The lower middle market, an ecosystem of transactions valued up to $150 million, is an attractive landscape for deal opportunities. This unique space requires more catering to sellers to see deals through, but there are benefits. Intermediaries can utilize co-investment rights, and for buyers, debt financing is readily available. Yet, dealmakers agree that life on the lower end calls for thorough due diligence.
“It’s a bottomless pit of due diligence that needs to get done, and really half the time you can’t do enough,” says Private Capital Research founder Graeme Frazier, who spoke in a deal structuring panel at the AM&AA 2017 Winter Conference. Frazier says usually “the seller is not trying to pull the wool over your eyes.” Instead, business owners may simply not have the answers to due diligence queries posed by private equity sponsors, sometimes learning new things about their company. When scouting a company, dealmakers should conduct their own due diligence and quality of earnings analysis.