Why Private Equity Fundraising is Focused on Middle-Market Businesses

By Generational Equity


“The middle market… provides one of the best ecosystems for private equity investors to create returns” Mike Fairmouth

Private equity firms in the U.S. are sitting on more dry powder than ever before, and middle-market businesses will be among the biggest beneficiaries. That is the evaluation of the specialists at PitchBook, a trusted resource for many VC, PE and M&A firms. In their 2017 PE & VC Fundraising Report, the middle-market stands out as the area with the most opportunity for private equity investors:

“Though megafunds have dominated the fundraising scene in terms of dollars raised, middle-market firms account for a larger portion of final closes this year.”

That’s putting it mildly. The middle-market continues to dominate a period of record-breaking fundraising for private equity firms. PE firms are raising more capital currently than at any point post-recession, and remain on pace for a 24 percent increase in value compared to 2016. Mid-sized companies represent a strong part of that activity (nearly 50 percent of total deals), and that trend is set to continue for the considerable future.

Of course, megafunds will be more commonplace in the headlines, like this year’s record-breaking $24.7 billion invested in the Apollo Investment Fund IX. But, the real stories lie beneath the surface, where movement in the lower and core-middle-market sectors will drive private equity fundraising for the next five to seven years.

Here are some other key findings from PitchBook’s report and a survey compiled by Probitas Partners:

  • 81 percent of survey respondents said their deals focused on making operational improvements, while 73 percent focused on buy-and-build strategies.
  • Interest in specialty funds focused on a sole industry grew from 37 percent of investors last year to 51 percent this year.
  • The strongest interest in PE funds was in the healthcare and technology industries, but in general all major sectors were attracting interest.
  • The average time to close funds (13 months) is the lowest figure since 2006, meaning these funds are enjoying more investor interest than ever before.
  • 350,000 companies worldwide have an annual revenue between $5 million and $100 million, compared to just 25,000 with annual revenue between $100 million and $500 million.

Why Middle-Market Business Owners Should Be Excited

If you own a mid-sized business and have ever wondered “How much is my company worth?” the current state of private equity in the U.S. and beyond could have enhanced its valuation in the eyes of the right buyer.

Whether it’s acquiring a company to enter a new industry, or using a business to enhance another already in their portfolio, the lower middle-market is going to be attracting significant attention from buyers. The only question is, will you be at the heart of this, or will you miss the boat?

Competition in the lower middle-market is intensifying compared to the prior year, and with more dry powder laying around than ever before, there is massive opportunity to exit your business for the optimal value. But the longer you wait, the more companies will be vying for attention. Guidance from a professional M&A advisory firm like Generational Equity will help you take advantage of these opportunities and ensure you’re not left thinking what might have been.

As we’ve noted numerous times before, timing is everything in mergers and acquisitions. The best time to sell a company is when your company is growing and buyers are active. Right now, PE firms can’t find enough well-run companies to invest in! So, if you are thinking it’s time for a new chapter in your professional story, the next year or two could be the ideal time to exit for the highest possible return.

Start your next chapter by attending one of our M&A executive conferences. These are completely complimentary, and held across North America, they will give you a valuable insight into the process of exiting your business at the optimal time for the optimal value. You will understand what private equity firms are looking to invest in with their surplus dry powder, and how to grow your business to stand out to buyers.

Contact our team at Generational Equity today at 972-232-1121 to find our next conference near you, or arrange a meeting with our experienced professionals.