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. That is, middle-market firms are in the middle of the market between smaller companies and the giants of the industry that dominate the market.
- A middle market firm falls in the middle of an industry based on some measure, whether it be revenue or number of assets.
- Analysts generally consider companies with 100 to 2,000 employees, or with $10 million to $500 million in earnings as middle market firms.
- Publicly-traded middle market firms are generally categorized as mid-cap stocks.
How a Middle Market Firm Works
Middle market firms have no set dollar value in revenues that qualifies them as such because relative revenues are so different from industry to industry. Some analysts claim that a middle market firm's earnings fall between $10 million and $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.
There is no set level of revenues, assets, or employees that qualifies a company as a middle market firm.
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 combined, may outpower the large firms simply because there are more middle-market firms than large firms in most markets.
Example of a Middle Market Firm
For example, in the investment banking industry, middle market firms include Piper Jaffray and Raymond James. In 2018, Piper Jaffray generated more than $745 million in revenue and employed approximately 1,260 people, and Raymond James generated approximately $7.3 billion in revenue and employed approximately 13,900 people.
Requirements for a Middle Market Firm
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 a high growth rate but they also have lower risk than small-cap or other speculative stocks. Mid-cap stocks, in general, have a market capitalization of between $2 billion and $10 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.
The Vanguard Mid-Cap ETF has outperformed both the small- and large-cap Vanguard ETFs since its inception in 2004.