Mid-market stats focus - Everyone needs boundaries

01 February 2009

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Professionals concur that the mid-market is the true engine of European private equity growth. But what are the boundaries? By Matthew Craig-Greene and Patrick Adefuye, IE Consulting

The tag "mid-market private equity investor" is one that is often adopted by general partners in Europe. However, what soon becomes apparent from a visit to the websites of these GPs is that there is no consensus on what the value boundaries of the mid-market are. The mid-market has long been the engine of European private equity, but no consistent and reliable delineation of this part of the market exists, leaving the term unhelpful and confusing. Identifying the mid-market's boundaries allows for private equity investors to approach the market with a clearer message.

Defining the mid-market

The chart below demonstrates the lack of agreement on what exactly constitutes the mid-market in Europe. The chart displays the declared deal ranges of GPs purporting to operate in the mid-market. It is apparent that the boundaries vary, often markedly, from GP to GP.

In order to arrive at a workable framework for the European mid-market, our analysts mined transactional data from unquote proprietary database Private Equity Insight and modelled where changes in transaction value between deals in the market could be said to represent a genuine boundary between market segments. This produced the following results (see figure 2), showing an extension of the upper boundary of the market over time up until the recent credit market developments.

Employing the same technique, we were able to position the boundaries for the mid-market for the entire period 2002-2008H1 at EUR43.1m and EUR961.7m.

Relative importance of the mid-market

As illustrated below, the mid-market has represented the single most significant proportion of European buyout activity in the last seven years, with over half of the deals completed in the region in 2007 occurring in this segment. The trend is continued within the DACH market.

The volume and aggregate value of mid-market buyout transactions in Europe has grown steadily over the past seven years, until the market shock of 2008 (see figure 5, below). The DACH buyout market follows a similar pattern (see figure 6, below).