Investors turn to the mid-corporate segment for the next phase of dealmaking

Across the country’s mid-corporate economy, there is a steady stream of transactions involving privately owned businesses that rarely attract media attention. These companies typically generate revenues of about R500 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of roughly R50 million or higher. Many are founder-led businesses that sit in the upper tier of the commercial economy. In practice, EBITDA remains the key metric that determines how transactions are financed, shaping both valuation discussions and the level of leverage a business can support.

From our perspective, activity in this segment has picked up over the past two years. The deals themselves may not rival the size of transactions involving listed corporates, but their strategic importance is clear in a sector of the economy where growth in new employment opportunities is observable. Management buyouts, minority equity investments, bolt-on acquisitions and shareholder succession transactions are occurring with increasing frequency as businesses position themselves for their next phase of growth.

Many of these companies are also becoming acquisition targets. In our experience, roughly 50% to 60% of mid-corporate businesses attract investor interest. These businesses are attracting both financial investors, such as private equity funds, family offices and strategic trade buyers seeking scale and consolidation within fragmented sectors. Many of these investors can deploy equity of up to R250 million or more, bringing a new level of attention to companies that have historically operated outside the spotlight of the formal M&A market.

The capital allocators around this segment have broadened in recent years. Family offices and boutique investment firms are playing an increasingly active role in acquiring or partnering with established businesses. Several have raised capital aimed specifically at mid-market opportunities. Their participation has deepened the pool of potential buyers and intensified competition for quality assets.

Ownership dynamics are another driver of activity. Many founders who built their companies over decades are now approaching retirement age. For many of these shareholders, succession planning has moved from a distant consideration to an immediate priority. Some are exploring partial exits that allow them to realise value while remaining involved in the business. Others are seeking strategic partners who can help scale operations, strengthen management teams or support expansion into new markets.

These decisions are rarely driven by valuation alone. For founders, the company often represents a lifetime of effort and personal identity. Legacy, continuity and trust frequently carry as much weight as financial considerations. Transactions, therefore, tend to unfold gradually as shareholders develop confidence in potential partners and the future direction of the business.

Differences between buyer and seller expectations are common. Founders who have invested years building a successful enterprise understandably believe it deserves a strong price, while investors must ensure that projected returns justify the capital deployed. Bridging that gap requires careful structuring.

A growing number of mid-corporate transactions now incorporate mechanisms such as earn-out arrangements, deferred consideration, or staged exits that allow both parties to share in future performance. Hybrid capital solutions are also becoming more common. Instruments that combine elements of debt and equity – including preference shares, equity-linked mezzanine funding, warrants and other structured options – can align incentives between investors and existing shareholders while enabling transactions that might otherwise stall.

The financing environment itself has evolved. Alongside traditional bank funding, private credit funds, asset managers and specialist mezzanine lenders are participating more actively in mid-corporate transactions. Their presence has broadened leverage options and introduced additional competition into the lending market.

One notable development is the gradual emergence of syndicated lending in the unlisted mid-corporate segment. Transactions once funded by a single lender are increasingly shared among multiple institutions as deal sizes grow and capital structures become more sophisticated.

At the same time, a new generation of independent advisory firms has begun working closely with privately owned businesses. Many are led by former investment bankers who now advise founders directly on acquisitions, shareholder transitions and capital raising. They prepare information memoranda, approach potential investors and run financing tenders among banks. Their presence has increased the sophistication of the mid-corporate deal environment and encouraged banks to deepen their advisory capabilities.

Nedbank Mid-corporate has deliberately positioned itself to support this shift by bringing elements of investment-banking capability into the commercial banking environment. The aim is not only to provide debt funding but also to assist clients with structuring insights, capital market perspective, and investor introductions where appropriate.

This trend is reflected in deal activity across several sectors, including healthcare, retail import distribution, apparel and pharmaceutical contract manufacturing. Many of these businesses are attracting interest from international buyers looking for exposure to established South African companies.

Some investors view these businesses as a gateway to the broader African market. A number of mid-corporate companies are already expanding their operations into other parts of the continent, particularly in North and East Africa, where regional trade links and distribution opportunities continue to strengthen.

As these businesses grow and expand, public markets are also beginning to enter the conversation. A number of mid-corporate companies are exploring bourse listings as part of their longer-term growth strategy. For businesses that have spent years strengthening their balance sheets and management teams, a listing can provide both expansion capital and a pathway for shareholders to unlock value over time. While these discussions remain early, they point to a potential future pipeline of companies that may eventually return to the stock exchange.

These developments may not always dominate the headlines. Yet they represent an important layer of capital formation in the economy. Beneath the surface of the large corporate deal cycle, the country’s mid-corporate sector is steadily reshaping ownership, attracting new pools of investment and building the next generation of South African growth companies. DM

Author: Greg Campbell, Head of Leveraged Finance, Nedbank Business and Commercial Banking