The US mid-market witnessed a 23 percent increase in the combined value of deals with disclosed transaction values in 2010, as the army of funds in this category continued to build back up its momentum from crisis-period lulls.

More than $21 billion changed hands over the course of the year for buyouts valued at less than $500 million, representing an increase on the $16.2 billion figure in 2009, according to Dealogic. The number of deals completed, however, fell roughly 24 percent, from 311 to 237, with average deal sizes growing.

The stats are being tracked closely by limited partners, many of whom have been making concerted efforts post-financial crisis to lessen exposure to the large buyout segment in favour of the mid-market, which they perceive to be more operationally focused and less reliant on leverage.

For example, the California Public Employees’ Retirement System, one of the world’s leading limited partners, has been increasingly targeting “mid-market restructuring and even growth opportunities”, Joncarlo Mark, a senior portfolio managers in the pension’s alternative programme, said at a recent investment board meeting.

CalPERS is not alone. Roughly two-thirds of limited partners believe the best area for general partner investment in the next two years will be buyouts of less than $1 billion in North America and Europe, according to Coller Capital’s most recent survey of limited partner appetites as published in its Global Private Equity Barometer.

“I would say mid-market buyouts is right up there in terms of where LPs want to focus their dollars, although it’s easier said than done to execute successfully,” says Susan Long McAndrews, head of the US primary investment team for fund of funds group Pantheon. “I think one of the challenges of the mid-market is there are so many groups [and] there are so many different strategies.”

Indeed, the sheer number of North American middle market private equity firms (there is no definitive count, but LPs put the number “into the thousands”) has given rise to the unflattering JAMBO and JAMBOG acronyms – short for “just another mid-market buyout group” – used to characterise (and insult) average generalist funds.

This month, we take a look at a handful of groups that our sources say are decidedly not JAMBOs.

Roundtable Healthcare Partners

Chicago-based Roundtable Healthcare Partners distinguishes itself from the pack of healthcare-focused firms by avoiding investments in service providers such as managed-care companies, hospitals or nursing homes.

“There are more potential pitfalls for a healthcare service provider than you can imagine,” says Roundtable founding partner and co-chairman Lester Knight.

The firm, which raised $800 million in roughly five weeks last July – $600 million for its third equity fund and $200 million for its second subordinated debt fund – makes growth investments in businesses related to medical devices, products and disposables, specialty pharmaceuticals, medication delivery systems and specialty distribution.

Roundtable looks at roughly 500 deals per year, from which it invests in one or two new companies.

While many firms are looking to take advantage of the opportunities that arise from US healthcare reforms, Knight says the nature of the industry will make it challenging for investors without a specific focus on the sector.

“It’s a complex distribution strategy in the healthcare market with multiple layers of how you get product to market,” he says.

Roundtable put more money to work in 2010 than in any other year in its 10-year history, and has completed five exits generating five to nine times capital invested.

“Our performance has been pretty good,” Knight says, “so our investors are happy.”

Francisco Partners

TPG Capital spinout Francisco Partners invests only in the information technology industry, but with roughly a dozen sub-sectors and 6000 businesses in the US alone, there is no shortage of potential opportunities.

“What we’re trying to do is find areas in technology that we think will outgrow the technology market overall,” says co-founder and managing partner Dipanjan Deb. “Often they’re kind of mom and pop shops and can’t scale to a certain level, and you can basically utilise best practices to improve their operations.”

The firm invests in “inherently good companies” with potential for rapid growth, Deb says, rather than businesses suffering from financial distress.

“We don’t think of ourselves as a distressed player, but more of value optimisation or operation optimisation,” he says.

Francisco Partners targets companies with enterprise values between $50 million and $2 billion, investing in buyouts, growth equity, recapitalisations, restructurings and divisional divestitures. The firm closed its third fund on its $2 billion hard cap in March and looks to invest between $500 million and $750 million per year.

In addition to its San Francisco headquarters, Francisco Partners has an office in London and has raised approximately $7 billion since its founding in 2009.

Altamont Capital Partners

San Francisco-based Altamont Capital Partners was launched in 2010 by managing directors Jesse Rogers, Randall Eason and Keoni Schwartz, all of whom previously worked at San Francisco-based Golden Gate Capital.

