BGF explains: What is mid-market private equity?

Here in the UK, mid-market private equity deals were worth a combined total of £28bn in 2020. Here, explain the key characteristics of these types of deals.

4 August 2021

The private equity market is so diverse that it can be segmented into a number of sub-categories. One of the largest of these, by volume of deals, is the middle market (shortened to mid-market).

In this article, we’ll bring some clarity over the definition of mid-market private equity, as well as discuss its features and the issues business must consider if they are approaching the middle market for business funding.

What is the mid-market for private equity?

Private equity is a business funding mechanism used by businesses of all geographies, sizes and funding requirements to grow. Due to the size, scale and complexity of these deals, analysts and investors use various terms to segment the market.

“Mid-market” simply refers to the middle section of the market by size. Strip out the smallest deals – sometimes referred to as “early stage” and often associated with venture capital – and the largest deals, which may be worth billions of pounds, and you are left with the mid-market.

In the UK, most private equity deals are made in the middle market. In 2020, according to KPMG data, there were 452 mid-market deals, worth more than £28 billion in total. These deals are distinguished by:

Revenue – mid-market private equity deals tend to involve businesses that turn over between £5 million and £100 million a year.

Deal value – mid-market deals tend to be worth somewhere between £10 million and £300 million (or greater).

The exact thresholds of the middle market are not universally agreed, and can differ from analyst-to-analyst or investor-to-investor.

Why do firms seek mid-market private equity?

Businesses in the mid-market may seek private equity funding for the same reasons any business would seek private equity funding. These can include:

  • To fund an M&A strategy. Private equity funding can be used to help a business grow by acquisition.
  • Succession planning. A private equity deal can help a company’s founders realise some of the value of the investment in the company, setting up the business for further growth under new management.
  • Expansion into new markets. Private equity firms can provide the funding and, sometimes, the knowhow that will allow a business to expand overseas or into new sectors.

There are many other reasons to seek private equity funding. Learn about what private equity investors look for in the businesses they back.

Is mid-market private equity right for everyone?

For an organisation with a strong management team, a clear, defined strategy, and a coherent growth plan, private equity can be a great option to turn to for business funding. However, finding the right partner is crucial.

Before making a deal, you need to be clear about:

  • The growth expectations of your business.
  • A potential investor’s intentions and plans for exiting their investment.
  • The investor’s ability to assist with additional funding, should you need it (sometimes called “follow-on funding”).
  • The knowledge and experience the investor can offer. This may include local knowledge, sector-specific expertise and a relevant track record of success.
  • Whether the investor can assist you in finding individuals to advise your company or join your board.
  • Whether the investor’s values align with those of your management team.

With the right partner, your business will be well positioned to grow, garner momentum and become more valuable to shareholders.

How BGF fits in

BGF is an investor that’s different on purpose. Whereas some private equity firms seek to take majority control of the companies they invest in, our model is to be a minority investor. We back entrepreneurs and management teams we believe in and trust them to retain control of the businesses they have built.

We provide patient capital. That means we don’t impose strict exit deadlines and instead allow management teams to choose the timeline that is appropriate for them, whether that’s an investment period of 12 months or several years.

Our teams spread across 16 offices in the UK and Ireland have experience and expertise covering all major sectors. Our Talent Network, one of the largest networks of board-level executives in the UK and Ireland, has helped appoint more than 300 chairs and non-executives to the boards of companies we back.

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.


KPMG Stats: UK Mid-market Private Equity Review: FY 2020

Definitions: Understanding Private Equity (PE) – Investopedia

Business expectations: A Guide to Private Equity

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