Lower Middle Market Private Equity is Paradise

You work at a generalist lower MM PE fund. Inbound books are down 40% YoY and your fund has yet to seriously chase a platform this year, which isn’t great for your long-term prospects or your resume.

Finally, your non-finance BD person shoots over a book for a $5mm EBITDA subscription model industrial services business. “Why the fuck is Harris Williams repping something this small?” you wonder, as you put another Zyn in.

You start reading the book and like the business, creating some initial thoughts for a call with the bankers. By the time you get it scheduled, you already have half a memo done and your Principal is giddy thinking about this Diamond in the rough.

You conduct an initial review at IC and there is interest learning more. On the call, the banker answers your questions and tells your team the process is broad and likely to be competitive. “Sure”, you think, “that’s what they always say”.

As you begin to model, you can easily buy into a path to underwrite a double-digit EBITDA multiple offer, which would be several turns higher than the highest multiple your firm has ever submitted on a deal. However, your Principal isn’t convinced and wants you to discount growth, factor in additional corporate infrastructure and reduce your leverage. “Okay”, you think, “I still may be able to get there”. So you keep monkeying with inputs until you are able to satisfy everyone and your Principal is supportive and excited.

Your team presents the opportunity at IC and is laughed out of the room. There’s no way anyone will pay that, the partners yell, despite not having worked on a new deal since 2007. After the quick dismissal, you expect to move on to another potential deal discussion.

But it gets worse. The partners want to submit something, as they like the business, just not at 12x+. To your dismay you begin working on revising the investment memo and getting an IOI together along with a semi-canned value creation deck that you know will make the HW team cringe.

After an all-nighter running downside scenarios to appease Charles III, the founding partner who hasn’t been in the office in four years, and putting together a bid package, your team is finally ready. Your finger shakes a but before you are finally able to hit send, firing off your 6x offer for a deal you know you have no chance to compete for.

Immediately there is a call from an unknown VA phone number. You let it go to voicemail and hope your principal gets the call. He walks in with a confused banker on speaker, asking if this is some type of joke.

As he reams into your firm and offer, your mind drifts away thinking about how much better you thought the buy side would be as you wonder if it's time to start applying to FP&A jobs at Sears.

Most Helpful

This situation is too accurate in the current environment. Also highlights some of the benefits of MM to UMM where we may do calls / industry research, data analysis and basic initial modeling at this stage but definitely not putting together huge memos or even going to IC to seek formal approval to submit an IOI. Specific verticals are almost structured like pods with the lead essentially running their own sleeve and given decision making autonomy (obviously within the context of a greater portfolio). So not exactly wasting time and resources just to be overruled


Why the hell are you going to IC for an IOI? Is that normal? What can you even put in the memo besides the cherry-picked info from the CIM? Seems like an absolute waste of time and resources


Lol everyone puts that in IOIs but that happens so little in practice. Like you said, I’d have to imagine this only really happens at LMM funds when everyone has visibility into what is actively being chased constantly. For us and other friends of mine at similar firms, we may briefly discuss at investment meetings to make the team aware but no materials are being presented.


Interned at a LMM shop years ago that was literally just like this lol. I checked their website and they have done like 2 deals since 2016 lmaooo. LMM sucks for juniors but great at MD/Partner level. 

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