US PE middle-market activity
The broader US PE market has shifted, though. We've highlighted in the past that middle-market deals are accounting for a higher percentage of overall activity. Since 2008, the middle market has accounted for at least half of all PE transactional value, peaking at 67% in three separate years (2010, 2012 and 2014). The last year, meanwhile, put a halt to that trend. That says less about the mid-range of the market and more about the higher end, where more $1 billion-plus deals are being signed than in years past. Fund managers simply have more to spend, and larger check sizes are preferred (and often necessary) to make fund economics work.
Elsewhere, middle-market exit numbers were down. At face value, one could surmise that the sellers' market is winding down, but there's reason to believe that exit numbers are stronger than they appear. The middle market has been a hotbed for add-on activity, which impacts exit numbers as time goes on. For example, platform acquisitions done for $700 million to $800 million may add on a few smaller companies for $100 million apiece, pushing the platform's implied value north of $1 billion. When those companies exit for at least that price, our methodology considers them "graduates" of the middle market that won't be counted in the exit totals.
In all likelihood, "middle-market" exits are stronger than what our numbers suggest, which probably means more LP distributions being funneled back to new middle-market funds. Now the cycle begins anew, provided that 2019 isn't dented by a recession, oil prices, Brexit problems, surprises from the Fed, trade wars or general Armageddon.
This column originally appeared in The Lead Left.
Read more about the middle market in our 2018 Annual US PE Middle Market Report.