What is a 'Middle Market Firm'

A middle market firm is a firm in a given industry with annual revenues that fall in the middle of the market for that industry. 

BREAKING DOWN 'Middle Market Firm'

Middle market firms are in the middle of the market between smaller companies and the giants of the industry that dominate the market.

There is no set dollar value in revenues that qualifies a firm as a middle market firm, because relative revenues are so different from industry to industry. Some analysts claim that a middle market firm is a lower earnings level of $10 million and a high earnings level of $500 million, but this has to be taken for what it is, an estimate that doesn't take into account outlier industries or firms.

Middle market firms are also likely to have a mid-level number of employees. This ranges from 100 employees to 2,000 employees. 

In the case of professional fields, such as legal, accounting or brokerage, middle market firms are sometimes called second tier firms because they are just below the top tier in the industry.

Middle Market Firms and the Economy

Middle market firms are the bread and butter of the U.S. economy, as they create jobs and are the fastest-growing segment of any industry in terms of revenue. While large firms in an industry are dominant, middle market firms in an industry, when their market share and revenues are combine, may outpower the large firms, simply because there are more middle market firms than large firms in most markets. 

For example, in the investment banking industry, middle market firms include William Blair and Piper Jaffray. In 2016, William Blair had more than $78 billion in assets and employed approximately 1,350 people, and Piper Jaffray had approximately $7.5 billion in assets and employed approximately 1,330 people.

Classification within the Stock Market

Middle market firms are often, but not always, publicly-traded. Small firms within the industry are usually not publicly-traded, and large firms are usually publicly-traded, but middle market firms may or may not be. Middle market firms that are publicly traded are likely to be categorized as mid-capitalization, or mid cap, stocks. Mid-cap stocks are attractive to investors because they have  high growth rate but they also have lower risk than small-cap or other speculative stocks. Mid-cap stocks in general have market capitalization of $1 to 8 billion.  

Mid-caps companies may be new companies or established companies or anywhere in between, as the mid-cap classification is reachable for a new market entrant but also sustainable for established companies. Investors favor mid-cap stocks because they are less risky than small-cap stocks but have greater growth than large-cap stocks.

 

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