Chart of the week

Middle market private equity: Growth at a reasonable price

Private middle market companies offer attractive growth at cheaper valuations than either large/mega-cap private firms or public equities.

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January 24, 2025 | 2 minute read

Earnings growth and valuations across private and public equity markets

Column chart showing earnings (EBITDA) and valuations (EV/EBITDA) across middle market- and large/mega private equity companies as well as small-cap and large-cap public equites. The left side of the chart shows private middle market companies’ annual earnings growth outpacing large/mega-cap private firms as well as small and large public companies. The right side of the chart shows private middle market firms are also comparatively cheaper.

Source: Bloomberg Finance, L.P., Golub Capital, and Pitchbook. Y/Y EBITDA growth sourcing: Middle market PE: Golub Altman Middle Market Index, as of November 30, 2024. Large/mega-cap PE: Median EBITDA growth of the Russell 1000 (excluding certain industries to match the methodology of the Golub Altman Index) as of Q3 2024. S&P 500: Cap-weighted index as of Q3 2024. Russell 2000: Cap-weighted index excluding energy sector due to earnings volatility. EV/EBITDA sourcing: Middle market PE: Pitchbook, M&A deals $500 million to $1 billion EV, as of December 31, 2024. Large/mega-cap PE: Pitchbook, M&A deals $1 billion to $5 billion EV, as of December 31, 2024. S&P 500 and Russell 2000: Bloomberg Finance, L.P., as of December 31, 2024.

  • Amid a historically expensive and highly concentrated equity market, private middle market companies stand out for their ability to offer attractive growth opportunities at a reasonable price.
  • The left side of the chart shows private middle market companies’ annual earnings growth (+9.3%) outpacing earnings growth for large/mega-cap private equity firms (7.1%). Private middle market firms’ earnings growth also bests public equity markets for large-cap companies (S&P 500) and small cap firms (Russell 2000).  
  • Even with their attractive earnings growth profile, middle market firms are more reasonably valued than large/mega-cap private companies and meaningfully cheaper than public equity markets, as the right side of the chart indicates.
  • Altogether, the data suggest investors are paying a relatively lower price for each dollar of earnings in middle market companies compared to larger private firms or public equity markets.
  • For investors confident in the U.S. economy but wary of elevated public valuations, middle market private equity potentially offers a more compelling way to capitalize on domestic growth.

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