The firm’s debut fund, which closed on $500 million in January, includes approximately a 10 percent commitment from the general partners, and will invest in companies in a variety of sectors.

“We’re looking for [businesses] that are not as easy for plain vanilla private equity firms to access and to do,” says Rogers, “things that are going to have a high ratio of hours involved to dollars invested.”

Prior to co-founding Altamont, Rogers was a co-founder and managing director of Golden Gate, where he worked for 10 years. He was previously the head of private equity at strategy consultant Bain & Company.

“Our plan is to build a firm that is focused on the lower half of the middle market,” he says. The 12-person team is comprised of four managing directors and eight investment professionals.

Altamont will target investments between $10 million and $75 million, primarily for control positions, focusing on either complicated businesses or complicated transactions that other firms will avoid.

“We’re not asset managers”, Rogers says. “We’re business builders.”


Since its founding in 1981, Trivest has never altered its strategy of investing in founder- and family-owned businesses in the lower mid-market.

The Miami-based firm prefers companies located in the Southwest US and has a unique deal sourcing model of finding companies through business brokers rather than participating in traditional investment bank auctions. In addition to paying a buy-side fee to brokers who introduce the firm to businesses in which they invest, as added incentive, Trivest also provides its business intermediaries with an S-Class Mercedes Benz.

“It caused a lot of buzz in the broker community, I can assure you,” says partner Chip Vandenberg.

The firm targets businesses with annual revenues between $25 million and $250 million, and closed its fourth fund on $325 million in July 2008, roughly the same size as its predecessor fund that closed on $316 million in 2001.

“We just don’t think our strategy necessarily works if we have a $700 million to $1 billion fund,” says partner Jamie Elias. “Our job is to go in there and try to turbo-charge the growth and make a business much more attractive to the larger private equity firms or strategic buyers,” he says.

Trivest has completed 170 transactions in its 30-year history, representing $4.6 billion in value.

Shamrock Capital Advisors

Los Angeles-based Shamrock Capital Advisors was founded in 1978 as the Disney family investment company and invests exclusively in the media, entertainment and communications sectors.

“Our sectors are constantly changing, which creates opportunities for us to invest in emerging trends,” says Shamrock managing director Steve Royer. “With the change, you tend to be able to find pockets where you can find excess growth.”

The firm targets lower mid-market businesses in North America with EBITDA of up to $30 million, with the goal of using industry expertise to make operational improvements in all of its portfolio companies. Among its current portfolio is basketball franchise the Harlem Globetrotters and cinema advertising company Screenvision.

“We don’t invest in companies if we don’t think that we can bring something to the table other than just capital,” Royer says.

Shamrock Capital Growth Funds I and II closed on $170 million and $311 million respectively and the firm is currently raising a third fund, according to documents filed with the Securities and Exchange Commission. Fund III is understood to be targeting $350 million with a $400 million hard cap, according to market sources.

“We’re growing, but we’re growing within ourselves in a way that we think we’ll be able to continue to stay focused on that lower middle market,” Royer says.

Rockland Capital

In January, Houston, Texas-based energy investor Rockland Capital closed its debut institutional fund on $333 million after being in market for more than two years.

“Fundraising was a bit of an odyssey for us, just based on the timing,” says Rockland partner Shane Litts.

Prior to its first fund, the firm operated a “pledge fund”, investing on a deal-by-deal basis. Rockland’s first investment from its debut fund was for an interest in California’s La Paloma Generating Plant. The firm generally targets inefficient power plants that it believes can be operated more efficiently.

“We didn’t really market ourselves as a special situations fund, but the strategy certainly includes special situations within the power industry,” Litts says. “It’s instances where power plants are running in ways that you wouldn’t typically expect them to run, maybe because of the way that they were operationally configured originally or because of the way that their power contract or their fuel contracts incentivize them to run.”

The firm writes equity cheques of between $15 million and $70 million, but does not target power plants based on metrics such as annual revenues.

“It’s a management intensive business plan where we’re going in and working to re-contract parts of the plant or change the physical way that the plant operates,” Litts says.

Since its founding in 2003, Rockland has primarily acquired natural gas plants, but has also invested in coal, oil, solar and biomass.