Middle Market Companies: The value behind medium sized firms
Written By Chelsea Virga
The goldilocks principle can be accurately applied to middle market companies: not too big, not too small, but just the right size for achieving unique corporate synergies. These firms are large enough to afford technological investment to achieve operational efficiencies, yet are also small enough to retain a collaborative corporate culture filled with passion for entrepreneurship.
The middle market encompasses over 200,000 firms in the U.S. market, each with between $10 million to $1 billion in average revenue. These firms provide approximately one-third of private-sector jobs in the US and contribute around one-third of private sector GDP. This demonstrates the immense power of middle market businesses and their integral role in the US economy. Middle market firms are essential to the robustness of the job market.
Middle market firms are reporting the highest and most improved year-on-year company performance since the 2008 recession. Currently, the 4.1% unemployment rate is at a 17-year low. US manufacturing has had the strongest addition in jobs since 2014. The stock market run up has continuously reached new heights. In line with the general public consensus, a record high 86% of middle market firm executives are highly confident in the economic environment. Such statistics demonstrate the heavily intertwined relationship between the health of middle market firms and the domestic economy.
In terms of historical data, three quarters of middle market firms had increases in revenue during 2017; 66% expect this climb in revenue to continue during 2018. With possible increases in disposable funding, 69% of middle market companies note these extra revenue dollars will likely be put to capital investment, such as new plants, equipment and technological upgrades. In terms of overall allocation, funds will also be exercised into investing, capital expenditures and information technology. Additional revenue will also cause a surge in human resource expenditures; currently, the annual employment number for middle market firms is expected to grow over the course of next year at a rate of 5.2%.
43% of middle market businesses are expected to hire in 2018. Middle market companies compete for talent with larger, more well-known firms. A tightening labor market increases the need for firms to offer competitive compensation packages. This will ultimately impact prices and profits for mid market companies through additional wage, benefit, and healthcare expenses. Due to these complexities, over half of middle market leaders state talent is their company’s number-one long-term challenge. Additional investment in retention, training and development will be required to maintain a high-performance talent pools and culture in mid market firms.
Middle market companies are crucial to the vibrancy of the domestic economy. Strategic competencies must be emphasized to allow a competitive edge over leaner start-ups and larger corporate counterparts. Middle market firms must channel their unique size in order to execute efficiencies and add value in ways that will allow them to prosper.