Why mid-size companies are a sweet spot for private equity investing

David Chan, Portfolio Manager – MLC Private Equity
Alicia Chen, Assistant Portfolio Manager – MLC Private Equity

Mid-sized companies – think businesses with revenues around US$10 million to US$1 billion – are an attractive opportunity set for private equity (PE) investing. They’re like the “Goldilocks” zone: not too small and risky, not too big and slow-growing. We’ve focused on them for years at MLC, and they’ve helped deliver strong returns for our clients.

The big opportunity

In the US alone, there are about 200,000 privately owned mid-sized companies.¹ They drive one-third of the economy and employ 48 million people.² Many mid-size company owners are retiring, creating opportunities for private equity firms to step in.

In 2024, PE did over 3,300 mid-market deals in the US worth more than US$358 billion.³ That shows how popular this space is.

Why mid-sized companies are attractive for private equity investing

1. Faster growth. Under PE ownership, mid-sized US companies grow earnings (EBITDA)⁴ by about 9.3% per year on average.⁵ That beats large PE-owned companies (7.1%), big listed stocks like the S&P 500, and smaller ones in the Russell 2000.⁶
2. Better prices. They’re bought at lower valuation multiples⁷ – around 10.4 times earnings versus 12.4–12.9 times for big companies.⁸ This means less borrowing (debt), which all things being equal, means potentially lower risk. There’s room to improve the business and sell for more later.
3. The Sweet Spot. Mid-sized firms have proven they can make money and have cash flow, but they still have lots of room to grow. They’re flexible, entrepreneurial, and easier to improve than giants. PE managers can boost operations, expand markets, and raise profits.

Where we focus

We target global companies worth A$200 million to A$2 billion in areas like technology, healthcare, and business services. These sectors benefit from big trends:

• Tech: Reliable businesses with essential products/services (like industry “plumbing”). They have steady cash, high margins, and can add AI or new features.
• Healthcare: Growing due to aging populations and advanced treatments. Specialists in this area do best, handling regulations and staffing.

We back profitable companies with strong growth records and specialist PE managers who know the industry inside out.

How we do it at MLC Private Equity

Since 1997, we’ve invested over A$6.2 billion in PE globally, with more than 370 deals creating A$7.2 billion in value.⁹ We work with about 20 top managers and focus on the mid-market segment, which represents only around 20% of global private equity investing. This means that the mid-market segment remains a relatively ‘uncompeted’ one, which creates the opportunity to identify many companies to potentially benefit from private equity investing.

Risks to know

PE is long-term – money is locked up for 4–5+ years. Returns aren’t guaranteed, and the world is changing fast with things like trade shifts, climate, and AI. That’s why we pick specialists who can adapt and improve businesses.

In a time of big changes, mid-sized companies with PE backing can thrive. They’re worth considering for diversification and growth potential in an investment portfolio.

An investment sweet spot

Mid-size companies are often called the “investment sweet spot.”  We think They’re more resilient than small businesses and more agile than big ones. They can adapt quickly to changes like new technology or shifting consumer trends.