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U.S. Middle Market Revenue Continues to Expand at a Healthy Pace

July 08, 2016, 08:07 AM
Filed Under: Economic Commentary

Middle-market private companies in the Golub Capital Altman Index increased revenues by 7.38% and earnings (defined as earnings before interest, taxes, depreciation and amortization, or "EBITDA") by 2.01% year-over-year during the first two months of the second quarter of 2016. This is compared to year-over-year increases of 9.08% in revenues and 5.05% earnings, in the first quarter of 2016. This marks the one year anniversary since the inaugural Golub Capital Middle Market report launched in Q2 2015.

Lawrence E. Golub, CEO of Golub Capital said, "The bright spots are Industrials (ex-energy) and Information Technology, where we are seeing double-digit profit growth. The profit margin improvement in Industrials – helped by a weaker dollar on average during the quarter – is the strongest we've seen in over three years. Information Technology is benefitting on both the top and bottom line from continued investment in cloud-based services, which has also been reflected in the public markets."

Dr. Altman said, "As our results indicated in January 2016, the contraction of energy prices is not long-term or sustainable, and we said that tailwinds from energy cost reductions would diminish. We are beginning to see that play out in sector reversals. With average oil prices rising as much as 40% in Q2, consumers are being hit, and Consumer Staples and Consumer Discretionary growth decreased to the lowest levels since our analysis began in 2013. During this same period, profits in Industrials and Information Technology grew considerably more than the previous quarter. Overall, we are seeing a continuing profit margin decrease, with year-over-year growth for our middle market firm sample registering a 2.01% increase compared to 5.05% growth in the previous quarter and the slowest growth since 3/31/13.  Revenue growth for the middle market continued to be relatively robust, despite some profit margin compression. It should be noted that the Golub Capital Middle Market report has been quite accurate in predicting the performance of the overall economy in recent quarters."

The Golub Capital Altman Index, 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 sales and earnings data for middle market companies. It measures median revenue and earnings performance from the data 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 index 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, as well as quarterly Gross Domestic Product ("GDP"), according to statistical back-testing dating back to 2012, when data began to be tracked.

The companies in the Golub Capital Altman Index operate in a wide range of industries, and aggregate results are provided for the total universe and by industry segment. Given the index's limited exposure to Financials, Utilities, Energy and Materials, calculations are made for the public indexes both including and excluding these sectors (for the latter, see charts marked "S&P 500 Adjusted" and "S&P 600 Adjusted").

Golub Capital's award winning middle market lending team structures financing solutions with hold positions of up to $300 million.

A leading expert on credit markets, Dr. Edward I. Altman is the Max L. Heine Professor of Finance, Emeritus at the NYU Stern School of Business, and Director of Research in Credit and Debt Markets at the NYU Salomon Center for the Study of Financial Institutions. He is currently an advisor to several foreign central banks.

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