q2'17 middle market indicator | acg webinar | july 26 ... middle market... ·...

THE MARKET THAT MOVES AMERICA FINDINGS FROM THE NCMM’S Q2 '17 INDICATOR SURVEY T h o m a s A . S t e w a r t , E x e c u t i v e D i r e c t o r T h e N a t i o n a l C e n t e r f o r t h e M i d d l e M a r k e t

Q2'17 MIDDLE MARKET INDICATOR | ACG WEBINAR | July 26, 2017

THE MIGHTY MIDDLE MARKET

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THE NATIONAL CENTER FOR THE MIDDLE MARKET

www.middlemarketcenter.org

The National Center for the Middle Market is a collaboration between The Ohio State University’s Fisher

College of Business, SunTrust Banks Inc., Grant Thornton, and Cisco Systems. 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

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http://www.middlemarketcenter.org/

THE MIDDLE MARKET INDICATOR

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MIDDLE MARKET INDICATOR

OVERVIEW

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A Quarterly National Survey Cut by Geography and Industry

Q2'17 MIDDLE MARKET INDICATOR

EXECUTIVE SUMMARY

• FOLLOWING A RECORD-SETTING FIRST QUARTER, THE MIDDLE

MARKET CONTINUES TO LEAD THE U.S. ECONOMY IN REVENUE

GROWTH AND JOB CREATION

• THE MIDDLE MARKET CONTINUES WITH RECORD HIGH JOB

CREATION AND REVENUE GROWTH, FUELED IN PART BY A SURGE

IN M&A ACTIVITY

• EXPECTATIONS FOR GROWTH AND JOB CREATION IN THE COMING

YEAR ARE ALSO STRONG

• CONFIDENCE IN THE U.S. AND LOCAL ECONOMIES HIT RECORD

HIGHS; GLOBAL CONFIDENCE HAS REBOUNDED

Source: 2Q’17 Middle Market Indicator Report

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2

3

4

6

Q2'17 U.S. MIDDLE MARKET

EXECUTIVE SUMMARY

CAPITAL INVESTMENT

67% WILL INVEST

CONFIDENCE

70% GLOBAL ECONOMY

84% NATIONAL ECONOMY

87% LOCAL ECONOMY

REVENUE GROWTH

6.7% PAST 12 MONTHS

5.3% NEXT 12 MONTHS

EMPLOYMENT GROWTH

5.7% PAST 12 MONTHS

4.7% NEXT 12 MONTHS

1.3% SMALL BUSINESS

2.5% LARGE BUSINESS

Source: 2Q’17 Middle Market Indicator Report 7

4.75% S&P 500


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%

Series2 Series1 Series38


*2Q numbers include only companies who have reported.

