River Associates recently acquired Dollamur, a maker of surfaces for martial arts studios, gyms and other sports facilities. The Chattanooga, Tenn.-based shop has closed 118 similarly priced lower middle-market deals, exited 95 and raised eight funds in 34 years. Mark Jones sits down with us to discuss resisting the temptation of seeking larger, high-profile deals.
While many private equity firms have shifted their focus to bigger deals, River Associates has remained committed to the lower middle-market.
“The natural inclination is to move upmarket,” Jones says. “We avoided that and stuck to our knitting. It’s worked for us, so why change our approach?”
Founded in 1989, River Associates is a generalist in the business-to-business space, shopping for companies with $15 million to $100 million in revenue and $3 million to $12 million in Ebitda.
The firm’s buy-and-build philosophy emphasizes close collaboration with the leadership teams of its portfolio companies, rather than pursuing aggressive cost-cutting or rapid growth strategies.
Jones says that close collaboration is often lost in the larger deals, which cuts against River Associates’ philosophy of encouraging founder-owners or executives to re-invest in the target companies.
“The bigger deals are much more transactional and less relationship-based,” Jones says. All of which has kept LPs reinvesting in a tough fundraising climate, he adds.
River Associates closed its eighth fund last year, raising an oversubscribed $345 million. River Associates’ seventh fund raised $285 million in 2017. The firm launched in 1989 with a $5 million fund, raised mostly from friends and family.
“Our investors, know exactly what they are going to get with us,” Jones says. “We have been consistent in our strategy. We have followed a buy-and-build thesis for a long time.”
It’s a strategy a few other PE firms have followed with sub-$500 million funds closed recently to pursue lower middle-market deals, including Latticework Capital Management, GEF Capital Partners and Falfurrias Capital Partners and
Some have gone even smaller, targeting small businesses.
The Small Business Administration estimates there are 33 million small businesses in the United States, by far the largest market sector in the country. The American Investment Council says 62 percent of those small businesses have some form of private equity investment, leaving over 12 million small businesses without institutional capital.
Add-ons have been the most common acquisition for River Associates since the start of 2023. In March, its portfolio company The Rubber Group purchased Silicone Rubber Right Products and Team Products, and in December, it acquired Cooper Products as it beefed up its rubber manufacturing operations. River Associates bought The Rubber Group in 2022.
In April 2023, River Associates purchased I&I Sling and Slingmax to add to its rope and sling maker Yale Cordage, which it bought in 2020.
Dollamur, the firm’s latest acquisition, is the quintessential acquisition for River Associates and its buy-and-build, B2B strategy, Jones says.
“It’s a stable business. It’s not cyclical,” Jones says. “There’s a replacement element with these things. And this company is one of the better known brands.”
The thesis with the Dollamur acquisition is to find other sports-related businesses to add on.
“There is good chemistry with the management team,” Jones says.
Jones worked at Birmingham, Ala.-based Southtrust Bank for seven years after graduating from Vanderbilt University before joining River Associates in 1995. He joined the firm after it had raised its $15 million second fund and before it raised its third fund of $44 million.
He says private equity has exploded in that time. The number of funds has now reached into the thousands and the competition for acquisitions has increased across all market sizes.
“There is less room for error,” he says.
Contact Jones at [email protected].
