Private Equity and the Lower Middle-Market

Over the last 10 years, private equity groups (PEGs) have increased their presence in the lower middle-market sector.  With nearly $500 billion of capital available to invest, PEGs will be a significant growth force in the lower middle-market.

For business owners, one key benefit of this trend is the opportunity to sell all or a portion of their business to a private equity group for immediate cash.  If less than 100% of the company is sold, a partnership may be formed with the PEG, allowing the business owner access to additional financial capital and non-financial resources such as contacts and expertise.  Such a partnership may result in accelerated revenue growth rates, improved profit margins and an increase in the company's overall value.  Concurrently, the PEG may facilitate an entrepreneur's complete exit by building a strong management team, thus reducing owner dependency.

As a result of this private equity phenomenon, business owners face potential threats such as the consolidation of fragmented industries.  Furthermore, the strength of competitors may increase as local or regional companies leverage their private equity group resources to build a strong national presence.  This has occurred in numerous industries; office supply, retailers/manufacturers, defense contractors, ERP software, etc.