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Chase reports steady growth for US middle market PE investors

It has been more than five years already when the economic downturn began, and the Middle Market Private Equity industry in the US has proved its strong foothold in the investment scene as compared to Large or Mega scale markets. According to a report from accounting and consulting firm McGladrey, “until very recently, the middle-market just hasn’t gotten the respect it deserves. 

The performance of midsized firms following the recent global economic downturn, however, has been extremely impressive as statistics compiled by the National Center for the Middle Market (NCMM) reveal.”  Competition, a noted bellwether indicator, shows large players entering the middle market like William E Conway, Jr of Carlyle, David Bonderman of TPG and Stephen A Schwarzman of  Blackstone trying to take market share from the niche players in the space like Ted Virtue of Mid Ocean Partners. 

The challenge now is how to not merely survive, but how to thrive in the business. With vast opportunities for growth, middle sector of the investment business has proved its stake in terms of returns and stability for investors.

In the McGladrey report, the firm emphasised how middle market affects overall economy, and not just pockets of investors. “Middle-market businesses are truly an impressive group. According to data compiled by the National Center for the Middle Market1, US mid-market firms – those with revenues from USD10 million to USD1 billion – amount to approximately one-third of private sector gross domestic product (GDP).” The market is also responsible for the employment of about 43 million people in middle businesses such as, “sole proprietorships, limited liability and S-corps, family businesses and private and public corporations.”

But it is not all about the good side. Some of the pressing challenges middle market companies face are federal, state and local regulations and taxes.

In the market research from Chase, the organisation said that: “70 per cent of business leaders say that the current regulatory environment makes it more difficult for them to expand and hire new workers, which is similar to last year’s findings.” Difficulty differs on each region or state, but 40% of leaders interviewed in the country are “extremely or very concerned,” Chase added.

In spite of these challenges, Chase reported that 67% of market leaders do not have any plans of selling or transferring ownership of the companies. This also explains decrease in number of platform deals of private equities, and reduced deal flow of 14% from 2012 to 2013, with a total of only 2,124 transactions in the US, according to the report from accounting and tax firm, CohnReznick.  However, 2014 was a record year with transactions up about 20%, as reported by

Overall middle market forecast is positive. Experts are projecting continuous growth since regulatory and tax policy issues have been resolved. As middle market groups try to attract new customers, increase deals, expand numerous offerings, and focus more on domestic markets, robust expectations for revenue and sales growth are on top of investors’ minds. 

One thing is for certain, middle market competition is mounting and that is a valued indication of growth. Top firms are trying to stand out among the pack and it is exceedingly difficult. Smaller firms like, Ted Virtue’s MidOcean Partners, must continually refine their niche strategy to maintain unique and creativity sound financing and investments. 

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