Middle Market Back En Vogue

In today's Merger Mogul (Association for Corporate Growth):

Middle Market Back En Vogue
The middle market is back in the “in crowd.” For the past three years the mid-sized buyout firms have been an easy target for critics that wallow in the platitude of too much money chasing too few deals. There are even investment strategies, such as the barbell theory, based on avoiding the “ugliness” seen in the middle market. And by now every weathered soul that targets companies around $500 million in size knows that JAMBOG derisively stands for “just another mid market buyout group.”

But rather than wonder when mid-market investors became PE’s version of Willy Loman, a more timely question to ponder is when exactly Willy Loman became so damn cool? The answer to that, apparently, is last week.

That’s when news broke that both Texas Pacific Group and Silver Lake Partners each had designs on launching new mid-market vehicles, bringing long-overdue attention to what might be the largest overlooked segment in finance.
It’s easy for the mainstream press and others to neglect what’s been going on in the middle market. Most mid-sized firms aren’t buying gigantic brands like Dunkin’ Donuts or Hertz. They’re not necessarily attracting the Lou Gerstners or Jack Welches of the world to sit on their boards. But what shouldn’t be missed is the very reason that TPG and Silver Lake are moving in – there’s money to be made.

Proof can be found by perusing the return data of the reporting public pensions. A quick look at some of the investments that fell between 2001 and 2003, for example, reveals Thomas H. Lee’s fifth fund is being currently being topped by a Thoma Cressey vehicle launched the same year; KKR’s famed Millennium Fund, while generating a robust 40% IRR, is still running short of Advent’s less heralded 2002-vintage fourth fund; and the 38.7% IRR being generated by Apollo’s 2001 vehicle stands shy of TowerBrook Investors I! , raised that same year.

It’s time to call Maury Povich for a booking. The red-headed stepchild has turned out to be legitimate, and her hair has developed into a lovely auburn with age.

Ken MacFadyen