Why mid-market companies need a new private capital playbook
Mega-IPOs – from SpaceX’s recent debut to prospective listings like Anthropic and OpenAI – are dominating headlines and they will continue to in coming months. But don’t mistake their presence for an IPO market recovery. According to Noelle Cajigas, head of deal advisory for KPMG in the EMEA, this is actually representative of a consolidation rather than an expansion of activity.
Capital is increasingly concentrating in a small number of dominant companies, rather than flowing across wider public markets, with much of that concentration captured by a narrow group of technology leaders and their immediate ecosystem.
The result is a market that may look strong at headline level, but masks the fact that the IPO market is effectively not an option for mid-market companies, especially those that sit outside of the technology space. It’s a trend that demands a fundamental shift in how mid-market companies and their shareholders think about accessing capital.
The architecture problem
Over the past decade, money has shifted decisively from active fund managers to passive index funds and alternative asset management mandates. This structural shift has three direct and damaging consequences for the IPO market.
Firstly, there is a reduced pot of liquidity available for IPOs. When capital gravitates towards passive strategies and alternatives, less flows into the active discovery process that IPOs require. Secondly, analyst opinions have lost their influence in determining valuations. A lower weight of active managers in the market composition means a diminished influence of analysts’ views on company valuations. This in turn is driving a critical decoupling of share price movements from fundamentals; a disconnect that makes IPO valuations an unlikely source of optimally priced capital for most new issuers.
Thirdly and conversely, private equity, despite recent time challenges, is bringing greater discipline, conviction and long-term capital to the table. In a market where public listings remain uncertain and valuations overwhelmingly disappoint, PE offers something increasingly valuable: certainty of execution, rigorous price discovery and the ability to back proven winners in a wide range of sectors.
The two-tier market trap
What is emerging is a two-tier capital market. Mega-cap technology companies will ease back on buybacks to fund infrastructure investment and, in some cases, raise fresh equity through IPOs or rights issues; but that does not signal a reopening of the IPO market for everyone else. If anything, it risks deepening the divide.
The largest companies can still access public equity because they have the liquidity, analyst coverage and the attributes to qualify for select indices and therefore benefit from passive fund support in the secondary market. Mid-market companies face a very different reality: limited appetite, weaker visibility and fewer efficient public exit routes.
Europe compounds this challenge significantly. We don’t have a capital markets union and attempts to create one face continuous political resistance, most recently evidenced by the exception sought for Deutsche Börse. But beyond the CMU conundrum, there’s a graver structural issue: the depth of domestic capital markets varies significantly across European jurisdictions.
Spain is one example –the lack of incentivization for pension fund investments means Spanish corporates have a much weaker institutional investor base to support them – and Spanish savers a reduced opportunity to share in the wealth created by their companies. A company based in Madrid has fewer domestic sources of institutional capital than equivalent companies in the US or larger European markets. This reality makes it even harder for many mid-market European companies to find a public market home than their US counterparts, compounding the global IPO challenge with regional fragmentation.
The way forward
Despite all these challenges, private equity offers a genuine alternative for accessing institutional capital, offering the certainty, patience and conviction that equity markets can no longer reliably provide. For companies for whom public markets are inefficient, PE’s growing capacity to deploy capital across different structures and strategies represents real optionality that did not exist a decade ago.
For advisers, this shift is profound. A more selective, more concentrated public market will increase the need for carve-outs, portfolio optimisation and complex transaction support in the large corporate universe and a much stronger focus on what happens after a deal is signed in all market segments: transformation potential and value creation.
It will also demand a more nuanced understanding of the money flow environment. As capital becomes more discerning and exits become harder to execute (another consequence of a weak IPO market), the margin for error narrows. Buyers, sellers and management teams will need advisers who can do more than process a transaction. They will need advisers who can help them shape the strategic case, test the risks, defend the valuation and deliver the promised value through the right investor base.
In this market, good advice is no longer a commodity. It is a source of competitive advantage.
