Mid-Market, Up Market

Ted Virtue, CEO of MidOcean Partners, predicts a bonanza this year for PE firms looking to acquire sub-$500-million companies and to exit existing investments.

Virtue says he’s so optimistic because private equity players and strategic buyers are directing more capital to the midmarket as megafunds fall from favor. “Between financial buyers, corporations sitting with unprecedented amounts of liquidity on their balance sheets, and international buyers now coming into the midmarket space, I think 2013 is going to see a very active M&A market,” he says.

MidOcean is a mid-market private equity firm with $2.5 billion under management and investments in more than 75 companies across Europe and the United States. A classic midmarket buyout fund, the firm looks for high-growth companies in four industries: media, consumer, industrial services, and business services.

The firm is currently looking for companies it can buy for $50 million or less, typically small, family-run businesses that lack the internal resources they need to grow. Virtue says smaller companies are appealing because they present more opportunities to add value. “There are not as many high-quality management teams,” he says. “There are also inefficient capital and inefficient processes.”

Typically, the firm’s first move is to bring in seasoned managers with Fortune 500 experience who know how to scale a business. The firm’s buyout of weight-loss company Jenny Craig serves as a model.

Jenny Craig was a strong brand, but it was under-leveraged and underperforming, Virtue says. So MidOcean hired Rick Braddock, former president of Citicorp and former CEO of Priceline.com, to help the company achieve its potential.

It was an unmitigated success for MidOcean and its partner in the deal, ACI Capital. They acquired Jenny Craig for $116 million in 2002 and sold it to Nestle in 2006 for $600 million.

“If we’re able to grow these companies from a $300 million or $400 million business to a $700 million or $800 million business, there’s just a natural arbitrage that people will pay,” Virtue says. “You can get a large company with lots of cash that will want to buy that size.”

Ted Virtue, CEO of MidOcean Partners, predicts a bonanza this year for PE firms looking to acquire sub-$500-million companies and to exit existing investments

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