The 200,000 middle market companies in the US economy produce $10 trillion in revenue annually. They operate in every industry, are backed by private equity and are family or founder-owned. Yet, they remain invisible to many stakeholders. They are often overlooked in policy debates and rarely represented by lobbyists.

The Resilience

The word resilience invokes images of profound heroism—like Viktor Frankl surviving the concentration camps or Rosa Parks sitting where she damn well pleased. But businesses that thrive in adversity are also resilient—especially middle-market companies. These companies contribute to the economy in myriad ways and, on average, are less financially leveraged than their larger peers. But they need unique challenges and support from all stakeholders, including policymakers, economic development organizations, business advisors, and investors.

Private equity firms increasingly view middle market companies as a distinct asset class. But it has been challenging to uncover them. Finding a company to invest in comes down to a former colleague, co-worker or college or grad school connection who knows about a business that has yet to hit the radar screen of the general investing public. Using well-established institutional private asset investing techniques, websites like https://www.caliberco.com/ invest in middle-market assets and regions to produce astronomical returns. These are the kind of relationships that enable private equity to deploy capital at a significant discount to market valuations.

The Opportunity

When most people think of “small business,” they imagine their neighborhood’s independent coffee shop or insurance agency. When they think of large businesses, they picture multinationals like Walmart and Amazon. But what about the middle market? The National Center for the Middle Market (NCMM) defines middle-market companies as those with revenue between $10 million and $1 billion. It can include public, private and family-owned firms. Regardless of their definition, these companies offer unique opportunities and deserve greater visibility. They are responsible for job creation, innovation and economic growth. Yet, they often fly under the radar of investors. During the last economic crisis, middle market firms added 2 million jobs while larger businesses shed 3.7 million. Policymakers, economic development organizations and financial advisors can play a role in encouraging the continued success of middle-market firms. It starts with increased awareness of their resiliency and outsized contributions. It continues with an understanding of their needs, characteristics and preferences.

The Challenge

Like companies everywhere, middle market firms face challenges. But they also have unique issues and hurdles that must be overcome to succeed. Middle-market companies lost less revenue and employment compared to large businesses during the pandemic, according to data from the National Center for the Middle Market (NCMM). But things are challenging for these companies.

NCMM survey results indicate that middle market businesses face many significant challenges, including economic inflation, supply chain disruptions and competition. It is an important concern since middle market companies account for three percent of US businesses yet drive one-third of private sector GDP. To overcome the difficulties faced by the middle market, it is crucial for policymakers, economic development organizations, media outlets, and companies that cater to these businesses to provide ongoing support. It also requires a greater understanding of these companies’ importance and role in our economy.

The Future

Middle market companies — defined by revenue—provide critical jobs and contribute to one-third of the private sector GDP. Yet, despite their importance, they are not widely recognized by investors. While large public companies report financial information quarterly and employ lobbyists to represent their interests, private-held middle-market businesses are often less transparent. They may need industry associations to speak for them. It can make valuations more challenging and understanding the drivers of their success difficult for investors.

Nonetheless, these companies offer unique opportunities for investors as they continue to drive innovation and solve some of the world’s most pressing problems for businesses and consumers alike. Policymakers, economic development organizations and the companies and advisors that serve these firms all have a role to play in supporting the resiliency of this critical segment of our economy. That starts with a better understanding of both its outsized contribution to our country’s economic vitality and the unique challenges that they face.

Jane