July 22, 2020 The Market That Moves America 2020 ACG Webinar vf_0.pdf · July 22, 2020. The Market...

IN COLLABORATION WITH

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

July 22, 2020

The Market That Moves AmericaFindings from the 2Q 2020 Middle Market Indicator Report

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 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

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Research andExpert Perspectives

Interactive Benchmarking Tools

Share Research& Discuss Trends

Education

Executive Programs

Webinars and Podcasts

2

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

3

2Q 2020 Middle Market Indicator

4

About the Middle Market Indicator

A National Survey Cut by Geography and Industry

5

About NCMM’s Covid-19 Pandemic Research

In March, two weeks after the World

Health Organization declared COVID-19

a pandemic, NCMM surveyed 260

executives of U.S. middle market

companies to take the pulse of the most

critical segment of the American

economy.

All of the survey respondents also

participated in the Q4 2019 Middle Market

Indicator survey, fielded in December

2019.

Participants completed the survey

between March 23 and March 25, 2020.

In June, NCMM fielded its 2Q Middle

Market Indicator survey of 1,000 executives

of U.S. middle market companies. In

addition to collecting the usual trending data

on revenue, employment, investment, and

confidence, this survey

• Reprised the March Covid-19 questions

• Included additional questions about

company response and use of

government and other sources of

support.

Participants completed the survey between

June 1 and June 12, 2020.

Headlines

• For the first time since the inception of the Middle Market Indicator, year-over-year revenue and employment figures both turned sharply negative, as the Covid-19 pandemic interrupted operations and sapped demand. Virtually all measures of company performance are down significantly.

• Private-equity-owned middle market companies were less hard-hit than the segment as a whole, took more aggressive steps to cut headcount, and foresee stronger growth in both revenue and hiring in the year to come.

• Economic confidence is very low. Short-term expectations have bounced back from March lows, but the overall level of activity in the next three months is not strong. Executives now believe recovery will take longer than they first thought.

• Companies see a return to positive revenue growth in the year ahead, while hiring will remain flat. Big-ticket investment items have by and large been put aside, but innovation and digital transformation will continue strongly. PE-owned companies are more expansion-oriented than the middle market as a whole.

