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Perspectives from the operating floor.

Practical thinking for owners, executives and investors on building durable, technology-enabled businesses in the lower middle market.

StrategyFeatured

Why the lower middle market is where AI creates the most value

Large enterprises have spent a decade optimizing. Founder-led companies have not, and that gap is the opportunity.

Most conversations about AI and business value begin and end with the Fortune 500. Those companies have data teams, modern systems and budgets to match. What they do not have is much low-hanging fruit. A decade of process re-engineering and enterprise software has already harvested it.

Founder-led companies in the lower middle market are a different story. They are frequently excellent businesses run on spreadsheets, a fifteen-year-old accounting system and the memory of a few long-tenured people. Invoices are keyed by hand. The phone rings after hours and goes to voicemail. Pricing decisions are made on instinct because the margin data does not exist in a form anyone can query.

This is not a criticism. It is a description of where the value sits. Every one of those gaps is now addressable with technology that is mature, affordable and fast to deploy: document intelligence for the back office, voice agents for the phone, a modern data layer for the decisions. The result is not a marginal improvement in efficiency. It is a change in the margin structure of the business and a step-change in its ability to integrate acquisitions.

The catch is execution. Software licences do not transform a company; people who have done it before do. That is why we built LeapHL Capital inside a transformation firm rather than next to one.

Founders

The first hundred days after a founder takes on a partner

What changes, what should never change, and how the best transitions are designed before the deal closes.

Founders often ask us what actually happens the day after closing. The honest answer is that very little should change for customers and employees, and quite a lot should change in how the company sees itself.

The first hundred days are for listening and measuring. We sit with the people who run the business, map how work really flows and establish a baseline: customer profitability, cash conversion, system health, leadership capacity. We resist the temptation to fix things before we understand them.

What we do commit to immediately is investment. A funded technology and systems plan, a search for the one or two leaders the company has been missing, and an incentive plan that gives the people who create value a stake in it. These are decisions we make together before signing, so that day one is about execution rather than negotiation.

The best transitions are designed, not discovered. If a founder wants to step back over three years, we build the plan around that. If they want to run the company for another decade with a stronger team behind them, we build around that instead.

M&A

Buy-and-build without the integration hangover

Add-on acquisitions compound value only when systems, data and culture are integrated on purpose, not by accident.

Buy-and-build is the most common value-creation strategy in the lower middle market, and also the most commonly mishandled. Platforms acquire five or six companies, each on its own ERP, its own chart of accounts and its own way of quoting a job. Three years later the sponsor owns a holding company, not a business.

The difference is integration discipline, and it begins before the first add-on. A platform that has already standardized its systems, its data model and its operating cadence can absorb an acquisition in months. One that has not will spend years reconciling.

Our approach is to invest in that foundation during the first year, before the acquisition program accelerates. A common data layer, a single financial system, documented processes and a playbook for the first ninety days after each close. Boring work, and the single biggest predictor of whether buy-and-build creates value or merely creates scale.

Approach

What we look for in a partner, and what we hope they look for in us

Fit matters more than price in the situations we pursue. Here is how we think about both sides of the table.

We look for businesses that customers would miss: essential services, engineered products, software that runs someone else's operation. We look for teams that want to win and are honest about what is holding them back. And we look for owners who care what happens to their people after the deal.

We hope partners look for a firm that shows up. Our team is small by design, and the partner who leads the deal sits on the board for the life of the investment. We hope they look for capability, not just capital, and ask hard questions about what an operating platform actually delivers. And we hope they look for alignment: in the structure of the deal, the incentives of the team and the horizon of the investment.