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Golub Altman Index: Revenue in U.S. Middle Market Continues to Grow at 4.62%

October 10, 2016, 07:35 AM
Filed Under: Industry News

Middle-market private companies in the Golub Capital Altman Index increased revenues by 4.62% and earnings (defined as earnings before interest, taxes, depreciation and amortization, or "EBITDA") declined by 0.66% during the first two months of the third quarter of 2016. This is compared to increases of 7.38% in revenues and 2.01% in earnings in the second quarter of 2016.

Lawrence E. Golub, CEO of Golub Capital said, "Revenue continues to grow across all sectors, albeit slower than in previous quarters. Profit margins are still under pressure, despite positive GDP growth. One bright spot in our Golub Capital Middle Market Index for Q3 2016 is Information Technology, where we are seeing revenue growth of 9.85%. We saw strong performance in this sector last quarter too, stemming from productivity enhancements coming from the adoption of cloud-based software services. The IT sector has also contributed to job creation – from software engineers to salespeople and managers.

Dr. Altman said, "Our results for the third quarter 2016 show that all sectors experienced a slowdown in EBITDA growth compared to last year, with the Healthcare sector being the leading contributor to the downturn with a decline of 8.4%. Average revenue growth across all sectors was up at 4.62%, but it was still lower than the previous quarter at 7.4% and below our quarterly average growth rate of 8.6%. While the companies in the middle market are profitable, this is the first quarter since we began tracking this data in 2012 that EBITDA was essentially flat on a year-over-year basis."

The Golub Capital Altman Index, which is produced by Golub Capital in collaboration with renowned credit expert Dr. Edward I. Altman, is the first and only index based on actual sales and earnings data for middle market companies. It measures median revenue and earnings performance from the data of more than 150 private U.S. companies in the loan portfolio of Golub Capital, a leading middle-market lender. Reported shortly before public company quarterly earnings season, the index has served as a reliable indicator of the overall growth rates in revenue and earnings of public companies in market indexes such as the S&P 500 and S&P SmallCap 600, as well as quarterly Gross Domestic Product ("GDP"), according to statistical back-testing dating back to 2012, when data began to be tracked.

We believe the results (1) are representative of the general performance of middle market companies, which are a major contributor to U.S. private sector employment, (2) can be easily compared to the performance of the public companies that make up major stock indexes, (3) are relevant to the aggregate economic performance of the U.S. economy, and (4) provide timely information for the investment community.

Importantly, the size and diversity of the Golub Capital loan portfolio ensures that the confidentiality of all company-specific information used in the report is maintained in both the aggregate and industry segment data.

The companies in the Golub Capital Altman Index operate in a wide range of industries, and aggregate results are provided for the total universe and by industry segment. Given the index's limited exposure to Financials, Utilities, Energy and Materials, calculations are made for the public indexes both including and excluding these sectors (for the latter, see charts marked "S&P 500 Adjusted" and "S&P 600 Adjusted").

Golub Capital's Middle Market Lending group provides financing for middle market, private equity-backed transactions with hold positions of up to $300 million and is an arranger of credit facilities up to $750 million. Golub Capital's award winning team strives to establish long-term, win-win partnerships by providing dependable, fast and creative solutions that meet private equity sponsors' and portfolio companies' needs.

A leading expert on credit markets, Dr. Edward I. Altman is the Max L. Heine Professor of Finance, Emeritus at the NYU Stern School of Business, and Director of Research in Credit and Debt Markets at the NYU Salomon Center for the Study of Financial Institutions. He is currently an advisor to several foreign central banks.

Professor Altman has published or edited two-dozen books and over 150 articles in scholarly finance, accounting and economic journals. He has been inducted into the Fixed Income Analysts Society Hall of Fame, served as President of the Financial Management Association, was an FMA Fellow, and was amongst the inaugural inductees into the Turnaround Management Association Hall of Fame. He received his MBA and Ph.D. in Finance from the University of California, Los Angeles.

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