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U.S. Middle-Market Firms Experience Fourth Consecutive Quarter of Record Revenue Growth

October 15, 2018, 07:11 AM
Filed Under: Economic Commentary

Middle market private companies in the Golub Capital Altman Index (GCAI) experienced year-over-year revenue growth of 11.75% and earnings growth of 10.83% during the first two months of the third quarter of 2018. This compares to year-over-year revenue growth of 11.15% and earnings growth of 12.59% in the second quarter of 2018.

Lawrence E. Golub, CEO of Golub Capital, said, “This quarter’s Golub Capital Altman Index showed the highest year-over-year revenue growth rate since its inception, marking a fourth consecutive quarter of record revenue growth. EBITDA growth was also exceptionally strong, suggesting U.S. middle market companies have done well in controlling costs amidst a tight labor market. Our data continues to show strong momentum in the U.S. economy that could help offset the negative impact of tariffs. We expect to see another robust GDP growth rate for the third quarter of 2018, likely in excess of 3% or even 4%.”

Dr. Edward I. Altman said, “The Technology sector once again led the way for earnings growth, posting year-over-year EBITDA growth of more than 20%. The Healthcare sector continued to show welcome signs of a turnaround in profitability, with positive EBITDA growth now in three of the last four quarters. One might expect to see softness in the Consumer and Industrial sectors, with escalating trade tensions and meaningfully higher interest rates, crude oil prices and gasoline prices compared to the same period last year. We have not yet seen a material impact in our data, although it may take more time for any impact to register. In short, the impressive revenue and earnings growth across all sectors of the Golub Capital Altman Index suggest the strength of the U.S. economy is broad-based.”

The GCAI, 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 revenue and earnings (defined as earnings before interest, taxes, depreciation and amortization, or “EBITDA”) for middle market companies. It measures the median revenue and earnings growth 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 GCAI 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 (“S&P 600”), as well as quarterly Gross Domestic Product (“GDP”), according to statistical back-testing dating back to 2012, when data began to be tracked.

The size and diversity of the Golub Capital loan portfolio ensure that the confidentiality of all company-specific information used in the index is maintained in both the aggregate and industry segment data.

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.

The companies in the GCAI operate in a wide range of industries. Results are provided for the total universe of GCAI constituents and by industry segment. Given the index’s limited exposure to Financials, Utilities, Energy and Materials, comparisons are made to the S&P 500 and S&P 600 as well as to “adjusted” versions of those indexes that exclude the aforementioned sectors.
Golub Capital’s Middle Market Lending group provides financing for middle market, private equity-backed transactions with hold positions of over $600 million and is an arranger of credit facilities up to $1 billion. 

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