Consider ultra-LMM
Consider ultra-LMM, firms that invest in companies around $2-5M in EBITDA. You pick up these unassuming companies at 4-6x, roll-em up to get to a company of $5M-$10M of EBITDA which opens you to a much broader range of buyers in the LMM-MM space who are more than happy to pay 8-10x
At that point you have achieved the ultimate buyout goal "MULTIPLE ARBITRAGE"
Sure you may not be in the AUM Hall of Fame, but you are now in the IRR HOF.
Also consider fundless sponsor structures. You get paid your carry on a deal by deal basis, no more waiting for carry to vest or risk of clawbacks.
You either hit a grand slam or strike out.
You and your buddy with a couple mill in the bank to invest, team up to look for golden nuggets and work your M&A magic to easily return 5x+ MOIC
Do a deal or two a year and you are set to make $Ms/year once you get the ball rolling
This would be very cool in 2014. Unfortunately, you aren't buying anything for 6x with $2m+ in EBITDA unless it is in deep value or mediocre co territory.
Not true at all, we're backing a IT-MSP roll up platform that has acquired 3 biz this year for an average 6x multiple. around $6-7mm EBITDA total and we've got 3 more in the pipeline around 6.5x.
My firm has the exact same strategy. Located in a LCOL area and make just under 200k while only working 40-50hrs/week (60-70 during live). Super lean team (2 Co-founders, 1 VP and 1 Aso)
I had offers to join multiple JAMMBOs (just another middle market buyout) with comp around 250-275k but after speaking with my firm's founder, he sold me on this value creation strategy that he built his career on. He does pretty well for himself, net worth ~$50MM so not MF partner money but definitely up there.
I am allowed to co-invest my bonus into our deals. 8 months after closing on my first deal at ~6x, we have generated a very healthy cash balance and our EBITDA has increased 50%, so potential returns are looking good. Once we close on a bolt-on acquisition or 2, we can easily flip the company for 10x.
We definitely underwrite the deals very conservatively and for the most part, we are never bidding against anyone as these processes are not competitive.
Sure it may not be as prestigious as MFs or even your typical MM PE firms, but I see it as more of a long-term career path rather than a 2 and out program. I do consider myself very lucky to have ended up at my current firm with a great WLB and culture.