Why is it a great time to exit an investment?
There are currently a lot of strategic buyers that are active in the marketplace. Because there were so many transactions done before the fiscal cliff in December 2012, there weren't a whole lot of deals available in the first half of 2013. If you had something good to sell, there were a lot of people who were actively looking at it. Deal flow was very slow in the first two quarters but it picked up in July. I think some of it was the hangover of the fiscal cliff and getting past that. But most of the funds I've spoken with have seen a significant uptick in both the volume and quality of deals. The number of deals in the fourth quarter of 2012 was not caused by a normal business cycle. Now that we know what taxes are going to look like over the next several years, people can get back to the normal course of business.
How available is debt for lower middle market companies?
Debt has been readily available for the lower middle market. A significant portion of that has been growth in the number of small business investment companies (SBICs). For those that are issuing debt, it has been a very competitive environment for the first half of the year. There was more capital coming online, but there was concern for price compression and a lot of debt funds had to make sure they stayed disciplined and avoid chasing bad deals because there were so few being done altogether. You don't want to underprice for the risk you're taking on. Fundraising has also gotten better. The fact that there will be north of 40 institutional investment funds at our National Summit for Middle Market Funds event this October is an example of that. Limited partners continue to see opportunities and good returns in the lower middle market. So while fundraising is still hard, it has become much easier.
What is the SBIA looking to change?
There are number of things we're looking to change. One is making private equity firms exempt from SEC registration. That's already moved through the House of Representatives' financial services committee. It was marked up this summer and we're looking to get a vote sometime this fall. Another is getting business development companies (BDCs), or publicly traded private equity firms, to lay out an agenda to modernize the regulatory regime they are operating under. We are working to get BDCs to jointly sign a letter calling for the SEC to use their existing authorities to make updates. We also helped raise leverage limits to $350 million from $225 million. That's past the Senate committee and has been introduced to the House. We realize private equity has a polarizing effect on people. I've had members of Congress tell me, "We don't like PE, but we like you guys." Even though we're lobbying for lower middle market private equity, we shatter that Wall Street stereotype where people think of complicated transactions and derivatives that produce well for a very few. When we explain the type of investing that we do, it is generally something people can relate to and support.