1

2

3

4

6Source: 2Q’20 Middle Market Indicator Report

Overview—Past Performance and Forecasts

CAPITAL INVESTMENT CONFIDENCE

49%GLOBAL ECONOMY

57%NATIONAL ECONOMY

64%LOCAL ECONOMY

REVENUE GROWTH

-3.7%PAST 12 MONTHS

2.0%NEXT 12 MONTHS

EMPLOYMENT GROWTH

-4.4%PAST 12 MONTHS

-0.2%NEXT 12 MONTHS

-9.17%SMALLBUSINESS

-10.0%LARGEBUSINESS

-11.1%S&P 500 52%

WILL INVEST


2Q’20 MMI: Revenue Growth Trend

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

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

PAST 12 MONTHS

-3.7%U.S. MIDDLE MARKET

-1.7%PE-OWNED FIRMS

-11.1%S&P 500*


2Q’20 MMI: Revenue Growth Distribution

10

9% 13% 13%

42%14%

16% 14%

19%

16%18%

13%

3%

24%

25%23%

7%

38%28%

36%32%10%+

1% to 4%

Revenue Decreased

Revenue Increased

5% to 9%

No change

2Q ‘20

74%

Past Year Revenue Growth

2Q ‘19

77%

4Q ‘19

42%

3Q ‘19

71%

Source: 2Q’20 Middle Market Indicator Report

2Q ’20 MMI: Revenue by Industry

0.9%

-2.3%

-4.9%

-4.2%

4.3%

1.2%

0.9%

2.9%

2.3%

1.4%

2.6%

6.6%

-7.0%

-3.6%

-1.5%

0.9%


2Q’20 MMI: Employment

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

U.S. MIDDLE MARKET LARGE SMALL PE-OWNED FIRMS

-9.17%SMALLBUSINESS

-10.0%LARGEBUSINESS

PAST 12 MONTHS


-5.7%PE-OWNED FIRMS


2Q’20 MMI: Employment by Industry

-0.2%

-2.3%

-4.9%

-4.2%

1.3%

3.0%

-3.7%

-2.2%

-2.5%

1.3%

-1.0%

-5.9%

2.4%

-0.5%

0.3%

1.3%


2Q’20 MMI: Employment Growth Distribution

11% 14% 14%

32%

34%40% 38%

43%10%

8% 8%

5%

15%15% 13%

7%30%23% 27%

12%

10%+

1% to 4%

Workforce Decreased

Workforce Increased

5% to 9%

No change

2Q’20

24%

2Q ‘19

55%

Past Year Employment Growth

4Q ‘19

48%

3Q ‘19

46%


Economic confidence is very low

Confidence in Economy

36%

22%

29%33%

40%

48%48%

56%57%55%54%53%54%58%

49%47%51%50%

56%

65%

77%

70%74%75%

82%

75%80%

73%70%69%

55%

68%

45%49%

59%

49%48%51%

57%

64%62%64%65%68%67%

73%

80%

73%72%67%

73%69%

72%

81%

90%

84%83%86%

87%

86%88%86%80%82%

76%

83%

60%57%

71%67%66%

71%74%

79%77%76%82%

77%74%

81%83%80%80%

76%81%79%80%

86%

88%

87%88%88%94%

90%93%

89%88%89%85%

89%

69%64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20121Q

20131Q

20141Q

20151Q

20161Q

20171Q

20181Q

20191Q

2019 1Q2019 2Q

Global Economy US Economy

Local Economy

GLOBAL ECONOMY

49%53% PE-OWNED

U.S. ECONOMY

57%64% PE-OWNED

LOCAL ECONOMY

64%64% PE-OWNED

Record low


Economic Confidence: Very and Extremely Only

0

5

10

15

20

25

30

35

40

45

50

2Q2019 4Q2019 2Q2020

Global

Very Confident Extremely Confident

0

5

10

15

20

25

30

35

40

45

50

2Q2019 4Q2019 2Q2020

Local


0

5

10

15

20

25

30

35

40

45

50

2Q2019 4Q2019 2Q2020

U.S.


The Next Three Months

Overall, job cuts may have stabilized

25%

57%

18%

Total Middle Market

31%

52%

17%

PE-Owned

CHANGE IN WORKFORCE, NEXT THREE MONTHS

Increase Stay the same DecreaseSource: 2Q’20 Middle Market Indicator Report; Covid-19 and the Middle Market, 2Q2020

2Q MMI: One Company in Five Expects Cut Payrolls More


Size of laborforce

4Q’19 2Q’20

Too small;

need to hire

22 19

Just about right

73 66

Too big 5 15

49

42

30

37

25

7 8 9 10

18

0

10

20

30

40

50

60

1Q2019 2Q2019 3Q2019 4Q2019 2Q2020

WORKFORCE SIZE, NEXT 3 MONTHS

Workforce Will Increase Workforce Will Decrease

Next three months: Short Term Index rebounds

100

7063

53

75 7060

81

108

91 9180

96 100

79 74 7569

49

70

1

69

0

50

100

150

20151Q

20152Q

20153Q

20154Q

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

20193Q

20194Q

20201Q

20202Q

MM Short Term Index

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


Short-term: Next quarter’s sales +/-Short Term Outlook

(Next 3 Months)

20151Q

20152Q

20153Q

20154Q

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

20193Q

20194Q

20201Q

20202Q

Increased Sales 53 44 42 38 46 42 41 43 52 49 49 46 51 55 46 46 44 48 42 47 28 47Decreased Sales 5 9 8 9 5 5 8 5 4 6 5 10 3 5 6 6 6 8 11 11 38 17

0%

20%

40%

60%


Short term: Negatives subsideShort Term Outlook

(Next 3 Months)

