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U.S. Middle Market Shows Strongest Earnings Growth in Two Years, Golub Capital

October 13, 2023, 08:10 AM
Filed Under: Economy

Middle market private companies in the Golub Capital Altman Index grew earnings by 13% during the first two months of the third quarter of 2023, the highest year-over-year earnings growth since Q3 of 2021. Revenue grew 8% during the same period.
Lawrence E. Golub, CEO of Golub Capital, said, “Growth exceeded our expectations in the third quarter of 2023. Middle market companies in general continued to demonstrate resilience and adaptability to the challenging environment. The strong results of the Consumer sector are encouraging. Consumer sector revenue growth outpaced inflation and profitability held up well, despite the pressure consumers have faced from higher gas prices, higher interest payments on debt and dwindling pandemic-era savings. These are real headwinds, but we did not see their impact in Q3 results. Instead, we saw continued economic momentum.”
Dr. Edward I. Altman said, “Middle market cash flow growth year-over-year was quite remarkable in Q3 2023 despite the reduction in inflation during the period. This suggests the companies tracked by the Index likely made cost reductions which helped boost earnings growth. Technology stood out once again as the sector posted revenue and earnings growth nearly twice as high as the Index in aggregate. It is not surprising to see continue the trend we highlighted in prior quarters: mission-critical providers of enterprise software are the beneficiaries of the pressure on businesses to increase productivity. Solid growth in the Healthcare and Industrials sectors rounds out the picture of economic resilience from our vantage point.”
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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