What’s the primary reason behind the failure of most of the lower middle market companies? According to the Small Business Administration, the failure of these enterprises is not due to lack of sales or poor management. Nor is the ubiquitous “bad economy.” Although these reasons certainly made the list, they are not the primary drivers of the failure. So the question is: what is the real reason?
The primary reason behind the failure of most of the companies possessing yearly revenue of $15-$150 million in the lower middle market is their under- or improper capitalization. Although fast growing, many companies lack the ability and capital required to appropriately fund their growth.
A great number of these companies do have access to capital, but it is ordinarily in the form of simple bank debt. Many firm owners utilize this source of capital to grow their companies to very successful levels. However, they oftentimes fail to take advantage of recapitalization opportunities. In other words, owners of these firms need to shore up their debt-laden capital base with equity.
Unfortunately for owners of lower middle market companies, access to equity capital has generally been fairly limited, making bank debt financing and its associated over-leveraging seem like the only capital solution. Forest Hills Capital provides lower middle market firms access to equity capital so that these companies can effectively recapitalize and acquire the proper fuel to fund their growth.
If this situation describes your firm, please contact us.