LMM Deal Digest: May 2023
2018 was a busy year for middle market private equity in the U.S. The middle market saw $427.9 billion in deal value across 2,971 deals, an increase of 14.8 percent and 15.1 percent respectively, according to Pitchbook. With so much activity in the middle market it’s no surprise that the lower middle market is garnering more attention these days as well. New funds are popping up every day. What follows is a look at funds that have recently been raised for investment specifically in the lower middle market.
Cotton Creek Capital has closed on Cotton Creek Capital Partners III, L.P., with $215 million in capital commitments. The fund’s limited partners include high-net-worth families and individuals, multi-family offices, endowments and foundations, and other institutional investors. Cotton Creek targets control investments in growth driven lower middle market businesses.
To date, the fund has made three platform investments. Based in Austin, Texas, Cotton Creek Capital is an operationally-focused private equity firm that focuses on investing in and growing lower middle market companies in manufacturing, value-added distribution, industrial, specialty chemical, building products, food and beverage and business services sectors. The firm targets businesses with EBITDA between $5 million and $15 million, investing between $10 million and $40 million in equity ranging from buyouts, recapitalizations, buy-and-builds to corporate divestitures.
Incline Equity Partners closed Incline Elevate Fund, L.P. with $314.5 million of total capital commitments. The fund, which is the fifth investment vehicle and first fund extension vehicle for Incline Equity Partners, surpassed its initial hard cap of $300 million.
Elevate will source and execute investments exclusively in the lower middle market. In May 2019, Elevate made its first investment in Wholesale Supplies Plus, a value-added distributor of raw materials, supplies and packaging used in the production of soap, lotion, cosmetics and candles as well as other personal care products by professional crafters.
Incline Equity Partners, headquartered in Pittsburgh, Pennsylvania, will invest in manufacturing, distribution and business services companies. Incline is generally seeking growing companies with enterprise values of $25 million to $300 million.
LBC Small Cap Management, L.P., an affiliate of LBC Credit Partners, closed on its first fund, LBC Small Cap SBIC, L.P., at $139 million. LBC Small Cap will focus on senior, unitranche, and mezzanine debt and equity investments from $4 million to $14 million to support strong management teams and the growth of lower middle market companies across the United States.
LBC Small Cap is focused on originating, executing and managing senior secured, unitranche, junior debt, structured equity and equity co-investments in U.S.-based lower middle market companies with EBITDA between $2 million and $5 million. The LBC Small Cap team looks to deploy between $4 million and $14 million per transaction to support funded sponsors, independent sponsors, and family-owned businesses across a broad array of industries.
MiddleGround Capital, a private equity firm that makes control investments in business-to-business industrial and specialty distribution companies in the North American lower middle market, just held a final close on Fund I, MiddleGround Capital I, L.P. with $459.5 million.
MiddleGround Capital was founded in May 2018 by John Stewart, Lauren Mulholland and Scot Duncan. Achean Capital Partners is the firm’s anchor investor and Credit Suisse served as the placement agent for the fund. The firm has already deployed more than $150 million of equity in three deals.
Silver Oak Services Partners, a lower-middle market private equity firm, closed on Silver Oak Services Partners Fund IV, L.P., with total commitments of $500 million. Fund IV received support from both existing and new investors including corporate pension plans, fund of funds, insurance companies, endowments and foundations, public pension funds and family offices. Forum Capital served as strategic advisor and placement agent to Silver Oak.
Founded in 2005, Silver Oak will continue to execute its investment strategy focused exclusively on control investments in targeted sectors of the business, healthcare, and consumer services industries. The firm is actively looking for new opportunities to invest in proven lower-middle market companies with $4million and $25 million of EBITDA.
Varsity Healthcare Partners, which focuses on healthcare services, held a final closing on Varsity Healthcare Partners III with a total of $417 million in commitments. VHP III will continue to execute the same lower middle-market strategy as prior funds, seeking to partner with founders, entrepreneurs and management teams to build healthcare services platform companies. The firm aims to commit equity investment ranging from $20 million to $60 million. UBS Securities served as the placement agent.
St. Louis-based WILsquare Capital, a lower-middle market private equity firm, has raised $190 million for its second private equity fund, exceeding its $150 million target within three months.
WILsquare Capital acquires and grows lower-middle market businesses in the Midwest and South, with an emphasis on business services, niche manufacturing, distribution and technology companies. Its current investments include Data & Contact Management Solutions of Minneapolis, a collection agency; Walcro of Bloomington, Minnesota, a building products distributor of flooring installation supplies to commercial and residential installers with 17 locations throughout the upper Midwest; and Quest Solutions of St. Johns, Michigan, a provider to insurance companies.