The ABCs of PE (Part 2): Understanding Investment Sizes

by: Kay Francoeur


At ECA, we primarily work with private equity. More than 85% of our clients are investor owned or backed, and we’re experienced in placing great candidates for PE firms, for portfolio operations leaders, and with portfolio companies.


As we discussed in Part 1 of our primer on PE, candidates who are interested in pivoting their career to PE benefit from gaining a nuanced understanding of the main distinctions among fund structures, investment strategies, industry specializations, and the sizes of investments made, in order to best tailor their LinkedIn profiles and CVs to the kind of PE role they most want.


Part 2 explores this last facet – size of investments – to shed light on one of the most common ways in which private equity is categorized.


Size Matters

One useful distinction through which we can better understand types of PE funds is to look at the sizes of the investments they’re making. Typically, PE firms are classified in the following tiers, although the numbers attached to these tiers can be vague and vary depending on who is doing the classification, so these may be taken as rough estimates:

  1. Lower-middle market (LMM) – $25-$100 million
  2. Middle market (MM) – $100-500 million
  3. Upper-middle market – $500 million-$1 Bn
  4. Mega-deals – $1 Bn and up


A mega-fund is an investment fund with $5 Bn or more. These funds typically come from large, well-established PE firms that might run multiple mega-funds concurrently. These funds work from the idea that with more LP capital at play, they can make larger and more impactful deals. Mega-deals still operate from the same premise as smaller M&A deals, just on a much bigger scale.


Often, mega-funds operate on shorter timelines than smaller funds, with more rapid fundraising periods as well as a quicker return to market, but the disadvantage is that these investments are less agile than what lower- and middle-market funds can accomplish. You might compare it to maneuvering a cruise ship versus a racing skiff: a bigger ship needs a much wider, slower turning radius to make a successful pivot in a new direction.


In 2021, private equity (PE) saw a record year for mega-deal activity with deals of $1 billion or more making up 32% of the year’s total activity. This historic investing year comes as the result of dry powder accumulation among PE firms and developments concerning interest rates.



Biggest Isn’t Always Best

While mega-deals peaked in 2021, the truth is that these days, PE has much greater interest in lower-middle and middle-market companies than it used to. In the past, companies with valuations of less than $100 million struggled to attract interest from PE investors, but things have changed dramatically. At ECA, in fact, the vast majority of our PE clients are in LMM and MM categories.


The LMM is an increasingly attractive target for several reasons:

  • LMM companies have lower valuations and see less competition for investment, so PE groups need less capital to acquire these kinds of companies
  • There are robust LMM investment opportunities since there are a very large pool of these companies in the US – more than 350,000 LMM compared to just a few thousand with annual revenues above $500 million, and around 25,000 companies that count as core middle market ($100-500 million)
  • A lot of baby boomers who founded and lead LMM companies are reaching an age where they’d like to exit the business, but might not have a good succession plan in place
  • LMM companies in high-growth industries are highly attractive for bundling together and accelerating the growth of platform companies (through buy-and-build strategies)


Within each stratum of PE investment by size, there are a number of different investment approaches firms might take in order to create value. Our final two installments of this series will delve into these strategies and point to some important shifts in fund models that are poised to shake up traditional PE investing long-term.



Kay Francoeur is a Project Manager at ECA Partners. She can be reached at [email protected]



Kay Francoeur
Project Manager

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