A Beginner's Guide to Lower Middle Market Private Equity

Why the LMM is Attractive to Private Equity

The LMM is attractive to Private Equity for several key reasons:

• Valuations are lower than the middle market - creating more attractive entry multiples
• Deal flow is less competitive - fewer firms competing for the same assets
• Lower hanging fruits and easier operational improvements - This can include professionalizing management, as well as upgrading technology or improving sales channels and cash flow conversion
• Abundant add-on deals - numerous opportunities for bolt-on acquisitions

LMM funds focus on Buy-and-Build or Roll-up strategies where they can acquire adjacent peers and consolidate a fragmented industry.

In the LMM, there is a succession planning element where a lot of sellers are generational or family-owned businesses who are looking to exit and receive cash.

Returns can be higher than traditional private equity models given the room for improvement, as well as the potential to turn the company into a middle-market company that demands a higher multiple.

Risks in the Lower Middle Market

But the smaller size brings more challenges and risks even more pronounced - there is limited liquidity, limited room for error, higher execution risk, more concentration among customers and suppliers, and more room for operational errors.

Why Careers in LMM Private Equity are Different

Lower middle market private equity careers offer a unique path that differs significantly from traditional megafund roles:

• More hands-on experience - These career paths can be a lot more hands on than some roles at larger firms
• Smaller deal teams - More responsibility is given to you earlier in your career
• Direct management interaction - You're closer to management teams and may have a board observer seat very early
• Earlier carry participation - You can receive carried interest at the Associate level, while other professionals at larger funds receive it at the Senior Associate or Vice President level
• Geographic flexibility - There are LMM Private Equity roles in every major US city and even in some of the smaller US cities, giving you a lot of optionality to move across different cities, all while making significantly more than the average compensation in a lower cost of living area

However, compensation is going to be lower than megafunds, but you might get more equity or carried interest compensation as a result.

This is where compensation data transparency becomes critical - especially since compensation can vary so significantly and so much of it can be tied into carried interest.

The Gap in LMM PE Transparency - This is where Buyside Hub comes in

If you're recruiting into LMM Private Equity, you need hard data on base, bonus, carry, and progression within this industry.

That's exactly why we built BuysideHub.com - we're a platform dedicated to compensation transparency and culture insights across private equity, private credit, hedge funds, and asset managers.

For professionals exploring LMM opportunities, Buyside Hub lets you:

• Benchmark associate, senior associate VP, and principal compensation at lower middle market private equity firms
• Understand carry structures and compare carried interest amounts and vesting by fund size and by role - whether it's Associate to Principal to Managing Director
• Compare culture and lifestyle across funds - get a real sense of how many hours a LMM PE investor works

The LMM may not pay megafund salaries, but for many, the trade-off of responsibility, business building, cost of living advantages, and high carried interest amounts is worth it.

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