PAST 12 MONTHS

6.7% U.S. MIDDLE MARKET

9.5% PE-OWNED FIRMS

4.75% S&P 500*

THE RISING TIDE CONTINUES TO LIFT

ALMOST ALL BOATS

Source: 2Q ‘17 Middle Market Indicator Report

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2Q 2017 2Q 2016

Performance improved

65% 64%

Performance was unchanged

30 30

Performance deteriorated

5 6


INDUSTRY REVENUE GROWTH


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REVENUE GROWTH FORECAST

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

U.S. MIDDLE MARKET PE-OWNED


4.7% PE-OWNED FIRMS

NEXT 12 MONTHS


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

U.S. MIDDLE MARKET LARGE

SMALL PE-OWNED FIRMS

PAST 12 MONTHS


6.7% PE-OWNED FIRMS


EMPLOYMENT GROWTH

1.3% SMALL BUSINESS

2.5% LARGE BUSINESS



INDUSTRY EMPLOYMENT GROWTH



EMPLOYMENT GROWTH FORECAST

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

U.S. MIDDLE MARKET PE-OWNED FIRMS


6.8% PE-OWNED FIRMS

NEXT 12 MONTHS


CONFIDENCE, INVESTMENT PLANS,

AND CHALLENGES

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ECONOMIC CONFIDENCE

16

20%

30%

40%

50%

60%

70%

80%

90%

1Q

'12

2Q

'12

3Q

'12

4Q

'12

1Q

'13

2Q

'13

3Q

'13

4Q

'13

1Q

'14

2Q

'14

3Q

'14

4Q

'14

1Q

'15

2Q

'15

3Q

'15

4Q

'15

1Q

'16

2Q

'16

3Q

'16

4Q

'16

1Q

'17

2Q

'17

GLOBAL ECONOMY NATIONAL ECONOMY LOCAL ECONOMY

U.S. ECONOMY

84% 89% PE-OWNED

LOCAL ECONOMY

87% 91% PE-OWNED

GLOBAL ECONOMY

70% 85% PE-OWNED


_____________________________________

Confidence Remains Strong Across the Board


CAPITAL INVESTMENT PLANS

40%

45%

50%

55%

60%

65%

70%

75%

80%

1Q

'12

2Q

'12

3Q

'12

4Q

'12

1Q

'13

2Q

'13

3Q

'13

4Q

'13

1Q

'14

2Q

'14

3Q

'14

4Q

'14

1Q

'15

2Q

'15

3Q

'15

4Q

'15

1Q

'16

2Q

'16

3Q

'16

4Q

'16

1Q

'17

2Q

'17

PE-OWNED U.S. MIDDLE MARKETSource: 2Q’17 Middle Market Indicator Report

_________________

Firms Plan to Invest

17

COMPANIES FEEL COSTS ARE UNDER

CONTROL AND PROFIT MARGINS SAFE

0% 1.3%

2.5% 2.8% 3.1% 2.4% 2.6%

1.9% 2% 2.6%

3.1% 3.4%

5.9%

3.2% 2.6% 2.4%

2.2% 2.3% 2.3% 1.7% 1.6% 1.2% 1.1%

2.3% 2.1% 2.1%

4.3%

2% 0%

5%

10%

15%

20%

20141Q

20142Q

20143Q

20144Q

20151Q

20152Q

20153Q

20154Q

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

Profit Margins Cost Structure

Expected Change in


CHALLENGES

BUSINESS AND STAFF/EMPLOYEES ARE TOP OF MIND FOR MIDDLE MARKET LEADERS


37%

29%

22%

16%

12%

BUSINESS

GOVERNMENT

COMPETITION

COSTS

ECONOMY

67%

57%

29%

BUSINESS

STAFF/EMPLOYEES

COSTS

STAFF/EMPLOYEES

BUSINESS

COSTS 19%

43%

50%

BUSINESS

GOVERNMENT

COMPETITION

COSTS

ECONOMY 10%

15%

18%

27%

31%

LEADERSHIP SKILLS: WHAT FAST

GROWING COMPANIES DO BEST


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Performance on Leadership Skills (One of Strengths)

Growth Rate

10%+

5% -

<10%

1% -

<5% 0%

Negativ

e

Setting strategic direction 23 33 24 24 21

Driving planning and execution 32 32 38 41 31

Developing talent 35 19 26 15 8

Communication 34 41 25 39 30

Delegating / empowering the team 39 42 28 33 16

Balancing risk and opportunity 26 30 35 44 37

Communicating vision and values 36 20 30 19 21

Creating a sustainable enterprise 23 27 42 23 21

Sharpening customer focus 41 33 14 22 21

Sparking innovation 40 20 17 15 13

Strengthening emotional intelligence 26 10 17 23 56

Encouraging diversity 27 34 15 25 --

Other -- -- 69 100 --

LEADERSHIP SKILLS: WHAT FAST

GROWING COMPANIES NEED MOST


Top Leadership Skills Needed (Ranked 1st-5th)

Growth Rate

10%+

5% -

<10%

1% -

<5% 0% Negative

Setting strategic direction 58 69 65 56 55

Driving planning and execution 54 56 59 54 73

Developing talent 53 55 58 57 52

Communication 52 46 58 49 51

Delegating / empowering the team 52 46 53 58 40

Balancing risk and opportunity 48 49 45 48 61

Communicating vision and values 46 52 41 41 61

Creating a sustainable enterprise 32 38 35 44 41

Sharpening customer focus 32 27 25 34 36

Sparking innovation 32 34 32 23 20

Strengthening emotional intelligence 19 17 14 17 7

Encouraging diversity 22 12 13 16 3

Other 1 -- 1 3 --

DEAL MAKING:

APPETITES AND OBSTACLES

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THE APPETITE FOR M&A IS ROBUST—

