So don't fret if you're not up to date on this segment of the industry. PitchBook has released its 2Q US 2018 US PE Middle Market Report, which breaks down dealmaking, fundraising and exit trends from the country's PE middle class. The full report is available to download for free, but for the highlights, look through the nine charts below.
Strong quarter puts deal activity on pace to match last year's record figures
The first half of 2018 showed that the middle market is still booming, with deal count (1,358) and deal value ($178.5 billion) up 16% and 5%, respectively, over 1H 2017 totals.
MM activity increases to highest proportion of PE deal flow in more than a decade
To add more perspective, the US PE middle market made up 70% of money invested by private equity in 1H, though that total should come down by the end of the year, thanks to a handful of mega-deals that have yet to close. The most notable: Blackstone's $20 billion deal for the financial and risk business of Thomson Reuters.
Relative slide in energy capital investment continues, while financial services sees uptick
It wasn't a great 1H for energy deals, which have steadily shrunk in number over the past few years, but firms are becoming more active in both the IT and financial services sectors.
Exit activity in 2018 on pace to exceed the 10-year average
As with fundraising, US PE-backed exits got off to a sluggish start in 1Q, but that ticked up last quarter, with 183 exits totaling an estimated $14.8 billion. Still, PE-backed exits have lagged in 1H compared to the first half of 2017, when 476 exits brought in nearly $44 billion.
As portfolio companies trend larger, MM continues to account for a smaller proportion of exit value
Blame a booming economy. Or the tax cuts. Or whatever you want, really. It's not going to change much. The bottom line is businesses are becoming more valuable, and it's causing the proportion of PE-backed middle-market exits to dwindle in size.
SBOs continue to be the preferred exit type
With capital abundant and the number of attractive targets limited, private equity firms are resorting to passing companies off between each other. That can sometimes get dicey for LPs, if they have a stake in both firms doing the buying and selling.
Capital raised on pace to match recent years, even though fewer funds are closing
Sure, the total number of funds isn't what it used to be, but firms are being forced to raise more capital to remain competitive, which is good news for US PE middle-market fundraising figures. Both totals should increase as the year goes on, thanks to the 38 open middle-market vehicles looking to raise at least $1 billion as of June 30.
Larger MM funds gain market share
Diving deeper, the average US PE middle-market fund was $669 million in 2017. And in 1H, that number jumped 27% to $847 million. At the current pace, that would easily surpass the record set in 2009, when the average middle-market fund was $786 million.
US MM PE fundraising is overrepresented, as only one mega-fund has closed YTD
We've written a fair amount about the lack of PE mega-funds so far in 2018. One major side effect: PE middle-market funds are dominating the proportion of total capital raised. Keep in mind that it will only take one or two buyout shops closing a $10 billion-plus vehicle in 2H to drop that 88% figure dramatically. Carlyle has already done its part, closing its seventh flagship buyout fund on $18.5 billion in late July.