Mid-market special report: Defining the mid-market

Ask any investor what their idea of mid-market private debt is and there is no guarantee you will get the same answer twice. A standard definition of mid-market private debt is lending to companies with EBITDA of $50 million or less, with the upper end in the $40 million-$50 million range. But within that there is a still broad range of activity from venture debt and small and medium-sized enterprise lending to 3x leveraged deals worth $150 million or more. 

What’s more, tracking mid-market private debt fundraising activity is an imperfect science. Not all mid-market private debt investors necessarily follow a strictly defined mid-market strategy. At the same time, there are funds that focus on the smallest and largest ends of the market who will routinely stray from their investment remit to do mid-market deals.
A decent, though inexact, starting point would be to look at fund sizes. For the purposes of this report we have focused on funds within the $50 million-$500 million range. Over the past five years, this group has accounted for just over half of all fund closes. Larger $500 million-plus funds – rather unsurprisingly – have accounted for the vast majority of capital commitments.   

Fundraising data are yet to show any major changes in the composition of the mid-market and there is little indication that the private debt space is experiencing the same kind of the bifurcation seen in other asset classes. But that does not mean it will not happen. James Newsome, managing partner at London-based placement agent Arbour Partners, expects that, barring another major recession, mid-market lending will remain relatively stable for now. What is becoming clear is that the growth spurt of the past five years is nearly over, particularly as the number of investors entering the space tops out. That said, there are still new opportunities to be found at either end of the spectrum. 

“There will be massive areas of growth in the true SME market through technology, such as marketplace lending platforms able to tap institutional money,” says Newsome. “Then you will see growth at the top, where the big players consolidate and get bigger.”