- Mid-market companies, the engine of economic growth, present an attractive segment for private equity investments. The broad market of target companies greatly enhances deal flow for mid-market private equity managers.
- Deals in the mid-market segment produce the most attractive and steady returns as value creation depends on the ability of the manager to change a company’s value by improving operations, irrespective of the external environment.
- In the current environment of high prices, acquisition valuations have evolved in favor of smaller deals. Moreover, post investment, a differentiated operational approach of smaller companies compared to larger ones can enhance the multiple of smaller companies.
Mid-market companies present an attractive segment for private equity investments. In the US, there are nearly 200,000 middle market enterprises that contribute to one-third of the private sector GDP. During 2016, mid-market companies experienced vibrant growth, with revenues growing at a rate of 9% year-on-year, well above its five-year average. In Europe, mid-market enterprises drove European growth by contributing EUR 1 trillion to the economy, despite challenging macro-economic and political environments during the last few years.
The broad market of target companies greatly enhances potential deal flow for private equity managers focused on the mid-market. Private equity managers concluded 856 buyout deals during 2016 – 82% consisted of investments in companies with enterprise values below USD 500 million. Mid-market deal flow proved to be resilient despite the heightened market volatility associated with Brexit and the presidential election in the US, with the number of transactions increasing across both sides of the Atlantic. A lower dependence of deal closings on credit markets due to less or no leverage involved in such transactions contributed to the consistency of investment activity in the mid-market segment compared to the large-cap segment.
If you wish to continue reading, please request a copy of the report from email@example.com.
Disclaimer: This document is provided for informational and/or educational purposes. The opinions expressed are as of May 2017 and may change as subsequent conditions vary. The information herein is not to be considered investment advice and is not intended to substitute for the exercise of professional judgment. Recipients are responsible for determining whether any investment, security or strategy is appropriate or suitable and acknowledge by receipt hereof that neither Capital Dynamics AG nor its affiliates (collectively, “Capital Dynamics”) has made any determination that any recommendation, investment, or strategy is suitable or appropriate for the Recipient’s investment objectives and financial situation. A reference to a particular investment or security by Capital Dynamics is not a recommendation to buy, sell or hold such investment or security, nor is it an offer to sell or a solicitation of an offer to buy such investment or security. Capital Dynamics may have a financial interest in investments or securities discussed herein or similar investments or securities sponsored by an asset management firm discussed herein. Certain information and opinions herein have been provided by a number of sources that Capital Dynamics considers to be reliable, but Capital Dynamics has not separately verified such information. Nothing contained herein shall constitute any representation or warranty and no responsibility or liability is accepted by Capital Dynamics as to the accuracy or completeness of any information supplied herein. Before relying on this information, Capital Dynamics advises the Recipient to perform independent verification of the data and conduct his own analysis hereto with appropriate advisors. Analyses contained herein are based on assumptions which if altered can change the conclusions reached herein. Capital Dynamics reserves the right to change its opinions or assumptions without notice. This document has been prepared and issued by Capital Dynamics and/or one of its affiliates. In the United Kingdom, this document is issued by Capital Dynamics Ltd., which is authorized and regulated by the Financial Conduct Authority. For residents of the UK, this report is only directed at persons who have professional experience in matters relating to investments or who are high net worth persons, as those terms are defined in the Financial Services and Markets Act 2000. In the EU, this document is issued to investors qualifying as professional investors (as that term is defined in the Alternative Investment Fund Managers Directive) by Capital Dynamics Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 9th Floor, 9 Colmore Row, Birmingham, West Midlands, B3 2BJ, Company No. 02215798. In the United States, this document has been issued by Capital Dynamics Inc., an SEC-registered investment advisor. Redistribution or reproduction of this document is prohibited without written permission.