In today’s evolving investment landscape, private equity (PE) firms operating in the lower-middle market are rethinking how they create value and drive returns to lenders. The days of relying solely on financial engineering and multiple arbitrage are giving way to a more hands-on, operations-driven approach, supported by enabling technology. As market dynamics shift and transparency increases, value creation strategies must be sharper, more sophisticated and more sustainable.
This INSIGHT explores key trends driving value creation in lower-middle market private equity today—and how firms are adapting to deliver outsized returns in a more competitive environment.
Operational Excellence as the Primary Value Lever
Lower-middle market PE firms increasingly prioritize operational improvement over financial structuring. While debt remains a tool to enhance returns, the focus has shifted to growing EBITDA through tangible business improvements. This includes:
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- Streamlining back-office operations and financial processes
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- Deploying lean management techniques
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- Enhancing working capital efficiency
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- Improving supply chain resilience and procurement practices
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The goal is no longer just to “buy low and sell high,” but to actively shape and strengthen the underlying business, as seen in the increased emphasis by PE firms on revenue and margin improvement alongside enterprise performance management (EPM).
Technology Enablement Over Traditional “Digital Transformation”
Rather than broad, undefined digital transformations, middle market PE firms are embracing targeted technology enablement. The focus is on investing in systems that improve efficiency, reporting and decision-making. Key areas include:
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- ERP and CRM modernization
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- Automation of finance, HR and compliance processes
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- Advanced analytics for better customer and market insights
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Firms that equip portfolio companies (“portcos”) with the right technology not only boost EBITDA but also enhance scalability and attractiveness to future buyers.
Reliance on Value-Creation Partners
To orchestrate and execute the fundamental operational and technology improvements portfolio companies often need, many PE firms now have in-house operating partners or work with third-party specialists to design and implement value creation plans—in essence, bringing in “boots on the ground” in the form of seasoned operators who understand the nuances of the PE environment. From our work with PE clients, we’ve seen that placing skilled operators within portfolio companies is one of the most effective ways to fast-track transformation and drive measurable returns.
Strategic Repositioning for Exit Uplift
Beyond operational and technological upgrades, PE firms are increasingly repositioning companies within the market to unlock higher exit multiples. And they’re doing so purposely and patiently, as many PE firms are holding onto portcos longer than the typical three-to-five year period due to market conditions. With a longer ownership period, they’re focusing on getting their portcos in exit-ready condition, so they’re prepared to respond to opportunities.
This can involve:
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- Rebranding or evolving the business model
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- Entering new markets or verticals
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- Shifting to a recurring revenue model (e.g., subscription or managed service)
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By reframing how a business is perceived—especially by strategic acquirers—PE owners can upgrade the buyer pool and justify a premium valuation at exit.
Add-On Acquisitions and Platform Consolidation
The “buy-and-build” model continues to thrive, especially as standalone multiple arbitrage becomes less predictable. Through thoughtful add-on acquisitions, PE firms can:
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- Expand their geographic footprint
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- Broaden service offerings
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- Mitigate risk
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- Achieve economies of scale
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- Create a compelling platform for strategic buyers
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When executed well, consolidation allows firms to drive growth and exit at a higher multiple, despite increasing market transparency.
Disciplined Accounting and Financial Infrastructure
Strong financial controls and accounting processes have become essential enablers of value. In many lower-middle market businesses, these functions are underdeveloped—especially prior to PE ownership. Along with hiring or embedding specialists and leadership in the office of the CFO, leading firms are investing early in:
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- Building timely, accurate, and auditable reporting
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- Upgrading systems to support clean closes and faster insights
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- Establishing controls to support scalability and compliance
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- Focusing on pricing, modeling and profitability
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When strong processes and the right people are in place, accounting becomes a manageable, ongoing discipline rather than a year-end scramble.
Closing Operational Gaps
We partner with PE firms and their portfolio companies to navigate the shift toward value creation through operational excellence. From finance transformation and technology enablement to transaction advisory and compliance, we provide strategic and executional support across the deal lifecycle. We don’t just deliver ideas—we help implement change. And that’s the difference between potential value and realized value.
Get in touch if you’d like to discuss how we can help you accelerate value creation by closing the operational gaps that hinder growth.
About the Author
Partner, Private Equity Services
Matt is a seasoned finance and transaction executive known for his ability to synthesize strategy, operations and finance to lead private equity-backed businesses through complex situations. With more than 15 years as an advisor, operator and investor of middle market and private equity-backed companies, Matt excels at connecting strategic thinking with tactical execution.
He is the founder and former Managing Partner of Pencek Advisors (acquired by SolomonEdwards), where he led a national team delivering finance enablement and transaction advisory services for private equity sponsors and their portfolio companies across the business services, healthcare and technology sectors. Prior to that, he served as an operating executive for a high-growth portfolio company focused on tech-enabled women’s healthcare, where he guided the company through a capital raise and multiple add-on acquisitions. Previously, Matt spent several years leading private equity and IPO advisory practices at a national consulting firm.
