What is mid-market private equity?

Mid-market private equity is a form of alternative investment, that sees investors providing money to private companies in the ‘middle market’, in exchange for a stake in the business. Private equity, unlike some other types of equity funding, typically involves institutional investors taking a majority stake (more than 50% of a company’s shares) in an equity buyout.

The private equity market is so diverse that it’s often segmented into different stages; one of the largest of these, by number of deals, is middle-market private equity (shortened to mid-market).

Read on for a more detailed definition of the middle market in private equity, including key considerations for mid-market companies considering raising private equity investment.

What is the middle market in private equity?

Given the scale and complexity of the private equity (PE) market, analysts tend to segment it into different sub-sections. ‘Mid-market’ simply refers to the middle section of the market, in terms of deal size. It’s what you’re left with, if you were to remove both the smallest deals in the market (typically involving early-stage businesses and venture capital investors) and the largest deals (often referred to as large-cap PE).

The thresholds for mid-market deals aren’t universally agreed, but KPMG defines middle-market PE as transactions with a deal value or enterprise value (EV) of £10 million to £300 million.

What makes the mid-market attractive to private equity investors?

According to recent figures, in H2 2024, UK mid-market deal volumes reached their highest level in more than three years. The mid-market can offer PE firms high potential for returns, as these investment opportunities typically involve private SMEs with rapid growth potential. As well as there being more room for (both organic and inorganic) growth, mid-market investing and mid-market buyouts typically see lower entry valuations and a wider range of exit options, compared to large-cap deals.

Why might businesses seek mid-market private equity investment?

Businesses operating in the mid-market may seek private equity funding for the same reasons as other sized companies. They may require substantial capital or expertise to support their growth plans and unlock value in the business. For instance, mid-market private equity investments can help fund:

• Strategic acquisitions
• Expansion into new markets or geographies
• Succession planning

How can middle market private equity firms add value to their portfolio companies?

Following their initial investment, many PE firms will focus on value creation, to help maximise future returns on their investment. Alongside supporting a company’s growth strategy, this may involve things like operational improvements, efficiencies, and corporate governance.

In recent years, many mid-market fund managers in the UK have also pursued bolt-on acquisitions, as an effective value creation strategy for their portfolio companies. These are deals in which a PE-backed business acquires smaller companies, to enable the core business to scale faster than it could organically. This is also referred to as a ‘buy-and-build strategy’.

Is mid-market private equity right for your business?

For private companies with a strong management team and a clear, defined growth strategy, mid-market private equity can be a great option for raising extra capital. But finding the right partner, with the right investment strategy, is crucial. When assessing potential investors, you should be clear about:

• Growth expectations for your business
• Their intentions, including their plans for exit
• The mix of funding, expertise and support they can offer
• Their ability to provide follow-on funding, if required
• Whether their values and vision align with those of your management team
• Their experience and track record

Have you considered growth capital?

If you’re looking for funding from middle-market firms, you may also want to consider alternatives to traditional private equity, particularly if you want to retain a controlling stake in your business.

Like private equity firms, growth capital (or growth equity) investors can provide funding and value creation support, in exchange for equity. But, while many private equity firms are buyout funds that invest for a majority stake, growth capital investors are minority shareholders.

BGF is the most active growth capital investor in the UK and Ireland. We back entrepreneurs and management teams with ambitious growth plans, to help them realise their potential — and to achieve the right exit, at the right time. Learn more about us here.

The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.