Exploring Middle Market Private Equity: What You Need to Know

Middle market private equity is becoming an essential and rapidly-growing sector of the global financial landscape. As more investors seek to diversify their portfolios with alternative investments, mid market private equity has become a viable option for those looking to maximize returns while minimizing risk.  

Middle market private equity trends continue to show positive growth as the market evolves. A recent study of private equity firms found that mid market investments continue to enjoy a high deal volume – nearly $1.1 trillion in 2022, despite market slowdowns due to inflationary pressures and recession concerns. In fact, a high amount of dry powder makes getting involved with a middle market private equity firm even more lucrative.  

But before you start getting involved in the middle market, it’s important to know the fundamentals and trends. What is middle market private equity, and how can you make the right decisions for your investment strategy? 

Read on to learn more in our guide to exploring middle market private equity.   

What Is Middle Market Private Equity? 

Before considering how to engage in private equity in the middle market, it’s important to understand the fundamentals. So, what does “mid market” mean? Generally speaking, middle market (MM) private equity refers to investments in companies with annual revenues that fall between $10 million and $1 billion.  

The terms “middle market” and “lower middle market” are often used interchangeably, but they refer to different categories of companies. Unlike middle market companies, lower middle market companies typically generate between $5 million and $100 million in annual revenue. These investments can include buyouts, venture capital investments, or growth equity investments in turnarounds or scaling companies. 

Why Middle Market Private Equity? 

There are many reasons to invest with a middle market private equity firm. 

From an investor’s perspective, successful private equity investments can potentially provide a higher return on investment than other capital markets. Plus, private equity firms often have access to more capital than other investors due to their specialized expertise and market experience. And with the increased capital, they can make more significant investments in potentially higher-risk and higher-return deals. 

From a company’s perspective, a middle market private equity firm may provide access to deep pockets of capital, which can help them grow faster, acquire new assets, or improve their financial and operational performance. Additionally, firms can leverage their networks to help a company gain access to potential buyers or strategic partners.  

The Role of Middle Market Private Equity 

MM private equity (MM PE) is uniquely positioned to provide significant value to companies and investors. As an investor, MM PE firms can be particularly attractive for long-term capital because of their ability to source deals that might otherwise be unavailable to individual investors or smaller funds. They also benefit from the increased access and depth of knowledge compared to other institutional investors.  

Creating Value in Middle Market Companies  

Middle market (also known as the “Mighty Middle”) companies play a crucial role in the growth and job creation in the United States. Not only can MM PE firms provide capital to help these companies expand, but they can also bring operational expertise, strategic guidance, and industry contacts.  

By leveraging their resources and networks, firms can identify untapped opportunities in the market and provide value-added services such as mentorship and business development assistance. In addition, when working with portfolio companies, MM PE firms provide the financial expertise needed to maximize returns and maintain efficient operations.  

Investing in Middle Market Companies  

Current middle market private equity trends favor investors as well. Not only do MM PE firms have the ability to provide comparable returns to those offered in public markets, but they typically provide more liquidity options and less risk.​​ This means that investors can benefit from greater diversification and potential ROI.  

Furthermore, MM PE firms often have the resources to explore niche market opportunities that may not be available to larger institutions. This allows for greater flexibility for firms looking to capitalize on new market trends such as environmental, social, and governance (ESG) investing, digitalization, and other technological advancements. 

Benefits of Investing in a Middle Market Private Equity Firm 

Private equity firms that focus on the middle market offer investors the potential for growth that may not be acquired elsewhere. Whether an investor wants to increase their capital gains or expand their holdings within the market, these firms offer many incentives. 

Financial Returns  

While all investments come with risk, the current middle market private equity trends offer reasons to be optimistic. In 2022, MM PE firms offered the highest returns of all asset classes. With such impressive figures, it’s no wonder more investors are turning to mid market private equity as an attractive option for their portfolios. Yet investors need to be mindful of the risks associated with any investment, especially those in the private equity​​ space.  

Growth Opportunities  

By taking a company private, MM PE firms can remove public scrutiny and implement changes that may be more conducive to long-term growth. Additionally, due to their non-traditional ownership structure, MM PE firms can often provide more flexible capital solutions than traditional lenders. This can enable the target company to pursue growth strategies it may otherwise have been unable to access. 

Find Middle Market Private Equity Opportunities With udu 

Once you can answer “What is middle market private equity?” the next step is understanding how to get engaged. From benefits such as larger capital pools to operational support and beyond, middle market private equity can help companies achieve their long-term objectives. But as is true for any financial endeavor, understanding the opportunities and optimizing your access to them requires a robust strategy. 

One of the best ways a middle market private equity firm can create more opportunities is through a platform like udu. udu has created a leading AI-driven solution designed to help investors, advisors, and sponsors identify the right targets based on their unique requirements. By leveraging proprietary algorithms and data-driven insights, udu provides access to a deep pool of middle market private equity options. And with machine learning, udu can continually improve its recommendations to reflect changing market conditions. 

Whether you’re looking for new investments or divestments or simply want to stay on top of the latest trends in mid market private equity, potential advantages abound with a platform like udu. 

Schedule a demo of udu to learn more about how to get involved in the middle market private equity space.