Market Opportunity and Investment Approach
Supply chain disruptions and Federal policies have led to firms reshoring production operations --
- Congressional enactment of the Infrastructure and Investment Act, the CHIPS and Science Act, and the energy provisions of the Inflation Reduction retained by Congress in 2025
- "Section 232" trade actions initiated by the Administration to protect and nurture domestic production in critical industries
- Other tariff and industrial policies by the Administration
Continued strong growth can be predicted, relatively immune to recession --
- Products and services in "critical industries" in the defense industrial base, medicines and healthcare, energy infrastructure, and the like will continue to experience strong demand and government support, detaching them from macro-economic trends.
Many U.S. firms operating in “Critical Industry” sectors in the lower middle market --
- Are positioned to capitalize on these trends
- But are in need of growth capital to build additional capacity to address this new demand --
- Making critical components in the supply chain,
- Operating in the Lower Middle Market, a segment with more firms and less PE competition.
The Lower Middle Market
Lower Middle Market Companies are generally owner-operated businesses with revenue of between $5 million and $50 million.
These companies are in diverse industries and are generally profitable.
These companies often provide a niche or targeted offering/product to their end customers.
They tend to gravitate towards more recession-resistant industries like healthcare, distribution, heating and ventilation, waste management, etc.
Critical Industries
The Firm seeks to invest in lower middle market firms that are operating in industries identified by the federal government as critical to national defense, health, and economic security. These include:
- Aerospace and Advanced Manufacturing
- Communications and Cybersecurity
- Defense Industrial Base
- Energy
- Metals and Critical Minerals
- Healthcare and Public Health
- Pharmaceuticals and Ingredients
- Information Technology
- Semiconductor Manufacturing
- Transportation Systems
- Water and Wastewater Systems
The term "critical infrastructure" has the meaning provided in section 1016(e) of the USA Patriot Act of 2001 (42 U.S.C. 5195c(e)), namely systems and assets, whether physical or virtual, so vital to the United States that the incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters. [Presidential Policy Directive 21.]
Illustrative Deals/Use Cases
Investment scenarios for such firms include the following:
2nd/3rd Gen, Next Gen Not Interested
Immediate Sale Desired; or
Owner Exiting in 3 – 5 Years
Buyout, perhaps with leverage
2nd/3rd Gen, Management Staying
Growth Capital Needed
Welcome Operational Improvements
Majority or Minority Stake
New Firm, Venture to Growth
Growth Capital Needed
Welcome Operational Improvements
Majority or Minority Stake
Roll-up
Fragmented Industry
Welcome Liquidity Event
Welcome Operational Improvements
