Private Equity Moving Down Market
There are more private equity firms with more capital deployed (and waiting to be deployed) than ever before. Consequently, finding good target companies to acquire has become increasingly competitive.
To enter a less competitive deal space, many private equity firms have moved down market, showing an increased interest in middle market and lower mid-market companies. The rationale is that there would be fewer buy-side financial sponsors competing for the same deals because there is a larger pool of target companies (there are more mid-market companies than larger companies) and because traditionally, PE firms have been less focused on the lower end of the market.
This rationale may no longer hold. The Private Equity Info M&A research database now shows a substantial interest from financial sponsors across nearly all segments of the market – large and small. The database contains:
- 750 private equity firms that will acquire companies below $50 million in enterprise value; and
- 810 private equity firms that will close deals between $50 – $250 million in enterprise value.
That’s almost 1,600 firms focused exclusively on and actively seeking investment opportunities in the mid-market and lower middle market.
This shift has increased transaction multiples considerably in recent years. The benefactors are of course the owners of these mid-market companies, who now find themselves in a seller’s market.