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If there’s a single practice sector that law firms should seek to grow in 2019, it’s deal work from middle-market private equity firms. Renowned for transforming lackluster companies into top performers ripe for a profitable spinoff or an IPO, private equity funds in the lower and middle market typically buy, build and sell. It’s a value-added investment approach pioneered in the early 1980s by Bain Capital Private Equity, among others. In the decades since, these funds’ managers have not only delivered impressive returns, they’ve also proven themselves shrewd and relentless M&A players. And that, of course, makes private equity funds naturally attractive for any law firm seeking to add depth in corporate and finance.

We spend a lot of time helping partners in New York expand their capacity to serve clients in the emerging technologies sector. For long-term growth, lawyers in these firms are solidifying their relationships with early-stage and growth companies. For more instant gratification, they’re expanding deeper into deal work for private equity funds, including those that target companies in the lower middle market. Multiple authorities, including PitchBook, which tracks private equity and venture capital investing, recorded a record-breaking volume of deals in 2018. Through the third quarter of 2018, deals in the vast middle market (ranging in value from $10 million to $1 billion dollars), totaled $311.7 billion, according to PitchBook, “almost double the $169 billion deal value of 2008.” Having amassed a staggering $3 trillion in uninvested capital, private equity firms are now in a fierce competition to snap up controlling stakes in companies they can reorganize and build to scale (often through add-on acquisitions) within a holding period of three to seven years.

While the top quartile of Am Law 100 firms might have a firm hold on deals from the biggest and oldest players (Kohlberg Kravis Roberts, The Blackstone Group and The Carlyle Group, for example), we see an opening for other firms to tap into the market further downstream. Specifically, there’s a strong opportunity to capture work from private equity shops that target early-stage and other growth-oriented companies operating in the lower middle market—where deal values range from $10 to $250 million. As Mergers&Acquisitions reported in October 2017, a “new generation” of up-and-coming private equity professionals are deliberately seeking lower-cost deals: “These new firms are thinking small to grow big.” Am Law firms seeking new sources of revenue would do well to follow suit.

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