Based on recent research, Highland Ridge maintains its optimism regarding our ability to satisfy mid market companies’ need for financing, whether to support growth or ownership transition. According to the National Center for the Middle market (“NCMM”), mid-size companies are expected to need that financing.
In it’s quarterly Middle Market Indicator, NCMM reported last week that 72% of companies with revenue between $10MM and $1B reported increases in gross revenue over the prior 12 months (“2Q 2017 Middle Market Indicator”).
45% of these companies introduced new products, 38% expanded into new markets, and 27% of the largest companies in the study made an acquisition. A majority of middle market companies increased employment, and just 12% reduced staff.
According to NCMM, although company executives expect their 12-month growth rate to drop to 5.3% (from an actual 6.7% rate in the second quarter), 67% of middle market companies plan to invest in growth. This includes 28% of middle market companies planning capital expenditures (plant, equipment, or facilities) and 14% planning investments in information technology.
Those companies seeking capital to invest in their businesses will continue to find the market receptive. A report by Brown Gibbons Lang & Company (“The State of Middle Market Financing in the U.S,” January 2017) indicates that credit remains plentiful relative to historical standards. Although the lower middle market (EBITDA < $10MM in this study) demonstrates lower leverage and higher pricing relative to larger companies, transactions in 2016 saw leverage as high as 5x, with better terms for companies with EBITDA higher than $5MM. As we’ve discussed in our previous research, private debt funds prove to be more aggressive than regulated banking institutions.
Private equity funding continues strongly, per a recent report from PitchBook (“US PE Breakdown 2Q 2017”). Deal flow held steady in 2Q 2017, although it is still slightly below last year’s pace with $151.1 billion of transactions closed in the quarter (including middle market deals).
Contact Highland Ridge Capital to discuss your specific needs.