What is Middle Market Private Equity and Its Key Aspects

Middle market private equity is a type of investment that focuses on smaller companies with annual revenues between $50 million and $1 billion.

These companies are often overlooked by larger private equity firms, but offer significant growth potential.

Middle market private equity firms typically invest between $20 million and $200 million in each deal, making them a crucial source of capital for these businesses.

Their investments can have a significant impact on the companies they back, driving growth and expansion.

Middle market private equity refers to the sector of private equity businesses that invest in companies worth between $50 million and $500 million. This range tends to be well-established, without the risks of investing in a small startup.

The definition of middle market private equity can vary, but a common definition is based on a firm's average deal size, which is typically between $50 and $500 million. Some sources expand this definition to include deals for as little as $25 million and as much as $1 billion.

Middle market private equity firms usually acquire companies for purchase prices between $50 and $500 million and use leverage in deals, but tend to focus more on growth and operational improvements. They may also focus on bolt-on acquisitions, margin expansion, revenue growth from new markets and new products, and so on.

Here are some common characteristics of middle market private equity firms:

Middle market private equity firms are often defined by their average deal size, which typically falls between $50 and $500 million. This range gives you a sense of the scale of deals these firms are involved in.

The definition of middle market private equity can vary, but most sources agree that deals in the low hundreds of millions are considered middle market. For example, if we assume an average deal size of $300 million, funded with 50% debt and 50% equity.

Some sources expand the definition to include deals as small as $25 million and as large as $1 billion. However, the average deal size is a key factor in determining whether a firm is considered middle market.

Middle market private equity firms have a number of characteristics in common, including:

In Europe, middle market private equity deals account for around 40% of capital raised by PE firms each year. In the U.K., middle market deals often represent around 50% of individual deals and 30-40% of deal volume in GBP.

Comments from readers like Robert and K offer valuable insights into the world of middle market private equity. Robert's success story is a testament to the power of preparation and dedication in landing a job at a top-tier bank.

Robert credits the website and its resources for helping him achieve his goals, including using the "finance spark" template to craft his story and networking with the help of email templates and guides. He even uses the website's resources to refresh his understanding of accounting and technical skills.

K, on the other hand, shares a fascinating example of a UK-based investment firm, the Business Growth Fund, which has an impressive AUM of ~£2.5 billion, but deals in the £1-15 million range with a flat hierarchy. This raises the question of where to categorize such a firm.

Main Street refers to small businesses with a relatively small number of employees that take in a modest amount of revenue.

These businesses are often characterized by their limited size and scope, with a smaller employee base and lower revenue compared to larger companies.

Main Street businesses typically don't have the same level of resources or infrastructure as larger companies, which can make it harder for them to compete in a rapidly changing market.

However, Main Street businesses can also be more agile and nimble, allowing them to adapt quickly to new opportunities and challenges.

Their smaller size can also make them more approachable and responsive to customer needs, which can be a major advantage in a competitive market.

Middle market private equity firms are numerous, making it challenging to rank or select the top few. Examples of such firms in the U.S. include Audax, Genstar, American Securities, and Madison Dearborn Partners.

These firms can be defined by their Assets Under Management (AUM), average annualized returns, number of deals, or portfolio companies. Some firms, like Summit, General Atlantic, and TA Associates, might be considered too large to qualify as middle market, and are often categorized as growth equity firms instead.

Firms like KKR and Blackstone, known for their mega-funds, also participate in smaller deals, which is why you'll see them in deal activity rankings.

The top equity firms in the private equity landscape are a diverse group, but some stand out for their impressive track records and consistent performance.

Audax, Genstar, and American Securities are just a few examples of top middle market private equity firms in the U.S. They're not the only ones, but they're certainly among the most well-known and respected.

Middle market private equity firms typically focus on deals smaller than $500 million, which is a significant difference from the mega-deals often associated with bulge bracket firms.

In fact, middle market firms usually work on deals smaller than $500 million, with some exceptions. This focus on smaller businesses allows them to provide more personalized attention and tailored solutions to their clients.

Here are some examples of top middle market private equity firms in the U.S.:

These firms are not the only ones in the space, but they're certainly among the most well-known and respected.

Working in a private equity firm can be a great career choice, especially for those who value autonomy and a better work-life balance. Here are some reasons why.

You'll have more responsibility on deals and with portfolio companies, which means you'll get to think about each deal in more depth. This is because middle market private equity firms have less hierarchy, giving you more freedom to make decisions.

Working hours are also more manageable, with an average week of 60-70 hours, depending on your level. This is a significant reduction from the long hours often associated with investment banks and large private equity firms.