ESPECIALLY AMONG PE-OWNED FIRMS

38%

53%

32% 38% 38%

Total MM PE Owned Not PE Owned Family Owned Not Family Owned

LIKELIHOOD OF MAKING M&A DEALS IN NEXT 12 MONTHS

43% 33% 39% 41% 38% 35% 39%

BUYERS SEEK CUSTOMERS, PRODUCTS,

TALENT, AND SCALE

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IMPORTANT WHEN DECIDING TO MAKE ACQUISITION (RANKED 1ST/ 2ND/3RD)

Add new markets and customers

Diversify product or service portfolio

Acquiring new talent/leadership

Acquiring a technology,

patent, or product

Achieving economies of scale

Consolidating the competition

Acquiring a brand

Utilizing liquidity

PE

Owned

Not PE

Owned

Family

Owned

Not

Family

Owned

64 71 68 68

41 48 45 45

52 34 37 44

31 38 29 40

38 28 33 31

21 37 29 31

35 24 41 21

17 20 18 19

Ranked 1st Ranked 1st/2nd/3rd

34%

13%

11%

7%

9%

7%

12%

6%

68%

45%

42%

36%

32%

30%

29%

19%

SELLERS ARE MOTIVATED BY

SUCCESSION AND PROFITABILITY

25

PE

Owned

Not PE

Owned

Family

Owned

Not Family

Owned

14 25 40 7

18 20 11 25

13 22 18 18

20 8 17 11

13 12 54 18

12 9 5 14

10 5 5 9

IMPORTANT WHEN DECIDING TO MERGE OR SELL (RANKED 1ST)

20%

19%

18%

13%

12%

10%

7%

Succession or retirement issues

Opportunity to sell at an

attractive price

Competition

Focus on core, sell off non-core

business

Declining revenue or

profitability

Becoming part of a larger/more

recognized brand

Access to deeper pockets, more

capital

Total MM

COMPANIES ON THE SIDELINES

EMPHASIZE PROFITS, ORGANIC GROWTH

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REASONS NOT LIKELY TO MAKE M&A

37%

35%

24%

11%

9%

6%

3%

We are focused on

increasing profitability

Our strategy is to grow

organically at this time

There are no attractive

opportunities out there

We don’t have access

to capital for M&A

We are still digesting

recent M&A activity

We are constrained from M&A

by other factors (e.g. regulation,

industry structure)

Other

PE

Owned

Not PE

Owned

Family

Owned

Not Family

Owned

38 37 39 36

38 34 35 36

22 25 26 23

10 11 7 13

15 7 8 10

5 7 5 7

1 4 3 3

WHAT’S MOST CONFUSING: STRATEGY,

FINDING THE RIGHT PARTNER

27

MOST CONFUSING ASPECT

38%

36%

22%

20%

12%

7%

Getting the strategy right

Finding the right target or

the right buyer

Post-merger integration

Valuations too high to

consider buying

Valuations too low to

consider selling

Other

Total MM PE

Owned

Not PE

Owned

Family

Owned

Not

Family

Owned

40 38 35 41

34 37 37 35

24 21 16 25

22 19 23 19

16 10 11 12

8 6 8 6

WHAT’S MOST CHALLENGING:

PARTNER AND PRICE

28

PE

Owned

Not PE

Owned

Family

Owned

Not

Family

Owned

39 48 49 42

39 47 34 50

37 34 42 31

32 31 26 35

30 29 28 31

32 25 22 32

29 21 34 18

26 18 12 27

24 11 19 15

1 1 1 1

Issues with M&A

45%

44%

35%

32%

30%

28%

24%

21%

16%

1%

Finding the right partners

Achieving the right valuation

Protecting/considering employees

Maintaining culture during the

integration

Tax considerations

Access to capital

Convincing owners (e.g.,

including family members)

Convincing the board or

leadership team

Finding the right advisors

Other

THE NCMM’S NEW CYBERSECURITY

RESOURCE CENTER

Dedicated to helping middle market companies

manage cyber risks

http://cybersecuritycenter.middlemarketcenter.org/

MIDDLEMARKETCENTER.ORG 30

q2'17 middle market indicator | acg webinar | july 26 ... middle market... ·...

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