177 Wall Street’s megabanks, including JPMorgan Chase, are increasingly focusing on midsize companies, which are becoming significant sources of business. Traditionally known for financing and advising on large deals, JPMorgan is now dedicating more resources to transactions involving companies valued at $2 billion or less. This strategic shift leverages relationships with approximately 30,000 U.S. businesses, such as Cava Group and Topgolf, which utilize JPMorgan’s commercial banking services. JPMorgan aims to provide these businesses with investment banking products and services for loans, IPOs, or acquisitions by private equity firms. This move by large banks into the midsize company territory, typically dominated by smaller lenders, comes after many companies transferred their deposits to bigger banks during the 2023 banking crisis. Regional banks have reduced lending due to the impact of higher interest rates, while big banks are competing with specialized boutiques. Advising on smaller deals helps these banks secure repeat business as companies grow. Additionally, midsize companies are attractive targets for private equity firms. Despite an overall decline in private equity deals in recent years, buyouts for midsize businesses have remained relatively strong. Middle-market deals accounted for a record 74% of private equity buyouts by count in 2023, surpassing the previous high of nearly 72% set in 2019. Although the total value of these buyouts declined along with the broader market, it fell less than large-cap deals. Fundraising for middle-market buyouts also had its second-best year after 2019. At JPMorgan, global M&A revenue decreased by 12% in 2023, while revenue for its middle-market M&A unit increased by 48%. Other major banks, such as Bank of America, have also expanded their middle-market initiatives, doubling the number of middle-market investment bankers to 200 in two years. Local investment banking teams help these banks serve middle-market clients more effectively across the country. Converting commercial banking clients into investment banking clients is not guaranteed. Goldman Sachs, which lacks a commercial bank, has been the top earner in fees from U.S. deals valued at $2 billion and under since 2017, with JPMorgan consistently ranking second. JPMorgan’s mid-cap investment banking unit, established in 2012, has nearly 115 bankers and plans to grow to 150 within the next year. These bankers are located in cities such as Nashville, Phoenix, and Dallas, focusing exclusively on middle-market companies. Many bankers are recruited from smaller investment banks like William Blair, Harris Williams, and Robert W. Baird. In 2021, JPMorgan committed $10 billion of its balance sheet to direct loans for midsize businesses, a figure that has since increased. This allows JPMorgan to retain clients in-house who might otherwise seek financing from regional banks or private credit firms. The mid-cap unit generated 13% of North America investment-banking revenue in 2023, handling deals like Cava’s IPO, up from 5% in 2019. The unit is targeting about $1 billion in revenue this year. The middle market was also a focus of JPMorgan’s newly combined commercial and investment banking division during the bank’s recent investor day. John Richert, the Atlanta-based head of the mid-cap unit, emphasized the importance of serving the backbone of the U.S. economy. A case in point is J&J Worldwide Services, a defense contractor with less than $40 million in annual earnings before interest, taxes, depreciation, and amortization. Despite initial doubts about its size, JPMorgan, driven by its long-standing commercial banking relationship with the company, secured the mandate to advise on its sale to Arlington Capital Partners in 2020 and its subsequent sale to CBRE Group for over $800 million earlier this year. This generated about $25 million in investment banking fees for JPMorgan over three years. This strategic focus on midsize companies allows big banks like JPMorgan to diversify their revenue streams and deepen relationships with a broader client base, ensuring steady business growth and resilience. You Might Be Interested In Goldman Sachs Surpasses Profit Expectations, Fueled by Investment Banking Microsoft vs. Apple: The Resurgence of the PC Battle Bath & Body Works Teams Up with Netflix to Bring Fragrance to “Bridgerton” Fans Leadership Transition Looms at JPMorgan: Contenders Focus on Growth and Talent Development China Mulls Consumer Tax Reform Ahead of Key Meeting Julius Baer Appoints Stefan Bollinger as New CEO Amidst Recovery from Signa Scandal