Q3'16 MIDDLE MARKET INDICATOR WEBINAR | November ...16 Middle Market...Q3'16 U.S. MIDDLE MARKET...

THE MARKET THAT MOVES AMERICA FINDINGS FROM THE NCMM’S Q3 '16 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

Q3'16 MIDDLE MARKET INDICATOR WEBINAR | November 29, 2016

THE MIGHTY MIDDLE MARKET

2

2

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

3

3

http://www.middlemarketcenter.org/

THE MIDDLE MARKET INDICATOR

4

MIDDLE MARKET INDICATOR

OVERVIEW

5

A Quarterly National Survey Cut by Geography and Industry

Q'16 MIDDLE MARKET INDICATOR

EXECUTIVE SUMMARY

• THE RATE OF REVENUE GROWTH IN THE MIDDLE MARKET

REMAINS STRONG, AND EMPLOYMENT GROWTH RATES

CONTINUE TO ACCELERATE ACROSS MIDDLE MARKET REVENUE

SEGMENTS AND INDUSTRIES.

• YEAR-OVER-YEAR REVENUE GROWTH IN THE MIDDLE MARKET

REMAINS HEALTHY OVERALL, WITH INNOVATION BEING A DRIVING

FACTOR.

• WITH EMPLOYMENT ON THE RISE, COMPANIES CONTINUE TO

STRUGGLE WITH ATTRACTING AND RETAINING THE INNOVATIVE

PEOPLE THEY NEED TO DRIVE SUCCESS.

• THIS QUARTER, EIGHT IN 10 COMPANIES ARE SATISFIED WITH

ECONOMIC CONDITIONS CLOSEST TO HOME. NEARLY THREE

QUARTERS (72%) OF BUSINESSES HAVE A POSITIVE OUTLOOK

REGARDING THE NATIONAL ECONOMY.

Source: 3Q’16 Middle Market Indicator Report

1

2

3

4

6

Q3'16 U.S. MIDDLE MARKET

EXECUTIVE SUMMARY

CAPITAL INVESTMENT

64% WILL INVEST

CONFIDENCE

56% GLOBAL ECONOMY

71% NATIONAL ECONOMY

80% LOCAL ECONOMY

REVENUE GROWTH

6.3% PAST 12 MONTHS

4.9% NEXT 12 MONTHS

EMPLOYMENT GROWTH

4.9% PAST 12 MONTHS

4.0% NEXT 12 MONTHS

1.8% SMALL BUSINESS

2.3% LARGE BUSINESS

Source: 3Q’16 Middle Market Indicator Report 7

Q3 '16 MIDDLE MARKET INDICATOR

REVENUE GROWTH

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

US MIDDLE MARKET S&P 500 PE-OWNED 8


*3Q numbers include only companies who have reported.

PAST 12 MONTHS

6.3% U.S. MIDDLE MARKET

9.0% PE-OWNED FIRMS

2.5% S&P 500*

Q3'16 MIDDLE MARKET INDICATOR

INDUSTRY REVENUE GROWTH

Source: Dun & Bradstreet

9


REVENUE GROWTH FORECAST

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

U.S. MIDDLE MARKET PE-OWNED


6.1% PE-OWNED FIRMS

NEXT 12 MONTHS


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

U.S. MIDDLE MARKET LARGE

SMALL PE-OWNED FIRMS

PAST 12 MONTHS


6.3% PE-OWNED FIRMS


EMPLOYMENT GROWTH

1.8% SMALL BUSINESS

2.3% LARGE BUSINESS



INDUSTRY EMPLOYMENT GROWTH



EMPLOYMENT GROWTH FORECAST

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

U.S. MIDDLE MARKET PE-OWNED FIRMS


5.6% PE-OWNED FIRMS

NEXT 12 MONTHS


WHAT INGREDIENTS ARE FOUND IN

PRIVATE EQUITY’S SECRET SAUCE?

