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Middle Market M: Handbook for Investment Banking and Business Consulting by Michael R. Nall, Christian W. Blees, Robert T. Slee, Kenneth H. Marks

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CHAPTER 1

Private Capital Markets

Afundamental premise in this handbook is that there is a difference between the deals, transactions, and financings in the middle market and those in the large-company, traditional-corporate-finance public market. As indicated in the preface, the focus of this book is the middle market, primarily composed of private businesses. This chapter sets the stage for the balance of the discussion in this handbook by providing an overview and perspective of the middle market and private capital market activity.

A capital market is a market for securities (debt or equity) where businesses can raise long-term funds. Since the 1970s, public capital markets1 have received much of the attention from academics in the literature and press. Since that time it has been assumed that the public and private markets are substitutes, but in recent years this assumption has been challenged by research studies showing that the two markets are different in many meaningful ways.a

Merger and acquisition (M&A) activity is mainly driven by capital availability, liquidity, and motives of the players, which vary in each market. Regardless of the purview of the buyer, seller, M&A advisor, investor, or lender in the middle market, it is important to understand the market differences and dynamics.

A number of factors differentiate the public and private markets:

  • Risk and return are unique to each market.
  • Liquidity within each market is different.
  • Motives of private owners are ...

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