Middle Market M & A, 2nd Edition

CHAPTER 2Private Capital Markets

A fundamental premise of 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. Chapter 1 described the middle market landscape—the definitions, scope, economic impact, and general characteristics of middle market companies. The purpose of this chapter is to set the stage for the balance of the discussion in this handbook by describing how these companies interact with the financial services, particularly with respect to M&A, by providing an overview and perspective of 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 markets—by which we mean companies that trade on a public exchange and have a float of more than $500 million—have received much of the attention from academics in the literature and press. For many years it was assumed that insights and ideas about public markets could be applied in the private markets, but in recent years this assumption has been challenged by research studies showing that the two are different in many meaningful ways and across the whole spectrum of financing activities and capital transactions.¹

At a macro level, middle market ...