the market that moves america - association for corporate ... 19 acg webinar vf_0.pdf2015 1q. 2015...

IN COLLABORATION WITH

The Market That Moves AmericaFindings from the 2Q 2019 Middle Market Indicator Report

Thomas A. Stewart, Executive Director | The National Center for the Middle Market

The National Center for the Middle Market

The National Center for the Middle Market is a collaboration between The Ohio State University’s Fisher College of Business, Grant Thornton, Cisco Systems, and Chubb. It exists for a single purpose: to ensure that the vitality and robustness of Middle Market companies are fully realized as fundamental to our nation’s economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the middle market economy, providing critical data analysis, insights, and perspectives for companies, policymakers, and other key stakeholders, to help accelerate growth, increase competitiveness and create jobs in this sector.

MIDDLE MARKET RESEARCH & DATA EXPERTISE & OUTREACH

EDUCATION

Quarterly Middle Market Indicator

Research and Expert Perspectives

Interactive Benchmarking Tools

Executive Programs

Webinars

Share Research & Discuss Trends

The National Center for the Middle Market

The National Center for the Middle Market is a collaboration between The Ohio State University’s Fisher College of Business, Grant Thornton, Cisco Systems, and Chubb. It exists for a single purpose: to ensure that the vitality and robustness of Middle Market companies are fully realized as fundamental to our nation’s economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the middle market economy, providing critical data analysis, insights, and perspectives for companies, policymakers, and other key stakeholders, to help accelerate growth, increase competitiveness and create jobs in this sector.

Middle MarketResearch & Data

Expertise& Outreach

Quarterly Middle Market Indicator

Research andExpert Perspectives

Interactive Benchmarking Tools

Share Research& Discuss Trends

Education

Executive Programs

Webinars and Podcasts

The Mighty Middle Market

U.S. MIDDLE MARKET DEFINED

Annual Revenues Range from

$10MM - $1B

Represents

1/3 of Private Sector GDP and Employment

Accounts for

60% of All New Private-Sector Jobs

Nearly

200,000 in All Industry Segments and GeographiesBusinesses

85%of CompaniesAre Privately Held

Equivalent to the

5th LARGESTglobal economy

More than

$10 trillion in annual revenue

2Q19 Middle Market Indicator

About the Middle Market Indicator

A Quarterly National Survey Cut by Geography and Industry

Source: 2Q’19 Middle Market Indicator Report

Headlines

Source: 2Q’19 Middle Market Indicator Report7

• The middle market continues to lead the U.S. economy in revenue growth and job creation. The annualized revenue growth rate for middle market companies is at near record levels. Private-equity-owned companies outperformed the national averages, and expect to continue to thrive.

• Employment growth has rebounded and is at near-record levels.

• The role of M&A in company growth is substantial—particularly for larger middle market companies—but most middle market growth is organic.

• Caution flags are out. Short-term expectations are down, confidence remains off its peaks, and executives are building rainy-day funds. PE-owned companies, despite higher performance, appear to be more cautious than the middle market as a whole.

