- H.I.G. Capital closed its oversubscribed European Lower Middle Market Fund IV at €1.6 billion in a first-and-final close completed in about six months.
- The fund will make 25–30 control investments in under-managed, operationally complex European businesses, typically up to ~€250 million enterprise value, with equity checks up to ~€100 million.
- Commitments came from a global mix of new and existing LPs across North America, Europe, the Middle East, and Asia despite a tougher fundraising backdrop.
- Fund IV extends H.I.G.’s long-running European platform, which has completed 92 platform investments since 2007 with ~150 professionals across five offices.
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This fundraise signals several strategic shifts and implications for H.I.G., its investors, and the European PE landscape.
1. Scaling lower middle market strategy. By raising €1.6 billion versus €1.1 billion for its predecessor (Fund III, launched in 2020), H.I.G. is growing its European lower middle market footprint materially. The scale allows pursuit of larger deals (enterprise values up to ~€250 million, EBITDA €10-35 million), more deal volume (25-30 platform deals), and deeper control stakes—suggesting that H.I.G. is confident in capturing attractive value opportunities arising from inefficiencies and distress in under-serviced segments.
2. Timing and fundraising in a choppy macro backdrop. The successful, oversubscribed close within six months shows commanding LP interest, despite rising interest rates, valuation concerns, and exit market softness. H.I.G.’s pitching of operational value creation, complex situations, and local origination resonates with LPs seeking returns beyond passive capital provision. Furthermore, its geographic spread and prior track record (including recent exits of Xtera and Project Informatica) bolster its positioning.
3. Investor base diversification. The fund counted a global array of LPs: pensions, endowments, sovereign wealth funds, family offices, etc., from across North America, Europe, Asia, and Middle East. This diversification spreads risk (currency, regulatory, economic), but also reflects LPs’ growing desire for European lower middle market exposure—often perceived as undervalued relative to larger buyouts—but needing GP expertise to identify and manage operational complexities.
4. Strategic challenges and risks ahead. Deploying €1.6 billion at the targeted deal size implies committing between ~€50-100 million equity per deal, meaning ~15-30 deals—execution risk is meaningful. Competitive tension for high-quality opportunities could drive up valuation multiples or push GPs into second-tier assets. Exit pathways may be constrained: mid-market exits, IPOs, trade sales in Europe have yet to recover fully. Also, macro risks—energy costs, regulation, supply chains—remain high.
5. Implications for LPs and the market. LPs who backed Fund IV seem to be expressing conviction in alpha from operating teams and in PE sectors like industrials, healthcare, business services, tech. For competing GPs, H.I.G.’s success puts pressure to demonstrate differentiation, whether through sector specialization, operational strength, or value creation capabilities. The fundraising success also signals that capital remains available for riskier, less liquid lower middle market segments if GPs deliver track record and clarity.
Open questions:
- What return hurdles has H.I.G. set for Fund IV vs. its prior vintages (in ORR, IRR)?
- How will inflation, cost of capital, and supply chain constraints impact performance of operationally complex lower mid-market businesses?
- What are the expected exit timelines, and how does H.I.G. plan to manage exit risks in less efficient markets?
- How much capital from predecessor funds remains undrawn, and will H.I.G. overlap investments across vintages?
Supporting Notes
- Fund IV closed with aggregate capital commitments of €1.6 billion in early 2026, via an oversubscribed first and final close within six months of launch.
- H.I.G. has approximately $74 billion in assets under management globally.
- The fund targets undermanaged European lower middle market companies, focusing on situations with operational complexity and difficult transaction dynamics.
- European team size of 150 investment professionals across five core European offices: London, Milan, Hamburg, Paris, Madrid; 92 private equity platform investments since 2007 in Europe.
- Deal size targets: enterprise value up to €250 million; EBITDA between €10-35 million; equity checks up to €100 million per deal; average check size ~€50 million.
- Recent exits referenced: sale of Xtera and Project Informatica; recaps and exits in past 2-3 months.
- LP base includes asset managers, public and corporate pensions, family offices, endowments and foundations, sovereign wealth funds, and consultants across North America, Europe, Middle East, Asia.