On the heels of a historic dealmaking run in 2021, middle-market PE firms were hit hard in 2022 by a combination of high inflation, interest rate hikes, and valuation volatility. However, the middle market has become an increasingly attractive prospect for large firms in the current environment, as deals in this space are relatively easier to finance and execute. Further, middle market funds—which PitchBook defines as being between $100 million and $5 billion in size—are outperforming megafunds in back-to-back quarters. The PE middle market may finally be having its moment in the sun.
According to PitchBook’s 2022 Annual US PE Middle Market Report, deal value was down 25.6% and deal count fell 21.5% compared to 2021. Still, PE firms closed or announced 3,314 middle-market deals totaling $443.8 billion in value as larger firms jump on the bandwagon, executing smaller deals with lower valuations and higher equity positions.
Driving deal activity in this tenuous time are some of the most active PE firms involved in the US middle market, including the following key players.
Top players in the space
Clearlake Capital Group
AUM: $70B
Active Portfolio: 58
Founded in 2006, Clearlake Capital Group is a private equity firm based in Santa Monica, California. The firm primarily seeks to partner with experienced management teams by providing long-term capital investments in growth-stage companies through buyouts. Target sectors include software and technology, energy and industrial companies, and food and consumer services.
Blackstone
PE AUM: $132B
Portfolio Companies: 122
Founded in 1985, The Blackstone Group is a private equity firm based in New York. The firm invests broadly in not only private equity but also real estate, public debt, equity, non-investment grade credit, real assets, and secondary funds. Its investments include buyouts, debt, mergers, acquisitions, mezzanine, and growth capital.
Thoma Bravo
AUM: $120B
Active Portfolio: 79
Founded in 2008, Thoma Bravo is a private equity firm headquartered in Chicago. The firm focuses its investing on growth-oriented, innovative companies operating in the software and technology sectors—specifically targeting fintech, healthcare information technology, infrastructure, and security technologies. Thoma Bravo employs a buy-and-build investments strategy, working with existing management teams to drive operating results and innovation.
Insight Partners
AUM: $90B
Active Portfolio: 509
Founded in 1995, Insight Partners is a New York-based growth private equity firm. Insight Partners seeks to accelerate revenue and profit in software companies, specifically targeting mobile, cybersecurity, big data, the internet of things (IoT), artificial intelligence, and construction technology sectors.
Caisse de dépôt et placement du Québec
AUM: $294.6B
Active Portfolio: 199
Caisse de dépôt et placement du Québec (Quebec Deposit and Investment Fund) is a global investment group, based in Quebec City, Canada. The firm invests through buyouts and growth capital. Its investments span industries including: healthcare, energy, materials, industrials, finance, information technology, real estate, infrastructure, consumer products, and telecommunications sectors in the US, Canada, and Europe. The firm also invests in global public markets, debt securities, and derivatives.
Vista Equity Partners
AUM: $96B
Active Portfolio: 83 (including minority investments)
Founded in 2000, Vista Equity Partners is a private equity firm headquartered in Austin, Texas. The firm employs private equity, permanent capital, credit, and public equity investment strategies. In the private equity realm, Vista Equity Partners is narrowly focused on enterprise software companies from emerging and lower middle-market organizations to large-cap enterprises.
Audax Group
AUM: $15B
Active Portfolio: 105
Founded in 1999, Audax Group is a private equity firm headquartered in Boston, Massachusetts. The firm seeks to partner with middle market leaders to fuel growth and build long-term value. Its investments are focused on business services, consumer, financial services, healthcare, industrial services & technologies, and software and technology. The firm is based in the US and Canada.
The Carlyle Group
AUM: $400B
Active Portfolio: 307
Founded in 1987, The Carlyle Group Group is a private equity firm based in Washington. The firm seeks to invest through means of buyouts and growth capital. The firm prefers to invest in the aerospace, government services, commercial products, consumer, media, retail, financial services, healthcare, infrastructure, industrial, technology, and transportation sectors.
Middle market PE strategies in the current economy
The financing challenges at play today have investment firms gravitating toward deals with lower valuations, where buyout targets remain plentiful. Diminished access to low-cost debt capital for leveraged buyouts and a buyer-seller valuation disconnect are contributing to the attention given to the middle market—and driving more add-ons, carveouts, and take privates.
As reported in PitchBook’s 2022 Annual US PE Middle Market Report.
Add-ons
The prevailing strategy of middle market PE today is toward smaller, add-on deals. So prevalent is this trend that add-on activity in 2022 ended at its highest-ever level, representing 72.3% of all US PE middle-market deal count, while making up 58.7% of total middle-market deal value—another record level.
Carveouts
2022 was a year of margin compression for big corporations. Shrinking profits forced big public companies to reassess core versus non-core assets, and consider divesting those assets to other buyers—often cash-rich sponsors. In 2022, 251 carveouts took place in the middle market worth an aggregate of $50 billion—a slight drop from activity seen before the pandemic, but capital invested was in line with pre-pandemic levels. After increasing as a proportion of all US PE carveouts in 2021, 2022 saw that percentage drop back down. Carveout activity remains significant despite the slight dip from 2021 levels.
Take privates
79 take privates above $100 million were announced or completed in 2022. Of those 79, 34 were PE-led and below $1 billion in size, showing that as market caps dropped into the middle-market territory, sponsors took advantage of the opportunity to take these firms private.
Preparing for the future
While macroeconomic headwinds in the coming months may continue to challenge dealmakers, there will certainly also be opportunities for market-leading firms—like those listed here—to leverage operational strengths built over the past decade to weather the storm, differentiate themselves, and be prepared to respond to changing market conditions.
Disclaimer: Findings based on PitchBook data as of April 2023.
Ready to explore PitchBook’s PE data?
Request a free trial
Already a PitchBook customer? Log in.
