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A Snapshot Of The US PE Middle Market In 11 Charts

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Sure, massive buyouts and mega-funds get the headlines, but the majority of US private equity deals these days take place in the middle market.

Our 3Q US PE Middle Market Report is chock full of data and analysis to give you a thorough understanding of the landscape, but if you’d rather skip to the highlights of the 17-page report, we’ve compiled the top charts below.

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Note: PitchBook defines the US middle market as companies acquired through buyouts priced between $25 million and $1 billion. Minority deals are not included. That is further broken down into the lower middle market ($25M to $100M), the core middle market ($100M to $500M) and the upper middle market ($500M to $1B).

Middle-market activity by quarter

Through 3Q, private equity investment in the US middle market continues its slump. Though relatively strong on a historical basis, the number of transactions and total value of those deals are both off last year’s pace.

Median middle-market transaction size ($M)

Increased activity in the lower and core segments of the middle market is easy to see as median deal size drops again. At this point, the question of supply within the lower middle market inevitably comes up.

US PE Middle Market

Lower-middle-market deal flow by year

LMM deal value in the US is on pace to exceed each of the last few years. This was driven by a strong 1Q, with the following quarters returning more to the historical mean.

US PE Middle Market

Core-middle-market deal flow by quarter

CMM activity in the US has slowed after a very steady first half of the year. Overall, the segment is tracking well behind the previous two years in terms of value and deal count.

US PE Middle Market

Upper-middle-market deals (#) by sector in 2016

While UMM activity in the US has been sluggish, IT shows resilience, making up 30% of deals through 3Q. Quality targets at this price point have proven hard to come by.

US PE Middle Market

Middle-market company inventory by count and year

US middle-market inventory is increasingly concentrated in relatively younger companies, and overall holdings are only up about 3% from last year.

US PE Middle Market

Middle-market median hold period (years) by exit type

Corporate acquisitions and secondary buyouts in the US have taken longer to develop in 2016. The cold IPO market is forcing managers to look elsewhere.

US PE Middle Market

Middle-market exits by year

US PE-backed exits in the middle market totaled just under $51.5 billion across 593 sales in the first three quarters of the year, representing 33% and 20% YoY decreases, respectively.

US PE Middle Market

Middle-market exits (#) by type

We saw more secondary buyouts than corporate acquisitions in both 2Q and 3Q of this year, the first time we’ve seen two consecutive quarters experience this trend in the US since at least 2005.

US PE Middle Market

Middle-market fundraising by year

Through 3Q, $80 billion has been closed across 121 vehicles in the US, on pace for a 9% decrease in capital committed, but the exact same number of funds as last year—overall fairly strong figures.

US PE Middle Market

Middle market fund count by size

Industry giants are raising huge pools outside of the US middle market, while traditional MM players are finding value through smaller, specialized vehicles. As such, UMM-focused funds have made up just 17% of 2016 closes in this segment.

US PE Middle Market

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Article by Joshua Mayers, PitchBook

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