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U.S. Middle Market Growth Shows a Positive Surprise, Golub Capital

January 13, 2023, 07:55 AM
Filed Under: Economy

Middle market private companies in the Golub Capital Altman Index experienced year-over-year earnings growth of 9% and revenue growth of 11% during the first two months of the fourth quarter of 2022. Read the latest edition of the Golub Capital Middle Market Report for Q4 2022.
Lawrence E. Golub, CEO of Golub Capital, said, "This quarter's results are a positive surprise. Revenue and profit growth each exceeded inflation by significant margins. We believe these strong results reflect both stronger U.S. economic conditions than many analysts expect and Golub Capital's focus on lending to recession-resilient companies backed by private equity owners who adapt nimbly to changing conditions."
Dr. Edward I. Altman said, "The fourth quarter of 2022 across all four sectors we track was stronger than expected, which suggests that the odds of an economic soft landing could be higher than they looked in the third quarter. The strength in the Consumer sector and Industrials sector earnings suggests supply chains are getting back to normal and pressure from higher energy costs is abating. That said, we are still seeing the impact of rising wages in labor-intensive sectors, notably Healthcare."  
The Golub Capital Altman Index ("GCAI"), which is produced by Golub Capital in collaboration with 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 approximately 110–150 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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