Healthcare-focused lower-middle-market shops are achieving successful exits and leveraging these wins to boost fundraising efforts.
Only 28 percent of North American buyout funds distributed capital to LPs in Q1 2025, a steep drop from over 50 percent in the same period two years ago, according to Preqin.
But among lower middle-market managers, especially those operating in niche verticals like healthcare services, there have been signs of life.
Mid-market and lower middle-market healthcare PE firms have consistently outperformed larger funds by focusing on niche segments and employing targeted operational strategies.
New York-based NMS Capital, for instance, has exited five companies for a combined $523 million over the last six months, helping it raise $550 million toward a $650 million target for its latest flagship fund to invest in lower middle-market healthcare and business services.
Firm co-founder Martin Chavez told the Chicago Teachers’ Pension Fund that Fund V is expected to close this summer and has a hard cap of $750 million.
Fund IV, with a 2020 vintage that closed on $570 million, is reporting an IRR of 28 percent after selling two of its 11 portfolio companies, returning half the capital committed to LPs, Chavez says.
Fund III, which closed on $450 million in 2017, has sold three of eight assets and realized partial exits on two others, returning all capital committed.
Chavez says “principally because of that track record,” NMS has rung up recent commitments from the Illinois Municipal Retirement Fund, Illinois Teachers’ Retirement System and a Mesirow fund of funds.
WindRose Health Investors is another lower-middle-market healthcare specialist racking up the exit amid a fundraising drive.
The New York firm recently announced three exits while raising Fund VII, targeting $1.8 billion.
WindRose Fund VII’s target is a 29 percent step up from its previous vehicle, which closed at $1.4 billion in 2021. Fund V closed on $705 million in 2019.
NMS, WindRose and most similarly situated firms pursue near identical strategies in targeting a highly fragmented and inefficient lower middle-market.
“It’s almost always a healthy, founder-owned company growing at a strong clip,” says NMS co-founder Kevin Jordan. “It’s typically under resources and virtually always has zero debt at the time we invest. There is typically no sales team.”
Jordan says NMS seeks to be the first institutional investor and adds value by improving operations and expanding through acquisitions. NMS usually sells its companies to bigger PE firms.
In April, it sold U.S. Urology Partners to General Atlantic a month after offloading revenue management company DCM Services to Aldaron Partners and True Wind Capital. Last year, it sold autism behavior company CSD to Goldman Sachs, clinical trail company Flourish Research to Genstar Capital and DirectMed Imaging to Frazier Healthcare Partners.
Jordan and Chavez spun NMS out of Goldman Sachs (NYSE: GS) in 2010, raising $185 million for its first fund.
Lower middle-market healthcare M&A is gaining momentum thanks to regulatory and tech tailwinds, with standout potential in home-based care, primary care, pharmacy and consumer health.
