Private equity exit multiples continue to track higher, and the middle market is no exception. In fact, the share of middle-market exits as a portion of all PE sales reached 38.5 percent in the first half of the year, regaining ground lost during the pandemic. In the second quarter alone, such activity represented $87 billion in enterprise value.

Sponsor-to-sponsor transactions are helping to fuel deal activity. The Riverside Co.’s Greenphire exit, one of the private equity firm’s largest, is anecdotal evidence demonstrating that the wave of PE valuations is breaking on middle-market shores. The lower middle-market firm landed the sale to Thoma Bravo after steering Greenphire to an 8-fold revenue increase over seven years.

More of those exits are trending toward the $100 million to $500 million range, according to data compiled by Pitchbook, pointing to a premium awarded to platforms. The deal range also speaks to the limitations of special purpose acquisition vehicles in penetrating the middle market. As One Equity Partners’ managing director Greg Belinfanti previously told Mergers & Acquisitions, companies most attractive to a public listing structure tend to be too large for most middle market funds.

The high-valuation dealmaking environment is prompting some firms to seek bolt-on acquisitions  strategically in less highly valued adjacent sectors to effectively blend the multiples of the initial deal with those of subsequent add-ons. Earnouts also continue to be a common feature of dealmaking, helping to bridge valuation expectations.

The resulting mix of sponsor-to-sponsor deals and surging valuations creates ripe conditions for further high-value middle-market exits.

— Brandon Zero