Over the years, one of the best sources we have found for information on the heart and soul of the U.S. economy is the National Center for the Middle Market (NCMM). Their research is second to none and their analysis of companies in the middle market is always detailed and significant. Their recent report, 2Q/2021 Middle Market Indicator points out just how vibrant the middle market is right now.
After a year of stagnant or declining revenue and employment growth rates for the majority of middle market companies, the U.S. middle market has returned to strong year-over-year growth with two-third of companies reporting that company performance is better today compared to one year ago. Economic confidence is above pre-pandemic levels and expansion into new markets has resumed for many businesses.
Overall, the middle market expects to sustain its recovery well into 2022. A solid 65% of leaders (up from 44% six months ago) say revenues will continue to increase while 57% (up from 33% six months ago) project continued workforce expansion. The anticipated rates of 12-month revenue growth and employment growth are extremely strong at 9.8% and 8.9% respectively.
We concur with their analysis. Based on what we are seeing with our clients, the economy has surged and grown far greater and faster than anyone anticipated last year during the darker days of the pandemic. The following NCMM graph really illustrates this:
CEO and business owner confidence in all levels of the economy are at all-time highs. This explains why buyers are so very active right now for businesses to acquire. As we have examined in past Insights, we are in the midst of one of the strongest business seller's markets we have ever seen. Generational is on pace for a fourth record year in a row and this year, based on where we are trending (our deal closed volume is up 55% over last year), we should shatter all of our other record years.
So if you own your business today, where do you stand in relation to your exit timing/plans? Remarkably, research has shown that even though a vast majority of entrepreneurs believe that they need to have an exit plan in place, a significant portion do not have one.
This is why we believe so strongly in inviting business owners to attend our Growth and Exit Strategy Conferences. The middle market is the key driving force in our economy (see note below for details on that). A significant portion of the middle market is comprised of baby boomers who will be retiring over the next 10-15 years. These owners, if they don’t have a plan in place, will most likely be forced to exit due to circumstances rather than using a methodical, planned growth and exit program to achieve their financial goals.
Far too often we meet folks at our conferences who tell us that they wish they had started planning earlier. The good news is that it is never too late to assess where your business is today, what its enterprise value is, and develop strategies to grow it so that you depart on your terms, with your legacy in place. Here is what a few of our clients have said about the importance of planning for and executing an optimal exit program:
Keep in mind that there are two types of business owners:
You definitely want to be in the latter group!
If you want to learn how you can participate in the current seller’s market and begin to grow your business for an optimal exit, call us at 972-232-1121. You can also visit our website, provide us with your confidential contact information and we will be in touch.
Note on this research: According to the NCMM, there are nearly 200,000 U.S. middle market businesses that represent one-third of private sector GDP, employing approximately 48 million people. These businesses outperformed through the last financial crisis (2007–2010 period) by adding 2.2 million jobs across major industry sectors and U.S. geographies, demonstrating their importance to the overall health of the U.S. economy. They are private and public, family owned, and sole proprietorships, geographically diverse, and span almost all industries. The health of these businesses and their respective outlook serve as a solid indicator for the greater U.S. economy as a whole. (See www.middlemarketcenter.org: “The Market that Moves America,” seminal research on the definition, significance, and role of the middle market, Oct. 2011.)
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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