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Privately Held Companies Outpace Public Companies in Sales Growth, Profitability

August 22, 2014, 07:21 AM
Filed Under: Economic Commentary
Related: Sageworks

In an analysis of financial-statement information from 2010 to 2014, Sageworks found that large, privately held companies in the United States are outpacing their publicly traded counterparts in two key performance metrics. Private companies with annual revenues greater than $500 million have grown sales at a much faster rate than public companies in the period since the recession, a time when most U.S. companies were recovering from flat or declining sales.
Additionally, this segment of private companies is currently seeing healthier net profit margins than the average public company. “It can be easy to dismiss this margin performance and revenue growth as just a ‘perk of being small,’” said Sageworks analyst Libby Bierman. “But that argument isn’t as strong with this sub-section of privately held companies, which are probably more akin to public companies in way of operations and staffing than small businesses.”  
In the most recent period, the trailing 12 months ended August 14, 2014, large privately held companies grew sales at nearly 11 percent over the previous year and earned net profit margins at an average of 8.6 percent. Bierman said that the large, private companies are growing sales at a pace that is 8 percentage points higher than publicly traded firms. “These extra 8 percentage points mean a lot to the owners of those private companies and to their ability to reinvest for further growth,” Bierman said.

“There’s a misconception that ‘private’ means ‘small,’ ” said Sageworks Chairman Brian Hamilton. “In reality, private companies come in different shapes, sizes, varieties, and revenue figures. A lot of them have chosen to remain private, despite many opportunities to do otherwise.”  Hamilton added that some companies realized they preferred being private after many years on public exchanges. “Consider the example of Michael Dell,” said Hamilton. “Here was an entrepreneur who understood the benefits of operating a company outside of the day-to-day scrutiny and volatility of the markets.”  Hamilton was not surprised that large private companies outperformed the public firms. “Being private allows you to cut through the noise, and focus on what matters,” said Hamilton. “That is, growing your business.”

To read the full Sageworks press release with related graph, click here.

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