1

2

3

4

Overview

CAPITAL INVESTMENT CONFIDENCE

69%GLOBAL ECONOMY

82%NATIONAL ECONOMY

89%LOCAL ECONOMY

REVENUE GROWTH

8.5%PAST 12 MONTHS

5.4%NEXT 12 MONTHS

EMPLOYMENT GROWTH

6.4%PAST 12 MONTHS

4.8%NEXT 12 MONTHS

0.9%SMALLBUSINESS

2.3%LARGEBUSINESS

Source: 2Q’19 Middle Market Indicator Report8

2.21%S&P 500 63%

WILL INVEST

2Q’19 MMI: Revenue Growth

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

U.S. MIDDLE MARKET S&P 500 PE-OWNED9

PAST 12 MONTHS

8.5%U.S. MIDDLE MARKET

10.3%PE-OWNED FIRMS

2.21%S&P 500*


2Q’19 MMI: Winners and Losers

2Q 2019 1Q 2019

Performance improved 68% 67%

Performance was unchanged 26% 28%

Performance deteriorated 6% 5%


2Q’19 MMI: Revenue Growth by Industry

10.5%

10.1%

6.9%

7.4%

8.0%

3.5%

3.8%

6.3%

5.8%

5.1%

4.8%

10.2%

8.1%

9.1%

8.5%

11.5%


2Q’19 MMI: Revenue Growth Forecast

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

3Q '1

24Q

'12

1Q '1

32Q

'13

3Q '1

34Q

'13

1Q '1

42Q

'14

3Q '1

44Q

'14

1Q '1

52Q

'15

3Q '1

54Q

'15

1Q'1

62Q

'16

3Q'1

64Q

'16

1Q'1

72Q

'17

3Q'1

74Q

'17

1Q'1

82Q

'18

3Q'1

84Q

'18

1Q'1

92Q

'19

U.S. MIDDLE MARKET PE-OWNED


7.2%PE-OWNED FIRMS

NEXT 12 MONTHS


2Q’19 MMI: Employment Growth

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

4Q '1

21Q

'13

2Q '1

33Q

'13

4Q '1

31Q

'14

2Q '1

43Q

'14

4Q '1

41Q

'15

2Q'1

53Q

'15

4Q'1

51Q

'16

2Q'1

63Q

'16

4Q'1

61Q

'17

2Q'1

73Q

'17

4Q'1

71Q

'18

2Q'1

83Q

'18

4Q'1

81Q

'19

2Q'1

9

U.S. MIDDLE MARKET LARGE

SMALL PE-OWNED FIRMS

0.9%SMALLBUSINESS

2.3%LARGEBUSINESS

PAST 12 MONTHS


7.9%PE-OWNED FIRMS


2Q’19 MMI: Employment Growth by Industry

7.8%

5.6%

5.9%

5.5%

6.3%

5.6%

2.8%

4.7%

10.6%

5.9%

6.1%

6.8%

5.4%

2.0%

5.5%

6.4%


2Q’19 MMI: Employment Growth Forecast

NEXT 12 MONTHS


6.0%PE-OWNED FIRMS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

3Q '1

24Q

'12

1Q '1

32Q

'13

3Q '1

34Q

'13

1Q '1

42Q

'14

3Q '1

44Q

'14

1Q '1

52Q

'15

3Q '1

54Q

'15

1Q'1

62Q

'16

3Q'1

64Q

'16

1Q'1

72Q

'17

3Q'1

74Q

'17

1Q'1

82Q

'18

3Q'1

84Q

'18

1Q'1

92Q

'19

U.S. MIDDLE MARKET PE-OWNED FIRMSSource: 2Q’19 Middle Market Indicator Report

2Q’19 MMI: Economic Confidence Remains Off Its Peak

20%

30%

40%

50%

60%

70%

80%

90%

100%1Q

'13

2Q '1

33Q

'13

4Q '1

31Q

'14

2Q '1

43Q

'14

4Q '1

41Q

'15

2Q '1

53Q

'15

4Q '1

51Q

'16

2Q '1

63Q

'16

4Q'1

61Q

'17

2Q'1

73Q

'17

4Q'1

71Q

'18

2Q'1

83Q

'18

4Q'1

81Q

'19

2Q'1

9

GLOBAL ECONOMY NATIONAL ECONOMY LOCAL ECONOMY

U.S. ECONOMY

82%85% PE-OWNED

LOCAL ECONOMY

89%91% PE-OWNED

GLOBAL ECONOMY

69%80% PE-OWNED


2Q’19 MMI: Short Term Index Has Deteriorated

70

60

81

108

91 91

80

96100

79

7475

69

50

70

90

110

2Q'16 3Q'16 4Q'16 1Q'17 2Q'17 3Q'17 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18 1Q'19 2Q'19

Short Term Index is calculated by taking expected net positive change in business climate plus expected net positive change in demand plus expected net positive change in sales over the next 3 months.


Rising Negatives Are Pulling the Index Down

Short Term Outlook(Next 3 Months)

31%

25%

20%

16%

21%19%

22%

28%

38%

28% 27%30%

27%29%

22% 22%25%

23%

8%11% 10% 10% 9% 8%

11%

7%5%

7% 7%9%

6% 7% 8% 8%10%

12%

43%

34%32%

30%33% 33%

30%

35%

42% 41% 41%38%

40%42%

38%

32%

36% 37%

4% 6% 7% 7%4% 4%

8%5% 4% 5% 5%

7%3%

5%5% 6% 7% 7%

53%

44%42%

38%

46%

42% 41%43%

52%49% 49%

46%

51%55%

46% 46%44%

48%

5% 9% 8% 9% 5%5%

8%5% 4%

6% 5%

10%

3%5% 6% 6% 6%

8%

0%

20%

40%

60%

2015 1Q 2015 2Q 2015 3Q 2015 4Q 2016 1Q 2016 2Q 2016 3Q 2016 4Q 2017 1Q 2017 2Q 2017 3Q 2017 4Q 2018 1Q 2018 2Q 2018 3Q 2018 4Q 2019 1Q 2019 2Q

More Favorable Business Climate Less Favorable Business Climate

Increased Demand Decreased Demand

Increased Sales Decreased Sales


2Q’19 MMI: Investment Appetites Have Weakened

40%

45%

50%

55%

60%

65%

70%

75%

80%

PE-OWNED U.S. MIDDLE MARKET

WHAT WOULD YOU DO WITH AN EXTRA DOLLAR?

