what is a middle market firm 
the middle market is the segment of american businesses with annual revenues roughly in the range of 10 million to 1 billion depending on the industry they operate in there are about 200 000 middle market firms in the u s most of them privately owned or closely held and their annual revenues combined total more than 10 trillion 1understanding middle market firmsmiddle market companies are responsible for about 48 million jobs with combined annual revenues of 10 trillion which accounts for about one third of annual u s private sector gross receipts 1 that makes the middle market a powerhouse of the u s economy though many of these companies are little known to the general public the middle market is a critical sector of the american economy and an important engine of job creation with middle market employment growing more than twice as quickly as the national average companies in this sector are heavily concentrated in service oriented activities including business services health services and educational services significant numbers are engaged in retail or wholesale trade construction activity or manufacturing 2middle market firm characteristicsthere is no universally accepted definition of the middle market traditionally annual revenues were the key differentiator the harvard business review defines the middle market as those businesses that earn between 10 million and 1 billion in annual revenue 3 other sources may place the lower threshold as low as 5 million or as high as 50 million some analysts prefer to define middle market firms by the value of their total assets others characterize the middle market as companies with between 500 and 1 000 1 500 employees by this reckoning small businesses have 500 or fewer employees the lack of a clear delineation can result in some gray areas when attempts are made to group businesses by the classic three level approach that includes small business middle market business and big business some cut the categories down to two and label all but the biggest businesses as small and medium sized enterprises smes the u s middle market generated about 10 trillion in combined revenues in 2021 if the u s middle market were a country it would have the third highest gdp in the world 42challenges for middle market firmsthe interests of middle market businesses may be relatively under represented in policy and economic debates from the local level to internationally most big businesses are publicly traded companies they report financial information quarterly and employ lobbyists to represent their interests small businesses have associations that represent their interests the middle market by comparison is more amorphous and less transparent they are low profile and their products and services may be generally recognized only by their customers the covid 19 pandemic also hit smes especially hard in fact 43 of middle market executives believe the pandemic will have some adverse effects on revenues in 2021 5 even discounting the effects of the pandemic significant challenges remain according to a 2021 report maintaining customer relationships continues to be difficult with a majority of middle market executives citing this as one of their top challenges right now managing workforce disruption and keeping employees engaged and productive also continues to be an ongoing problem for middle market leaders 5relative to big public companies middle market businesses can have a tough time raising capital to expand or invest and their costs of debt are typically higher although middle market lenders particularly boutique investment and commercial banks aggressively compete for the business of the middle market larger businesses enjoy the advantage of economies of scale many theories explain why this is the case but it often boils down to the added transaction costs banks undertake for due diligence and marketing activities when they cater to the middle market middle market companies often look to business development companies bdcs for funding these are similar to closed end investment funds many bdcs are public companies whose shares trade on major stock exchanges as investments they can be somewhat high risk but also offer high dividend yields to qualify as a bdc a company must be registered in compliance with section 54 of the investment company act of 1940 it must be a domestic company whose class of securities is registered with the securities and exchange commission sec 6by regulation a bdc must invest at least 70 of its assets in private or public u s firms with market values of less than 250 million the companies they invest in are often young businesses in need of financing or companies that are struggling to emerge from financial difficulties the bdc is required to provide managerial assistance to the companies in its portfolio 7investing in middle market firmsmost middle market firms are not publicly traded but they can be found among small cap or micro cap companies middle market companies are not usually considered big enough to be mid cap stocks which are defined as having a market capitalization between 2 billion and 10 billion there are several a number of exchange traded funds etfs and mutual funds that focus on small cap indexes including the russell 2000 and the russell microcap index investors may also be able to invest directly in the shares of business development companies that provide financing to middle market firms because bdcs are regulated investment companies rics they must distribute over 90 of their profits to shareholders 7 that ric status though means they don t pay corporate income tax on profits before they distribute them to shareholders the result is above average dividend yields according to bdc investor com as of june 2021 the ten highest yielding bdcs were posting yields from 9 19 to 21 99 8middle market vs main streetmain street is an informal term for small businesses with a relatively small number of employees that take in a modest amount of revenue the middle market is a step up from this with larger operations more employees and revenues in the tens to hundreds of millions of dollars per year the middle market consists of companies that would make up small cap and micro cap stocks if they were listed on a stock exchange these can be riskier than holding shares of larger more mature companies which tend to be more stable at the same time the growth opportunities and ability to be nimble can often be greater for the middle markets providing higher potential returns 