Quite often I focus on equity firms and/or strategics that have an industry focus. These companies specialize in, or are looking to acquire, middle-market companies that have synergistic acquisition by Monitor Capital Partners that allowed them to expand into a new end-market via the acquisition of a contract manufacturer in the OTC space.in certain industries that would be good matches for their existing portfolio companies. A few days ago for example, we looked at a
You may not be aware of this but some equity firms actually have a geographic focus. They typically are industry agnostic, meaning that they acquire companies in a wide range of industries, but the common denominator in their raised $133.5 million for its third fund. According to the press release, Palm Beach Capital “invests in lower middle-market companies located mainly in the state of Florida.”is that they are all located in a specific geographic vicinity. One example of this is the recent announcement by Palm Beach Capital that it has
The firm indicates that Fund III will follow the same proven investment strategy utilized in Palm Beach Capital’s prior two equity funds. It will generally invest between $3 million and $20 million in each portfolio company. As with its previous funds, the firm will continue to invest exclusively in small market companies, generally defined as businesses with revenues of $10 million to $100 million, enterprise values between $10 million and $100 million, and EBITDA between $3 million and $15 million. Palm Beach Capital also expects to invest the fund in a broad range of industries on both minority and majority ownership bases.
And Palm Beach Capital has been quite active. Since its inception, Palm Beach Capital has made investments in 32 companies and has approximately $325 million in total assets under management.
Interestingly, on their website, Palm Beach Capital indicates that they are both industry and geography agnostic stating, “Palm Beach Capital has no particular industry or geographic focus; but instead, we are an opportunistic, growth investor with a value perspective on selecting our portfolio partners.” However, if you look at their past acquisitions, and based on the press release regarding their latest fund, it is clear that their focus is largely on the Southeast and specifically on Florida.
The reason some equity funds that specialize in thehave a geographic focus is simple: In order to effectively manage smaller holdings, it is more efficient to be located in proximity to them, especially their headquarters.
Most private equity firms that specialize in acquiring companies in the lower middle market tend to take an active role in the management of their holdings. That is, they roll up their sleeves and partner with the management team of their portfolio companies to help them grow and expand. Firms that specialize in this niche recognize that middle-market companies often need managerial, financial, and expertise in order to help the company grow to the next level.
Having worked with entrepreneurs for years, firms like Palm Beach Capital look for middle-market companies that have potential but are underperforming usually due to a lack of capital and financial expertise. This is why partnering with a firm like Palm Beach Capital (and the dozens of other firms operating like them in this niche) is such a win-win opportunity for middle-market business owners.
Many entrepreneurs want to ensure that the dream they have about the potential for their company is kept alive when it’s acquired. Private equity firms that focus on this niche not only recognize this need but they often structure deals so that existing ownership retains an equity interest in the newly capitalized entity.
One final note: Palm Beach Capital was able to raise over $133 million for its third fund. This is significant because fundraising has slowed a bit over the past 12 months. However, most funds that specialize in the lower middle market have not had as much difficulty raising funds in contrast to their brethren that specialize in larger deals.
Investors are attracted to funds that specialize in this niche because of the great returns they typically receive. Instead of trying to hit a home run via a billion dollar deal, lower middle-market funds specialize in lots of line-drive singles, which in the long run are less risky and provide a greater return over the long term—a true win-win scenario for all parties.
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