What is the middle market?
Middle market companies are businesses between small businesses and mega corporations. They have annual revenues of $10 million to $1 billion and are mostly privately owned. This is an extensive range as these businesses form the backbone of every economy. Middle market businesses are not tied to one specific industry; instead, they refer to the entire segment of the economy. These mid-size businesses are the backbone of every developed economy, creating most jobs.
Deal size of middle market companies
A middle market business usually sells for an enterprise value of around $50 million to $1 billion. The majority of the M&A market falls within this deal size. Everything below a deal size of $50 million is defined as small cap.
If you want to go more granular, you can split the middle market segment into the following:
Small cap ($3 – $50 million EV)
Lower middle market ($50 – $250 million EV)
"Middle" middle market ($250 – $500 million EV)
Upper middle market ($500 million – $1 billion EV)
The definitions aren't set in stone and no official records exist. It's a mutual understanding between investment banks and private equity within the industry.
Revenue size of middle market companies
Next to deal value, we can look at annual revenue to categorize middle market businesses roughly. Mid-market companies usually generate around $10 million to $1 billion in annual revenues.
You can think of middle market companies as too big to be considered small businesses but not large enough to be mega corporations. The range is pretty broad. There are smaller and larger companies, but not mega corporations that are publicly traded.
Middle market businesses spread throughout the entire economy, covering different industries.
Why are middle market companies attractive to investors?
Middle market businesses are mostly privately owned and not publicly traded. About 70% of these businesses are held by baby boomers nearing retirement age in the following decades. So, middle market businesses often suffer from succession issues.
If the owners' children don't want to continue the business and there is no transition to the next generation, the company will be up for sale. Private equity firms are highly interested in middle Market leaders. A unique product and service offering with loyal customers paired with excellent operational efficiency is the basis for middle market growth.
During the last few years, there has been a growing interest in the middle market. Rather than going for the prominent large players, investors are turning to the middle market to find their alpha.
However, private equity needs enough bank funding to make the deal happen. Thus, these firms contact financial institutions or BDCs (Business Development Companies) for financing.
Middle market Investment Banks vs. Bulge Bracket
Middle market and bulge bracket banks provide the same services. The Investment Banking business is the same. They help raise debt or equity as well as provide M&A advisory. However, there are some differences.
Middle market banks are generally smaller versions of large bulge brackets. They are smaller banks that generate less annual revenue and have a smaller balance sheet compared to a bulge bracket.
Middle market firms focus on smaller businesses, where the deals are a bit smaller. These firms usually work on deals smaller than $500 million. Some banks advise on deals above $500 million, but those are exceptions and not the rule. Mega deals are more common at bulge brackets.
Middle market firms also have a smaller geographical footprint. On the other hand, a bulge bracket usually has a global footprint.
If you are worried about deal exposure and learning opportunities, don't. A middle market firm will give you plenty of exposure to learn from a steady deal flow. You will do the same job as an employee, just that the deal and company sizes will be smaller than bulge brackets.
Bulge brackets also work on middle market deals. It's just that the big headline-grabbing deals are more common at bulge brackets and that's what gets all the attention.
Here are some examples of middle market firms in Investment Banking:
Jefferies
Baird
Houlihan Lokey
Lincoln International
Alantra
Harris William & Co.
William Blair
Raymond James
D.A. Davidson
RBC Capital Markets
Macquarie
HSBC
This is to give you an idea of the type of companies we are talking about. This list is not exhaustive and the boundaries of middle market firms are very fluid and broad.
Frequently asked questions (FAQs)
What are middle market businesses?
A middle market business is too big to be categorized as a small business but not large enough to be a mega-corporation. Annual revenue ranges from $10 million to $1 billion. Ownership is often private. These companies are rarely publicly traded. Middle market businesses cover different industries and span throughout the entire economy.
What are middle market Investment Banks?
What is the difference between middle market and boutique banks?
What is middle market private equity?
