In light of the COVID-19 pandemic, the U.S. economy has been upended. While the middle market, which is defined as companies between $10 million and $1.0 billion in revenue, has not been immune to these headwinds, it has outperformed many other economic indicators. Specifically, according to the middle-market indicator released by the National Center for the Middle Market (“NCMM”), year-over-year growth declined 3.7% in the second quarter of 2020, compared to the S&P 500 revenue declining 13.9% during the same period. While we witnessed COVID-19 cases rise across the U.S. in the fourth quarter of 2020, many middle-market executives are optimistic about the future as federal financial relief, coupled with the recent approval and administration of COVID-19 vaccines, have provided hope in the pursuit toward “normalcy” in the U.S.
Middle Market vs. S&P 500 Revenue Growth
Starting in mid-March 2020, nearly every state and region of the U.S had enacted some version of a “stay-at-home” order that resulted in approximately 75% of middle-market companies being forced to either alter their operations or shut down completely. Additionally, among the growing uncertainty surrounding the pandemic, many companies delayed or reduced planned capital expenditures into 2021. Rewind to the end of 2020, U.S. companies continued to deal with COVID-19 headwinds; however, many middle-market companies adapted to be able to survive through the pandemic era. Specifically, companies were forced to become leaner due to the pandemic and expand their digital capabilities.
If past performance is indicative of the future, the middle market may be poised to drive the economic recovery in the U.S. After the Great Recession, the middle market led the U.S. economy in revenue and employment growth. As economic conditions improve, many middle-market companies are positioned to potentially outperform once again.
While the uncertainty surrounding the COVID-19 pandemic persists, the middle market’s resiliency and ability to adapt to an ever-changing environment has positioned companies to drive the economic recovery in a post-COVID world.
Additionally, the middle market is expected to experience a significant uptick in M&A activity in the near term due to record levels of cash being held by private equity firms, an improved COVID-19 outlook, and historically low interest rates. GBQ has extensive experience assisting middle-market companies with acquisitions and sales to strategic buyers, financial buyers or employees. To discuss this information in more detail, please contact us today.
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