Mid Market "Responsibility" vs. Large Market "Irresponsibility"
Jon Moulton of Alchemy Partners got PE tongues wagging earlier today, by saying that "it really would not be surprising in this recession if 30% of portfolio companies in the mid-market buyout firms actually failed.” He then softened it a bit, by adding that mid-market funds would "still come out better than mega-funds, because they had less debt going in." The first part of Moulton's comment is obviously sobering, but the second part is a conventional wisdom that began forming while the good times were still rolling. Specifically, this notion of mid-market responsibility vs. mega-market irresponsibility -- as if mid-market firms were putting down 20% on 30-year fixed mortgages, while mega-market firms were buying up McMansions with no-money down option ARMs. There's some truth to it, but much less than you might think. Specifically, let's take a look at Standard & Poor's data for 2007, which played host to a record-busting $765 billion in private equity transactions. It shows that purchase price multiples for
