Ever since the recession cast a big freeze on big deals, investors have gravitated toward smaller transactions. First, they trolled the middle market, then they moved downstream to the lower middle market. As one indicator of how appealing the lower middle market is these days, consider that the Riverside Co., a consummate middle-market firm and winner of Mergers & Acquisitions' Mid-Market M&A Award for Private Equity Firm of the Year for 2012, just closed its biggest fund ever, dedicated to backing companies valued at $250 million and less.

The overall lull in M&A activity over the past five years has forced the more mainstream names "to fill the factory," says Matthew Carroll, a general partner at Boston-based private equity firm WestView Capital Partners. All the increased interest in the space begs some questions. What counts as lower middle market? How is it different from the middle market? What are some of the challenges? And what does it take to succeed?

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