While the country as a whole is in the economic doldrums — the unemployment rate remains in the 9 percent range — a huge swatch of the American economy is growing: the middle market.
A recent study by Deloitte found that middle-market companies employ more people (24.6 million) and have larger revenues ($6.1 trillion) than either the DJIA companies (5.9 million, $2.6 trillion) or the S&P 100 (11.8 million, $3.7 trillion).
Middle-market companies employ more people even than the S&P 500 (21.9 million), and their total revenues don't lag too far behind ($8.3 trillion). While many large companies are struggling and downsizing, middle-market companies are thriving and hiring.
If America is going to start hiring again, the middle market is likely to lead the way. An IBM survey of chief financial officers of middle market companies found that 65 percent started hiring in 2011 and 80 percent will be hiring in 2012. This is up 24 points from the third quarter of 2010. And, best of all, most of these jobs will remain domestic. Over half of middle-market companies have no workforce outside the country, according to the Deloitte study.
Only 18 percent have more than a quarter of their employees based abroad.
Why is the middle market able to drive job creation? Innovation. Middle-market companies are sometimes considered "super small businesses — too successful to be truly "small" but still marked by the entrepreneurial spirit. Most remain privately held, and many are family-run.
Though the middle market spans a wide revenue range, its companies are concentrated at the lower end. More than 174,000 businesses report revenue between $5 million and $10 million, according to The Deal. That's just why of half the whole middle market. An additional 156,000, or 42 percent of the total, had revenues between $10 million and $50 million.
Middle-market companies now report higher levels of productivity, lower debt ratios, and stronger balance sheets than before the recession. These companies are looking to expand through active add-on acquisitions and other mergers — targeting either weaker competitors or complimentary product lines and offerings. According to data compiled by Baird and Dealogic, there were approximately 5,300 middle-market M&A deals in 2010 alone, totaling $347 billion. The number of middle companies itself could be the key to increasing GDP, according to Kauffman.
The middle market already represents 40 percent of the national GDP, and yet it remains largely unnoticed. While business and political leaders continue to focus on deficit reduction, tax reform, and other measures to stimulate the economy, the middle market continues to move along under the radar.
Clayton Capital Partners is one of the nation's top independent investment banking firms for the middle market, as reported by Thomson Financial, Mergerstat, and Investment Dealers' Digest.
The reasons for our success are simple: We understand our clients' expectations and believe in exceeding them.