Advancement opportunities are also more accessible in middle market private equity firms. With fewer people vying for top positions, you'll have a better chance of moving up the career ladder.

Here are some of the biggest advantages of working in middle market private equity firms:

Working at a private equity firm can be a great career choice, but it's not for everyone. If you're considering a role at a middle market private equity firm, here are some things to keep in mind.

You'll earn less than you would at a large private equity firm, with a potential 20-50% discount on your salary depending on the fund's size and performance.

The brand name and reputation of a middle market firm can be a drawback if you plan to move within the finance industry. However, outside of finance, all private equity firms have less brand recognition than banks.

Deal complexity and technical skills can also be a consideration. You may not gain as many "reps" with deal execution and financial modeling at a middle market firm, as there will be fewer deals and simpler structures.

If you're not interested in the technical side of private equity, this could actually be a positive aspect of working at a middle market firm.

A Day in My Life at a Private Equity Firm is quite different from larger firms, where I spend more time on process and deal-sourcing work and less on pure Excel and financial analysis.

You'll notice a significant shift in tasks compared to smaller firms with $500 million or less under management, where you'll spend more time on deals and portfolio companies.

At a mid-sized firm, you'll find yourself juggling a mix of tasks, but with a focus on deal-making and company management.

There are about 200,000 middle-market firms in the U.S., most of them privately owned or closely held.

These firms have annual revenues that can range from $10 million to $1 billion, depending on the industry they operate in.

The combined annual revenues of middle-market firms total more than $10 trillion, which is a staggering figure.

If the U.S. middle market were a country, it would have the third-highest GDP in the world.

Middle-market firms are often characterized by their employee count, with some analysts defining them as companies with between 500 and 1,500 employees.

The U.S. middle market generated about $10 trillion in combined revenues in 2021.

The lack of a clear delineation of what constitutes a middle-market firm can result in some gray areas.

The middle market is a segment of American businesses with annual revenues roughly in the range of $10 million to $1 billion, depending on the industry they operate in. There are about 200,000 middle-market firms in the U.S., most of them privately owned or closely held.

Middle market companies are responsible for about 48 million jobs with combined annual revenues of $10 trillion, which accounts for about one-third of annual U.S. private-sector gross receipts. That makes the middle market a powerhouse of the U.S. economy.

Companies in the middle market are heavily concentrated in service-oriented activities, including business services, health services, and educational services. Significant numbers are engaged in retail or wholesale trade, construction activity, or manufacturing.

Middle market firms can be defined by annual revenues, total assets, or employee count. The Harvard Business Review defines the middle market as businesses that earn between $10 million and $1 billion in annual revenue. Other sources may place the lower threshold as low as $5 million, or as high as $50 million.

The U.S. middle market generated about $10 trillion in combined revenues in 2021. If the U.S. middle market were a country, it would have the third-highest GDP in the world.

Here are some key characteristics of middle market firms:

Middle market businesses are attractive to investors due to their potential for growth and the need for succession planning. Many middle market firms are privately owned and held by baby boomers nearing retirement age, which can create opportunities for private equity firms to invest and take over the business.

Middle market banking provides services to companies with around $50 million to $1 billion of total revenue, and may require specialization in specific areas of expertise.

These companies often have complex financial needs that require tailored solutions, making middle market banking a specialized field.

Middle market investment banks may work with local governments and nonprofits, in addition to for-profit companies, to meet their financial needs.

The unique needs of these clients can be challenging to navigate, but middle market banking offers a range of services to help them succeed.

Middle market banking often involves providing access to capital, advising on mergers and acquisitions, and helping companies navigate regulatory requirements.

Investing in middle market firms can be a bit tricky, but it's definitely worth exploring. Most middle-market firms are not publicly traded, but they can be found among small-cap or micro-cap companies.

To invest in middle market firms, you can look into exchange-traded funds (ETFs) and mutual funds that focus on small-cap indexes, such as the Russell 2000 and the Russell Microcap Index.

Business development companies (BDCs) are also a great option for investing in middle market firms. These companies provide financing to middle-market firms and offer above-average dividend yields.

According to BDC Investor.com, the ten highest-yielding BDCs as of June 2021 were posting yields from 9.19% to 21.99%. That's a significant return on investment, especially for those looking for steady income.

Middle market businesses often suffer from succession issues, with about 70% of them being held by baby boomers nearing retirement age. This can make them attractive to private equity firms looking to make a deal.

Private equity firms are highly interested in middle market leaders, especially those with a unique product and service offering, loyal customers, and excellent operational efficiency.