When private equity makes the news, its typically large buyout firms. They buy mega companies, so unsurprisingly make for better headline material. But bigger funds are just the tip of the iceberg. Below the surface is a scaled and matured middle market. 

Purchasing dynamics favor the middle market (MM). Large US buyout funds (defined as more than $2 billion fund size) manage $775 billion of dry power. That capital is chasing 4,500 large companies with greater than $500 million revenue. US buyout funds under $2 billion manage $300 billion of dry powder, and target 33 million companies with less than $500 million revenue. Standalone, the US MM is the third largest economy in the world.  

With so many targets, the MM can buy at lower purchase multiples. MM buyers can also invest in more interesting, niche submarkets whose competitive dynamics have not reached scale. The large cap fund opportunities are limited to mature, lower growth industries, some with more cycle risk such as energy, construction, and retail.