DealLawyers.com Blog

Last week, I blogged about how PE sponsors have been accumulating quite a bit of dry powder since the beginning of 2024, but that it’s been the big players that have reaped the largest windfall. Now, it looks like these large sponsors are turning to the middle market, which has long been the domain of smaller PE funds.  Here’s an excerpt from a recent MiddleMarket.com article:

A confluence of factors have made mid-sized deals particularly attractive for dealmakers of all sizes. Competition is heating up and it’s compelling all players to reassess their strategy. Here’s how it’s playing out.

“What we’re finding, and frankly what I’ve been surprised by having come from a much bigger fund, is we’re actually seeing quite a bit of competition at businesses that I wouldn’t have thought, from a size perspective, that billion-dollar-plus funds would be looking at,” says John Block, co-founder, CEO of Unity Partners, a Dallas-based mid-market PE firm.

Block defines companies with Ebitda from $20 million to $100 million as “classically middle market.” He’s watched this segment become more crowded in recent years. “We’re seeing quite a bit of competition where people are playing down market, even billion-dollar-plus funds in the five to 20 million Ebitda range, which has been surprising.”

Beau Thomas, managing partner at Agellus Capital sees a similar trend. “The processes for even smaller companies, as low as $10 million of Ebitda, remain very heated with larger funds coming down market. This is despite elevated interest rates, fundraising challenges, and the political backdrop,” he says. Agellus is a lower mid-market PE firm based in Clayton, Mo.

The article says that the decision of larger funds to target smaller companies has had a knock-on effect, resulting in traditional middle market players looking at smaller deals than they have in the past.

– John Jenkins