INVEST VS. HOLD CASH


2Q’19 MMI: Investment Appetites Have Waned

19

17

1596

9

8

142

Save It-Hold as Cash

Save It--for Making Investments

CapEx--Plant & Equipment

CapEx--Facilities

Acquisitions

Add to HR--More Personnel

Add to HR--Training &DevelopmentIT

Other

24

19

129

7

8

10

9 2

U.S. MIDDLE MARKET PE-OWNED

WHAT WOULD YOU DO WITH AN EXTRA DOLLAR TO INVEST?


37%43%

2Q’19 MMI: Expansion Plans Remain Robust

Source: 2Q’17, 18, 19 Middle Market Indicator Reports

0

10

20

30

40

50

60

Introduce a new product orservice

Expand into new domesticmarket(s)

Add new plant or facility Expand into newinternational market(s)

Extremely/Very Likely in Next 12 Months

2Q 17 2Q 18 2Q 19

2Q’19 MMI: Expansion Plans For PE Firms

Source: 2Q’17, 18, 19 Middle Market Indicator Reports

0

10

20

30

40

50

60

Introduce a new product orservice

Expand into new domesticmarket(s)

Add new plant or facility Expand into newinternational market(s)

Extremely/Very Likely in Next 12 Months

2Q 17 2Q 18 2Q 19

Historically, Middle Market Companies with Revenues Above $100 Million Have Grown Fastest

Revenue Growth

7.9

6.2

7.2

7.5 7.1 7.0 7.4

7.87.9

7.98.3

5.7

9.2

6.9

9.0 7.8 8.0

7.5

9.7

7.7

11.9

8.0

5.8

8.0

10.2

7.7

11.0

8.19.5

10.0

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

$10M to <$50M Revenue

$50M to <$100M Revenue

$100M to <$1B Revenue Avg $100M to <$1B = 7.7

Avg $50M to <$100M = 7.1

Avg $10M to <$50M = 6.5

M&A Explains Almost Half the Superior Growth of Upper Middle Market Companies

Total Middle Market Revenue $10MM-$50MM

Revenue $50MM-$100MM

Revenue $100MM-$1Bn

Average Growth Rate All Companies, 1Q 2015-2Q 2019

7.4% 6.8% 7.6% 8.4%

Average Growth Rate, Companies with No M&A in Previous 12 Months, 1Q 2015- 2Q 2019

6.6% 6.3% 6.6% 7.1%


Digital Capabilities, Strategic Sophistication Help Bigger Companies

Advanced digital capabilities

23%

32%

36%

9%

StrategicAdvancedDefensiveNot there/Denial

GROWTH RATELAST 12 MONTHS

10.2%

9.3%

6.7%

6.3%

APPROACH

Well defined strategies

We have a well-defined strategy that guides business decisions, 62%

We have a generally understood strategy that guides business decisions, but it is not well defined, 33%

We don’t have an overarching strategy that guides business decisions, 5%

GROWTH RATE LAST 12 MONTHS 6.8%

GROWTH RATE LAST 12 MONTHS 8.6%

2Q’19 MMI: R&D Spending Continues Strong


7.8% 8.4% 8.6% 8.1% 8.5% 8.0%7.1% 7.7%

9.6%8.1%

9.2%8.3%

9.8%8.8%

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

Proportion of Revenue Spent on Product Development

Expect increase

27%

Stay the same66%

Expect decrease

7%

Av. = 8.4%

2Q’19 MMI: Where IT Spending Goes


Daily mgmt (production, ops,

controls, etc.)

Back office (finance, acctg,

payroll)

Sales

Customer interactions

Cybersecurity

Analytics & strategy

Demand gen, advertising, marketing

Innovation

Inbound/outbound logistics Other

Cybersecurity and Costs Are Top Risks


Level Of Challenge of Managing Risk

Not At All Challenging

Not Very Challenging

Somewhat Challenging

Very Challenging

Extremely Challenging

4%

4%

2%

5%

2%

2%

4%

15%

15%

9%

10%

17%

20%

15%

20%

18%

18%

17%

28%

28%

35%

27%

32%

34%

46%

37%

40%

45%

40%

30%

30%

34%

37%

33%

30%

29%

29%

32%

27%

31%

20%

20%

17%

23%

14%

11%

9%

9%

8%

8%

8%

7%

7%

5%

4%

Cybersecurity

Legal, regulatory, or compliance risk

State of the economy-costs

Competitive risk-new or disruptive competitors

State of the economy-growth

General increase in volatility of business environment

Competitive risk-domestic

Change in leadership or control (CEO succession, M&A)

Competitive risk-global

Catastrophic incidents (not cyber) (natural disasters, operational problems)

Supply chain risk

+7

+3

+3

+4

+6

Vs. 1Q ‘19

Actions or Attitudes? Pick ‘Em

+Revenue growth

HiringWinners > losers

Investment and expansion plans

-Confidence

Revenue and hiring projectionsShort-term sentimentInvestment appetite


www.middlemarketcenter.org

the market that moves america - association for corporate ... 19 acg webinar vf_0.pdf2015 1q. 2015...

Documents