Lest we forget

GPs are experts in targeting star companies, and in turning struggling names around. But what about these many businesses which sit in-between? Six seasoned professional turn their attention to the forgotten middle.

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Lurking somewhere between the stellar assets and floundering companies that private equity knows so well lies a “forgotten middle” – businesses that can’t be neatly pigeonholed and are largely ignored. How can the industry tap into this potentially lucrative seam?  


Nick Morrill, Rutland Partners

Morrill is a managing partner at Rutland. Having previously worked for BZW, he joined Rutland in 1987.

Del Huse, Oakley Capital

Huse is a managing director at Oakley, joining in 2010 from Endless. He focuses on deal origination at the firm.

Nick Hazell, Taylor Wessing

Hazell is a partner at Taylor Wessing specialising in UK and cross-border leveraged buyouts. He became a partner in the firm’s private equity group in 2006.

Jeremy Harrison, Bank of America Merrill Lynch

Harrison is senior vice-president and senior business development officer at BAML. He has more than 20 years of experience in the industry.

Paul Canning, HIG Europe 

Canning is a managing director with HIG Europe. Previously he was a partner at Gresham Private Equity.

Adam Johnson, GE Capital

Johnson is managing director of corporate structured finance at GE Capital, having joined the firm in 2006. Johnson’s career has spanned 25 years in corporate and mid-market banking.

This roundtable is entitled the “forgotten middle” of private equity. How exactly would you define a forgotten middle deal?

Huse: There is a well-defined investor community for deeply distressed assets and there is a very well-established investor community for well-performing, highly prized assets that are in growth sectors, have good management teams, sound strategies and so on. But there are a whole bunch of companies in the middle which do not sit neatly in either of those two camps, which I would describe as somehow “wrinkled” or challenging. These companies are too difficult or risky for mainstream private equity, but not distressed enough that the distressed investor community will pay any attention to them. These companies might be profitable, but with performance metrics that don’t look attractive to mainstream private equity. They could be trading flat or even going backwards. They might be loss-making, but still solvent. 

This middle ground – which could cover a whole range of shortcomings, from poor management to accounting issues, weak systems or a particular sector issue – can still generate a private equity return. This middle ground is not particularly well covered by private equity.

Morrill: I see forgotten middle companies as businesses that performed well when the economy was growing, but as soon as the economy started slowing they became static or pedestrian, and have not improved on that position. They are just good enough to tick over in a relatively benign interest rate environment. 

These companies could also require a much more fundamental operational overhaul, which does not imply that the company is falling apart but more likely that somebody has an opportunity to go in and structurally position it in its market in a way that wasn’t done in a growth scenario because that business was still doing well and those steps weren’t necessary.

Canning: I don’t think there are nice, defined boundaries for what a forgotten middle company is. For me it is where there is no path to obvious growth and value creation. There are lots of plain vanilla businesses out there that are very clean and can show a clear path to value creation. There are lots of really messy, difficult businesses where it is obvious that you have to do a full-blown turnaround. For me the middle bit is where you have to come in and figure out where the value-creation play lies. You have to dig under the surface to find where you can create value.