Two trends Pelham S2K Managers LLC partner Venita Fields says she’s noticed in the lower middle market over the last 20 years: More larger private equity funds are dipping into the space, and more entrepreneurs are business savvy.

“Some of the companies we see are much more sophisticated; they’re well run; they have practices and systems in place,” Fields says. “The great thing about working in the lower end of the middle market is that there are quite a few professional entrepreneurs out there who’ve really done a great job managing their businesses, and they just need capital to grow. And that’s what we like to do."

With added competition from the larger funds, “it means that we really rely on relationships more than ever,” she says. “At the end of the day, you have to bring more to the table than money. Hopefully you bring experience.”

Fields and two of her partners at Smith Whiley & Co. formed Pelham S2K with a fourth partner in 2015. At Smith Whiley, one of her notable deals was a $7.5 million minority stake in Aquion Water Treatment Products LLC, maker of residential water and air treatment systems, in 2004. Smith Whiley’s investment created an innovative financing arm for Aquion vendors to help homeowners finance the treatment systems. The PE firm exited the investment in 2006.

Another deal of note at Smith Whiley was helping a private equity group buy Midwest Dental, a dental management practice in Wisconsin that bought up sole proprietorships from dentists in small markets, providing the dentists with liquidity from their businesses and centralized administration for increased cash flow. The company grew to 40 practices, including some start-up practices, from 25.

“These deals will never make the Wall Street Journal, but they’re emblematic of what goes on in the lower end of the middle market,” she says, where “it’s surprising how many ways entrepreneurs find to make money.”

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