Post-succession Levine Leichtman targets $1bn for third lower mid-market fund

Levine Leichtman Capital Partners, which last year completed a management succession plan, is back in the market with a third lower mid-market offering.

The Los Angeles private equity firm this week filed Form D fundraising documents for LLCP Lower Middle Market Fund III and parallel vehicles, targeting $1 billion. The filing did not indicate any secured commitments. Campbell Lutyens is the placement agent.

Fund III is part of a series derived from Levine Leichtman’s prior Small Business Fund, according to its ADV filings. It will deploy the same structured equity strategy observed by the flagship and other pools but directed to mainly US lower mid-market companies. In practice, this means businesses with revenue of less than $50 million and/or investments of less than $100 million.

Fund I was closed in 2011, while Fund II wrapped up in 2016, according to Levine Leichtman’s website. The amounts raised by each are not known. The firm declined to comment.

Fund III appears to be the first offering launched since the succession. The event saw Arthur Levine and Lauren Leichtman, the husband-and-wife team who established Levine Leichtman in 1984, step back from daily operations.

The responsibility of day-to-day management fell to Matthew Frankel and Michael Weinberg, who were promoted to managing partners. The founders continue to provide guidance as co-chairs of the executive committee, a new body created with the succession, and the investment committee.

Levine Leichtman “pioneered” structured equity investing in mid-market businesses, Frankel told Buyouts in a 2020 interview. No other investors pursue the strategy in exactly the same way, he said.

Levine Leichtman uses both debt and equity in its deals but with the goal of obtaining a control position alongside owner-operators. It looks to avoid overleveraging companies. Deal flow is sourced in industries with characteristics like durability, resilience and high cash generation, such as business services, education, engineered products and franchising.

Frankel and Weinberg told Buyouts the succession would not result in any changes in strategy. “It has worked for us,” Frankel said. Levine Leichtman “successively raised larger funds and to this day has never missed a monthly distribution to our limited partners,” he added.

In fact, one of the only major changes in Levine Leichtman’s approach over time has been an expansion in its family of funds to apply the strategy to new areas. This includes the European and North American lower mid-market series.

Recent investments made by Fund III’s predecessors include Blue Ridge, a provider of administration services for Employee Stock Ownership Plans, and Resolution Economics, a provider of litigation consulting and expert witness services. Both deals were announced in 2020.

Levine Leichtman oversees more than $7 billion in assets. Three years ago, it collected $2.5 billion for a sixth flagship offering to invest in primarily US mid-market companies with revenue of $50 million to $250 million.