20151Q

20152Q

20153Q

20154Q

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

20193Q

20194Q

20201Q

20202Q

Less Favorable Business Climate 8 11 10 10 9 8 11 7 5 7 7 9 6 7 8 8 10 12 17 12 30 22Decreased Demand 4 6 7 7 4 4 8 5 4 5 5 7 3 5 5 6 7 7 11 9 30 16Decreased Sales 5 9 8 9 5 5 8 5 4 6 5 10 3 5 6 6 6 8 11 11 38 17

0%

20%

40%

60%


Short-term: Positives hold steadyShort Term Outlook

(Next 3 Months)

20151Q

20152Q

20153Q

20154Q

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

20193Q

20194Q

20201Q

20202Q

More Favorable Business Climate 31 25 20 16 21 19 22 28 38 28 27 30 27 29 22 22 25 23 16 26 36 39Increased Demand 43 34 32 30 33 33 30 35 42 41 41 38 40 42 38 32 36 37 35 37 35 46Increased Sales 53 44 42 38 46 42 41 43 52 49 49 46 51 55 46 46 44 48 42 47 28 47

0%

20%

40%

60%


Short-term: Putting it together Short Term Outlook

(Next 3 Months)

20151Q

20152Q

20153Q

20154Q

20161Q

20162Q

20163Q

20164Q

20171Q

20172Q

20173Q

20174Q

20181Q

20182Q

20183Q

20184Q

20191Q

20192Q

20193Q

20194Q

20201Q

20202Q

More Favorable Business Climate 31 25 20 16 21 19 22 28 38 28 27 30 27 29 22 22 25 23 16 26 36 39Less Favorable Business Climate 8 11 10 10 9 8 11 7 5 7 7 9 6 7 8 8 10 12 17 12 30 22Increased Demand 43 34 32 30 33 33 30 35 42 41 41 38 40 42 38 32 36 37 35 37 35 46Decreased Demand 4 6 7 7 4 4 8 5 4 5 5 7 3 5 5 6 7 7 11 9 30 16Increased Sales 53 44 42 38 46 42 41 43 52 49 49 46 51 55 46 46 44 48 42 47 28 47Decreased Sales 5 9 8 9 5 5 8 5 4 6 5 10 3 5 6 6 6 8 11 11 38 17

0%

20%

40%

60%


Resilience and recovery

2Q’20 MMI: Long Term 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

2.0%U.S. MIDDLE MARKET

3.7%PE-OWNED FIRMS

FORECAST REVENUE GROWTH FOR TWELVE MONTHS FROM …


2Q’20 MMI: Long-term Employment Growth Forecast

FORECAST EMPLOYMENT GROWTH FOR 12 MONTHS FROM …


0.7%PE-OWNED FIRMS

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

U.S. MIDDLE MARKET PE-OWNED FIRMS


2Q’20 MMI: Investment Appetites Have Vanished

40%

45%

50%

55%

60%

65%

70%

75%

U.S. MIDDLE MARKET

WHAT WOULD YOU DO WITH AN EXTRA DOLLAR?

INVEST VS. HOLD CASH


Rainy-Day Funds Have Grown Fast

17

13

14

8413

9

18

3Save 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

32

1610

54

7

9

14

U.S. MIDDLE MARKET, DEC 2019 U.S. MIDDLE MARKET, JUNE 2020

WHAT WOULD YOU DO WITH AN EXTRA DOLLAR TO INVEST?

30%

48%


PE Rainy-Day Funds Are Still Growing

25

18

126

5

7

11

150

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 & Development

IT

OtherSource: 2Q’20 Middle Market Indicator Report

14

13

15

7613

9

19

PE-OWNED, JUNE 2020PE-OWNED, DEC. 2019

WHAT WOULD YOU DO WITH AN EXTRA DOLLAR TO INVEST?

