Mid-market lending: Defining the sector

United States
The US mid-market is the largest in the world. The National Center for the Middle Market uses a relatively broad definition, counting all companies with revenue between $10 million and $1 billion. It values this block of businesses at $5.9 trillion. A report by BlackRock in 2016 says this group will need significant capital investment in the coming years to refinance balance sheets and fund new acquisitions. It predicts the maturity wall of mid-market debt in the US to be nearly $500 billion over the next five years. This combines with nearly $230 billion in private equity dry powder waiting to be deployed in the North American mid-market, meaning funding needs will be significant.

United Kingdom
One of the most recent reports on UK mid-market companies was published by London-based advisory firm BMO in January. The report said the country’s mid-sized businesses – defined as AIM-listed businesses or those with between £10 million ($12.9 million; €11.7 million) and £300 million in revenue – powered much of the UK economy in 2016. Revenues and profits grew by 3.8 percent and 19 percent, respectively, in the past year, a stark contrast to smaller companies and the FTSE 350, which each saw revenue and profit contract over the same period. The UK’s mid-market businesses also attracted the lion’s share of private debt dealflow, according to Deloitte’s Alternative Lender Deal Tracker. Last year, they accounted for 96 of the 267 mid-market private debt deals that took place in Europe.

According to Deloitte, France is second only to the UK in Europe in terms of the amount of mid-market private debt deals, with the country accounting for 70 of 267 mid-market deals that took place in 2016. The same report attributes much of this dealflow to the rapid growth of the French euro private placement market since its inception in 2012. This followed an amendment to the French insurance code allowing insurers, pension funds and asset managers to provide direct, unlisted loans to corporates.

The country’s mid-market is synonymous with the Mittelstand – the 3.6 million SMEs that power Germany’s economy and account for the majority of the country’s workforce. The Mittelstand represents the smaller end of the market and is formally defined as companies with 50 to 500 employees and up to €50 million annual turnover – though some exceed this. These companies – 91 percent of which are family-owned – are an attractive target for private debt investors mainly because of the country’s deep-rooted credit culture and the stability of Germany’s lender market.

Data on Asia’s mid-market are limited when compared with the wealth of information on Europe or the US, but private debt deals in the region exist higher on the risk spectrum. The most recent comprehensive report on mid-sized companies in Asia came from Standard Chartered in 2015. The report – which classifies Asia’s mid-market as companies with a turnover between $30 million and $100 million – surveyed businesses across China, India, Indonesia and Malaysia. It revealed that for two-thirds (67 percent) of these companies – which have been largely bolstered by middle class growth in the region – international expansion is a priority. This is echoed by a regional report by ICG last year that describes growing demand for private credit coming from mid-sized companies in Asia that have grown beyond their roots but are not yet ready, or willing, to tap public markets.