What is Middle-Market Private Equity?

Jim B.
Jim B.
Man climbing a rope
Man climbing a rope

Middle-market private equity is a private investment in a mid-sized company by a fund or other firm that buys shares directly from the company. The company is usually one that is not traded on the open market, and the fund that invests becomes a major shareholder in the company. Investors hope to gain their money back when the company eventually goes public or is sold to another company. In terms of middle-market private equity, the companies targeted often fall somewhere between the dominant players in the market and star-tup companies.

Investment in companies usually comes through the open market if the companies are publicly traded. An investor buys shares of the company on the stock market and hopes that the company has good fortune that is then reflected in a rising share price. Not all companies can afford to wait for public help, though, as many private companies and some public ones as well need capital that can't be secured on the open market. When a struggling, veteran company reaches out to private investors for help, the resulting arrangement is known as middle-market private equity.

Different investment experts have opposing views on what constitutes a middle-market company, but in general the term refers to a company with annual revenues between $50 million US Dollars (USD) and $1 billion USD. These companies aren't quite at the top of the line in their particular industry, nor are they just starting out and on the lower end of the ladder. They usually have been in existence for at least five years and may need an influx of capital to compete or even survive.

If that is the case, a middle-market company may reach out to a private equity fund that is filled with the capital of institutional and experienced retail investors. The fund can then purchase a significant portion or even all of the company, usually in return for some say in the direction of the company or perhaps leadership responsibilities. This process is often called a leveraged buyout, which is why middle-market private equity is sometimes known as buyout investing.

The goal of the investors involved in middle-market private equity is to see their capital returned to them along with a significant surplus if the company's fortunes turn for the better. This can happen if the company is private and goes public via an initial public offering. It can also occur if the company is eventually resold to other private investors at a premium.

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