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U.S. Middle Market Earnings Continue to Boom, Golub Capital

October 14, 2021, 07:58 AM
Filed Under: Economic Commentary

Middle market private companies in the Golub Capital Altman Index experienced EBITDA growth of 21% and revenue growth of 24% in July and August 2021 compared to their July and August 2019 earnings and revenue. The data in this special edition report reflects the median performance of approximately 120 companies that were in the Golub Capital Altman Index in both periods. The comparison over a two-year period is intended to provide greater insight than the report’s typical year-over-year analysis, given the impact of COVID-related lockdowns throughout much of 2020.
Lawrence E. Golub, CEO of Golub Capital, said, “The U.S. economy continued to boom in Q3. The Consumer sector had a blockbuster quarter, with 27% revenue growth and 48% EBITDA growth compared to the same period in 2019. Consumer sector margins benefited from operating leverage as customers spent stimulus payments and caught up on purchases deferred by the pandemic. However, heading into Q4 the key question to ask is whether or not there will be enough inventory to keep pace with demand during the holiday season. With supply chain issues worsening by the day, it’s smart to get your holiday shopping done early this year.”
Dr. Edward I. Altman said, “While Q3 results were strong in aggregate, the Industrial sector showed the inverse of the positive trend in the Consumer sector for both revenue and EBITDA growth. Average Industrial revenue growth lagged the overall index, and Industrial sector EBITDA declined compared to 2019. Industrial businesses were challenged by stockouts and delivery problems, reducing revenues and inflating costs which were not passed through to customers. We would not be surprised to see a rolling wave of stockouts affecting other sectors in Q4, especially Consumer. On the other hand, businesses that sell intangible goods and services, like software companies, are well positioned to capitalize on the fundamental strength of the economy."
The Golub Capital Altman Index (“GCAI”), which is produced by Golub Capital in collaboration with renowned credit expert Dr. Edward I. Altman, is the first and longest-running 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.

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