Source: Q1 2016 Middle Market Indicator

14

► Picking winners

► Leveraging the portfolio

► Relieving financial constraints

► Professionalizing management

CONFIDENCE, INVESTMENT PLANS,

AND CHALLENGES

15


ECONOMIC CONFIDENCE

16

20%

30%

40%

50%

60%

70%

80%

90%

GLOBAL ECONOMY NATIONAL ECONOMY LOCAL ECONOMY

U.S. ECONOMY

71% 53% PE-OWNED

LOCAL ECONOMY

80% 81% PE-OWNED

GLOBAL ECONOMY

56% 64% PE-OWNED



SHORT-TERM OUTLOOK LARGELY STABLE

17 Source: 3Q’16 Middle Market Indicator Report

Short Term Outlook (Next 3 Months)

Services Manufacturing Wholesale

Trade Retail Trade Construction

Financial

Services Healthcare

Expect Increased Sales

2016 2Q 41 46 47 45 51 40 36

2016 3Q 38 45 44 41 36 39 46

Expect Increased Demand

2016 2Q 27 36 33 37 47 28 41

2016 3Q 27 35 20 27 33 30 39

Expect More Favorable

Business Climate

2016 2Q 11 22 14 22 35 21 20

2016 3Q 24 26 17 23 30 25 15


CAPITAL INVESTMENT PLANS

0%

10%

20%

30%

40%

50%

60%

70%

80%

PE-OWNED U.S. MIDDLE MARKETSource: 3Q’16 Middle Market Indicator Report

FIRMS PLAN TO INVEST.

18


IMPACT OF FED ACTIONS


18%

12%

16%

10%

4%

4%

1%

35%

29%

28%

25%

22%

10%

9%

5%

<1%

<1%

Most Significant Impact to Company if Fed Increases Interest Rate

(Ranked 1st to 2nd most impact)


CHALLENGES

TALENT AND REGULATION ISSUES ARE TOP OF MIND FOR MIDDLE MARKET LEADERS



THE TALENT SQUEEZE IS ON


Percentage of companies saying their workforce is

insufficient for current market conditions

15%

11%

15%

14%

9%

13% 13%

11%

20%

13% 13%

16%

13% 14%

21%

19%

19% 18%

14%

11%

24%

17%

16%

17%

16%

12%

16%

19%

0%

10%

20%

30%$10M to <$50M Revenue

$50M to <$100M Revenue

$100M to <$1B Revenue

PE Owned

CYBERSECURITY


CYBERSECURITY TALK VS. WALK

Whether Organization Has Defined Cyber Risk Strategy

Yes - strategy is current and

reviewed at least annually

45%

Yes - but the strategy is not

current and may only be

reviewed occasionally

25%

No - organization

does not have a defined strategy

30%

14%

30%

30%

26%

Extremely important

Importance of Cyber Security

Very important

Important

Not very/

not at all important

Who is concerned?

• More rapid revenue

growth

• Faster employment

growth

• More positive short

and long term

outlook in terms of

revenue and

employment growth


CYBERSECURITY MANAGED BY I.T.

Part of IT 61% Separately,

with own budget

10%

Outsourced 16%

No one overseeing

7%

Other arrangement

1% Don't know

5%

How Cyber Security is Managed

57%

54%

50%

43%

33%

16%

Incorporating IT security tools and best practices

Developing back-up IT capabilities (mirror

servers/cloud)

Ensuring employee devices and applications are secure

Employing dedicated IT security resources

Providing funding for IT security initiatives

Choosing development projects with low risk

How Company Manages Security Risks


CYBERSECURITY: TOP GROWERS PRIORITIZE IT


7.7 7.8

4.7

3.9

6.0 6.6

3.6

2.0

Extremely Important Very Important Important Not Important

Revenue Growth

Employment Growth

Average Year-Over-Year Revenue and Employment Growth

Importance of Cybersecurity

MIDDLEMARKETCENTER.ORG 26

Q3'16 MIDDLE MARKET INDICATOR WEBINAR | November ...16 Middle Market...Q3'16 U.S. MIDDLE MARKET...

Documents

Transcript of Q3'16 MIDDLE MARKET INDICATOR WEBINAR | November ...16 Middle Market...Q3'16 U.S. MIDDLE MARKET...