27%

43%

5

An Extra Dollar: Priorities

32 20 16 15 14

Cash Reserves War Chest/Acquisitions People Hard Assets ITSource: 2Q’20 Middle Market Indicator Report

2Q’20 MMI: Most Expansion Plans Are Sharply Curtailed

0

10

20

30

40

50

60

Add a New Plant orFacility

Introduce a NewProduct or Service

Enter a New DomesticMarket

Enter a NewInternational Market

Make an Acquisition

Extremely / Very Likely in the Next 12 Months

1Q2019 2Q2019 3Q2019 4Q2019 2Q2020


2Q’20 MMI: PE Expansion Plans Hold Up Better

0

10

20

30

40

50

60

Add a New Plant orFacility

Introduce a NewProduct or Service

Enter a New DomesticMarket

Enter a NewInternational Market

Make an Acquisition

Extremely / Very Likely in the Next 12 Months

1Q2019 2Q2019 3Q2019 4Q2019 2Q2020


Digital Transformation: Where Covid-19’s Bite Isn’t Bad

Positive impact % No impact % Negative

impact % Net of + and -

Revenue 21 22 57 -36

Supply chain 15 37 47 -32

Growth initiatives 21 28 52 -31

Demand 26 21 54 -28

Business operations 19 25 46 -27

Capital spending 16 42 42 -26

Employment 20 35 45 -25

Hours 19 38 43 -24

Working capital/cash 18 40 42 -24

Access to capital 18 53 29 -11

Digital transformation 27 48 25 +2

IMMEDIATE IMPACT OF COVID-19 ON VARIOUS MIDDLE MARKET COMPANY ACTIVITIES AND INITIATIVES

Source: 2Q’20 Middle Market Indicator Report; Copvid-19 and the Middle Market 2Q2020

As uncertainty fades (a bit), concern about employees and customers grows brighter

MOST DIFFICULT ASPECTS OF RUNNING BUSINESS IN CURRENT ENVIRONMENT

Ongoing uncertainty

Employee communication, engagement, productivity

Customer relationships and engagement

Continuity of operations

Working capital management/cash

Fostering company culture

51%

9%

9%

15%

12%

4%

25%

40%

39%

47%

31%

11%

Most Difficult Second/Third Most Difficult

34%

16%

18%

14%

11%

5%

32%

43%

39%

37%

27%

18%

66%

59%

57%

51%

38%

23%7%

43%

62%

48%

49%

76%

MARCH JUNE

Source: Copvid-19 and the Middle Market 2Q2020

A majority plan significant changes in how they operate

56%29%

15%When Organizing the Workplace for

the Safety of Employees

50%

30%

19%When Serving Customers for the Safety of

Them and Employees

LIKELIHOOD OF MAKING SIGNIFICANT AND LONG-LASTING CHANGES

LIKELY CHANGES

Social Distancing -- Limited Personal Contact -- Virtual Engagement -- Personal Protective Equipment -- Cleaning and Sanitation -- Remote Access -- Reduced Staff On Site

Extremely/very likely Somewhat likely Not very/not at all likely


The middle market is running at 2/3 of capacity

0% - company is notcurrently operating

2%10%

15%

26%

29%

18%

1% -25%

26% -50%

51% -75%

76% -99%

100% - company is fully operational

Average Business Capacity 67%

AVERAGE CAPACITY

Retail 56%

Wholesale 65%

Healthcare 65%

Services 70%

Manufacturing 73%

Financial services 74%

Construction 80%


Resilience: a longer road back

0

5

10

15

20

25

30

March 2020

Immediately < 1 month 2.-3 months4-6 monthws 7-12 months >1 year

0

5

10

15

20

25

June 2020

Immediately < 1 month 2.-3 months4-6 monthws 7-12 months >1 year

TIME NEEDED TO RETURN TO FULL CAPACITY WHEN PANDEMIC COMES UNDER CONTROL

23%

39%

Source: Copvid-19 and the Middle Market 1Q and 2Q2020

www.middlemarketcenter.org

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