The middle market, or “mid market,” refers to the size of a company, usually in terms of revenue and asset base. No universally accepted revenue range defines mid market companies. Some financial professionals use a revenue range of $5 million to $500 million, while others use $100 million to $1 billion.
Regardless of the range, conceptually, middle market companies fall between head street companies (less than $5 million in revenue) and large multinational corporations (more than $1 billion in revenue).
The mid market is an essential part of the U.S. economy comprising one-third of the country’s gross revenues and most jobs. Although annual revenues usually define middle markets, some analysts have begun to consider the number of assets and the company’s size by the number of employees.
While no middle market company fits into an independent area, they often offer business-to-business products or services targeted to a specific niche. This can make them almost invisible, especially since they usually keep a low profile publicly and are only known within their niche markets. However, many other factors are surrounding middle market companies that vary. For example, they can be new or old companies with a wide range of growth rates.
One thing that makes middle market companies so attractive is their unique position in the economy. They produce significant revenues compared to small companies, but they don’t have access to large companies’ capital for considerable growth. This makes it more complicated for them to grow.
Buyers and investment bankers most commonly refer to mid market mergers and acquisitions by their acronym, M&A. It refers very generally to the process of buying and selling a company. The difference between mid market mergers and acquisitions is simply the way a transaction is presented to manage the public perception of the transaction.
A merger is usually presented as more friendly. Its connotation is collaboration and partnership, instead of an acquisition, which can be perceived as the seller losing control after the transaction. However, regardless of how a transaction is presented, there is always a roughage of one party gaining power after the transaction.
Among the most common mid market mergers and acquisitions are:
- Market-extension or product-extension
Commercial and investment banks often compete for the accounts of middle market companies, especially if they are trying to generate new revenues and grow. However, middle market companies often lack the extensive credit histories and collateral of larger companies. This means that, while banks are happy to accept their business, they are less likely to make the substantial loans they would offer larger companies.
Investors are interested in the middle market because it can be an incubator for future large companies. Although the middle market is very competitive, successful middle market companies are less volatile investors than others. In addition, these companies have specific niches they serve and are incredibly profitable, making them perfect candidates for acquisition. This could mean huge returns for investors.