There’s now over $200 billion in market capitalization dedicated to helping businesses connect, with companies like Shopify, Squarespace, GoDaddy and Wix serving as key enablers of digital transformation.

This trend will only continue and potentially generate more visibility in the middle market, greater economic growth in this market segment and more investment opportunities for private equity firms looking for the best deals.

Digital trends in the middle market

Mid-market companies are embracing digital innovation in many aspects of their operations.

A recent study by Capital One and Morning Consult found that mid-market companies prioritize investments in areas such as data analytics (28% of companies), e-commerce (26%), artificial (24%), cloud migration and customer experience. (24% each, respectively). Thirty percent of mid-market companies are also focused on providing a better employee experience, indicating that more companies are likely to invest in tools that promote back-end and workforce automation. to meet emerging needs for greater agility and meet employee demands for remote and hybrid working. to work.

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These numbers also suggest that mid-market companies are more aware that to drive growth they need to build their digital capabilities. Investing in digital is one way to achieve this. Digital investments can encompass initiatives such as developing a mobile app, launching a new website or upgrading an existing site, adding digital wallets and using payment solutions third parties like Venmo. Social media integrations can also speed up the customer journey to purchasing products through features such as “Buy Now” buttons, one-click ordering, or shareable product pages.

Investing in technologies like AI, cloud, and data analytics can optimize sales and marketing channels, drive customer personalization and more relevant messaging, and support strategic approaches like data-driven marketing. accounts that aim to attract high-value customers and increase market penetration for businesses.

And these potential benefits aren’t just based on theory. Research from the National Center for the Middle Market indicates that companies with a clear and comprehensive digital vision grow 75% faster than their peers. The centre’s research also found that mid-market companies that were more advanced or strategic in their approach to digital innovation experienced average revenue growth of just under 10% over a 12-month period, against revenue growth of 6.5% over the same period for companies. who had not yet made digital a central element of their activity.

It’s clear that midsize companies that want to develop or maintain their competitive edge and transform into high-growth businesses need to become more digitally compliant. In the process, they might also make themselves more attractive acquisition targets in the future.

It’s clear that midsize companies that want to develop or maintain their competitive edge and transform into high-growth businesses need to become more digitally compliant.

The market opportunity for private equity

The increased focus on digital transformation (DX) initiatives within the middle market is not only good for these companies; it also expands the investment universe for private equity firms.

Increased investments in automation, marketing tools, technology, and customer-facing communications are making this historically untapped market segment less opaque. Currently, it is not easy for traders to gather accurate information about middle market companies as they try to decide whether these companies meet their investment criteria or have high enough growth potential to offer the minus a 4x return. DX investments increase the visibility of these companies, so that potential investors can research them effectively and better assess whether they are truly investable.

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DX investments will make some midsize companies more valuable, especially if those investments lead to improvements that reduce operational and financial risk, generate greater market share, or help companies build an almost impenetrable moat around their business. , whether it is a brand, a price or a customer. prospect of experience. In recent years, digital companies have sold at higher multiples, giving private equity firms a way to achieve higher multiples that can rival those of software companies.

While the bread and butter of some private equity firms brings operational expertise to their portfolio companies, a mid-sized company that already has advanced digital capabilities may also have more mature operations that accelerate its path to an IPO. or an acquisition. It may simply need additional capital to make it happen, which makes the lift less onerous for a potential investor.

Mid-sized companies have so much value just waiting to be unlocked, but private equity firms have traditionally had limited visibility in this market. However, rapid digital transformation could change that. With more digital capabilities, businesses can drive customer engagement, deliver a better customer experience, and optimize operations to increase margins and create sustainable competitive advantage. All of this will make them prime targets for innovative traders who want to help them achieve their full potential.