lower middle market private equity firms. 

The Benefits of Working With Lower Middle Market PE Firms 

So, what is middle market private equity? 

A lower middle market private equity firm invests in companies that fall within the “lower middle market,” making between $5 million and $100 million in annual revenue. Upper middle market companies boast annual revenues between $100 million and $500 million. While mega-deals may get all the press, lower middle market deals made up 84% of the $788 billion private equity investments in the first three quarters of 2021 alone. 

Keep reading if you’re considering working with lower middle market private equity firms. This blog reviews some of the main benefits of partnering with the best lower middle market private equity firms on a private equity growth strategy. 

Propel Top-line and Bottom-line Growth 

A key focus for lower middle market PE firms is helping their portfolio companies increase revenue and profitability. This means they invest in initiatives that help the company hit these goals. 

Accurately Forecast and Model Future Earnings 

PE firms help businesses make sound decisions by enhancing their ability to accurately forecast and model future earnings. Forecasting is key for longevity and success.  

Train and Share Advanced Knowledge of Key Business Tools 

Many lower middle market PE firms have teams of operational experts that can help portfolio companies implement best practices and improve business processes, from accounting to CRM software. 

Add More Structure to Organizational Functions 

Lower middle market private equity firms often add more structure to their portfolio companies to improve governance and create a more professional environment. 

Inject Additional Capital to Boost Strategic Initiatives and Projects 

Lower middle market PE firms invest millions into their portfolio companies, providing much-needed capital for various initiatives and projects to grow the business and set it up for maximum returns on a potential future sale. 

With all of these benefits, lower middle market PE firms are attracting the fastest-growing companies. Working with a lower middle market private equity firm is worth considering if you need growth capital. But how do you know what to look for? What factors will ensure you get the right firm? That’s what we cover next.

Attributes to Look for in the Top Lower Middle Market Private Equity Firms 

So, what should you look for when researching the best lower middle market private equity firms? 

1. Places a Strong Emphasis on Collaboration 

Finding a private equity firm that values collaboration is crucial. After all, you’ll work closely with the firm’s team and rely on them for support. Look for a firm with a track record of success collaborating with portfolio companies rather than entering with a goal of management and organizational shake-ups. 

2. Focuses on Value Creation 

Private equity firms that create the most value for their portfolio companies usually have a strong focus on operational improvements. Try to find a firm with proven success in the private equity market and a willingness to scale while staying true to your organization’s core. 

3. Understands Your Industry 

Finding a lower middle market private equity firm that deeply understands your industry is critical. They can better provide valuable insights and guidance if they’re knowledgeable about your industry. Look for firms that have invested in companies similar to yours or exclusively invest in your niche. 

4. Remains Available and Supportive

You should prioritize partnering with a lower middle market private equity firm that can help improve operations where needed. Look for a firm that’s more than financially invested—one that rolls up its sleeves when your company needs resources or strategic advice. 

5. Keeps the Future in Mind 

Last but not least, try to find a lower middle market PE firm that has a growth perspective. They should focus on growing and building sustainable businesses, not just flipping companies for a quick profit (unless your business is looking for a quick exit, of course). Look for a firm with a history of creating value in its investments. 

Take your time and do your research to find a lower middle market private equity firm that meets these criteria. It will ultimately result in positioning your company for long-term growth and success. 

The Best PE Firms Use udu for Lower Middle Market Deal Sourcing 

At udu, our AI-driven platform helps the best lower middle market private equity firms with deal origination, taking an always-on approach to sourcing acquisition opportunities. By continuously scanning web-connected data sources, udu creates a proprietary deal flow that uncovers the best, most qualified companies.

Simply input your parameters, and udu will do the rest. Quickly create a shortlist of the best private equity opportunities that match your investment criteria without the limitations of traditional deal sourcing methods. 

Schedule a demo with udu to learn how udu can help lower middle market PE firms source better deals faster.