The middle market opens window of opportunity for equity capital

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The most common narrative in equity finance is that there are not many deals left. While selling or taking companies public has been easier in the past, it's hard for larger PE businesses to buy or invest in an enterprise as evaluations have increased significantly since the financial recession.

Yet there's a slice of private equity that isn't too worried about evaluations: so called middle market firms that concentrate on minor and mid-sized businesses, normally with under $500 million in yearly revenues.

"Lesser middle market company development is getting stronger and that is fantastic for anybody buying into the market," stated Brett Palmer, president of The Small Business Investor Alliance (SBIA), an industry organization of lower middle market investors and funds in Washington, DC.

"Although it is a very challenging deal market, there are more companies in the lesser middle market," added Palmer. "Though bigger, there are less selections at the large side of the spectrum."

Palmer among others in middle market trading -- such as Vincent Mai's Cranemere, John Jeffries' Acuity Capital Partners and Edwin J. Wang's Accretive Capital - have good reason to be positive.

The growth of those smaller businesses was five times faster than the S&P 500 in 2013, according to a new evaluation published by the National Center for the Middle Market. And executives at the firms are mainly optimistic for better development in 2015: they forecast 4.3 % profits and 2.2 % employment growth in the next year.

"The middle market continues to produce continually strong results during both developmental and recessionary intervals of the entire financial system," said Dr. Anil Makhija in a report. Makhija is currently academic director at NCMM, a partnership of GE Capital and The Ohio State University Fisher College of Business.

More equity capital businesses that concentrate on smaller prospects are accomplishing it through business development companies.

These publicly traded organizations are managed by equity finance firms and invest mostly on the debts of smaller companies. Compared to typical private equity funds, they are open to the public because of a lawful exception to encourage investment in lesser companies. BDCs have gained in recognition as their relatively risky leveraged debt investments have performed well in the bull market, earning gains and returns that combine to give investors high single or low double digit returns.

There were 21 initial public offerings of BDCs since 2010 that raised $2.16 billion, based on data from Dealogic. Funds launched over the last twelve months feature Garrison Capital, Fifth Street Senior Floating Rate, Harvest Capital Credit, American Capital Senior Floating and Capitala Finance.