Everyone needs boundaries

The tag "mid-market private equity investor" is one that is often adopted by general partners in Europe. However, what 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 provides evidence of the lack of agreement on what exactly the mid-market's size range is. The chart displays the declared deal ranges of GPs purporting to operate in the mid-market. As can be seen, the ranges 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 is 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 this segment in 2007. The mid-market is just as important to overall buyout activity in the UK.

The volume and aggregate value of mid-market buyout transactions in Europe grew steadily over the past seven years, until the market shock of 2008 (see figure 5, below). Whilst value has shown some volatility, volume growth has been steady in the UK market pre-2008.

DIFFERENTIATION AND GP SUCCESS IN THE MID-MARKET

In figure 7, below, each dot represents a GP operating in the European mid-market buyout space and illustrates the wide variety of operating strategies and subsequent investment success (measured only as the aggregate amount of capital put to play) achieved. Although generalists tend to put more money to work, there are those with a narrower investment remit that are just as efficient. The companion chart (figure 8) plots GP activity in the UK mid-market, according to the breadth of investment remit and the amount of equity invested.

The strength of the UK mid-market lies in a consistent deal flow from the consumer sector which generated more deals than any other sector between 2002 and 2007 (figure 9 below).

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Industry
• UK / Ireland