Case for Lower Middle Market Buyouts - Constitution Capital PartnersConstitution Capital Partners

Strong Historical Returns: The historical returns generated in lower middle market buyout funds have generated stronger returns than other segments of private equity. (Source: Venture Economics, a unit of Thomson Financial)
Larger Opportunity Set: Middle-market buyouts target 38,700 public and private companies with revenues between $50 million and $500 million versus Mega Funds targeting 5,300 companies with revenues of $500 million or more. The middle market is a more fragmented market for buyout investing. (Source: US Census Bureau)
Lower Purchase Price Multiples: Purchase price multiples for buyouts with enterprise value of $500 million or less were on average 16% less than the companies with enterprise values greater than $500 million. Constitution Capital believes the lower purchase price multiples enhances a small to mid-cap buyout fund’s ability to complete buyout opportunities at relatively attractive valuations. (Source: Standard and Poor’s)
Decreased Likelihood of Losses: Companies involved in lower middle market buyouts have relatively lower leverage multiples than larger buyouts. These lower leverage multiples lead to a lower likelihood of hitting covenants during a downturn. (Source: Standard and Poor’s)
Responsiveness to Operational Improvements: Operational improvements have more impact on the types of firms in lower middle market buyouts, which are often founder-owned or family-owned enterprises that may benefit from operational and strategic guidance of private equity fund managers.
Potential for Multiple Expansion: For investments with successful operational improvements, the exit returns should benefit from multiple expansion with a higher exit multiple relative to the entry multiple.