Like economies, organizations, and individuals around the world, the U.S. middle market has not been immune to the adverse impacts of the COVID pandemic. These companies, defined as those with annual revenues between $10 million and $1 billion, make up a critical yet often overlooked segment of the U.S. national economy. While the middle market represents barely 3% of all U.S. businesses, it’s responsible for roughly one-third of private sector GDP and employment. If it were its own country, it would be the fifth-largest economy in the world.
Based on the recent survey data collected by the National Center for the Middle Market (NCMM), nearly 40% of middle-market executives think the pandemic will be “catastrophic” to their business over the next 6 months.
According to the NCMM middle market indicator (MMI) for Q4, 2020, middle market companies reported an average revenue decline of -1.2% over the prior 12 months while also reporting a drop in employment of -2.2%. However, compared to large and small markets, the middle market has done a significantly better job of containing its losses throughout the ongoing crisis. On average, large public companies lost -5.5% in revenue during 2020; small businesses with 50 employees or fewer saw employment drop by -5.1%.
So what are the roles and prospects of the middle market?
Large companies have deep pockets and are constantly in the public eye. But middle market firms deserve more attention. Simply put, the middle market has been the real growth engine of the economy since the financial crisis of 2007-2009 and can continue going forward if supported properly. During the so-called Great Recession, NCMM data shows that, while large businesses shed 3.7 million jobs, the middle market added over 2 million new positions. According to NCMM quarterly MMI data, average revenue growth from 2012-2019 has been 6.5% for midsize companies, and employment growth has averaged 4.3%. Once again, these historical averages outpace large businesses at 3.5% revenue growth and 2.3% employment growth, respectively. Middle-market performance also outpaces small firms with regard to employment growth.
So why is the middle market stressed?
MMI forecasts for 2021 show the following: 43% of middle-market leaders would hold cash instead of investing it immediately in their businesses (up from 30% a year earlier). In the next six months, 35% expect to significantly delay planned investments, 32% expect raw materials and supply shortages, and 31% anticipate general disruption of work due to a remote workforce. In fact, on average, only 52% of middle-market employees are back to the office or shop floor. One in four companies expect additional or continued layoffs, and while overall employment growth is projected as positive, this is driven by only a third of companies.
Furthermore, maintaining customer connectivity is most pressing for mid-sized companies. With the shutdown of live events, trade shows, conferences, and even simply face-to-face meetings, the middle market needs to thoughtfully invest in new ways to reach its clients.
As a summary, the U.S. mid-market plays a crucial role in the overall economy. But they are facing difficulties during the pandemic and post-pandemic world. However, the mid-sized companies that take steps to reimagine how they connect with their customers will have an edge.