Eight in 10 Mid-Market Companies Expect Revenue Growth in 2011
Sponsored by Deloitte

Just released Deloitte Mid-Market Perspectives: 2011 Report on America's Economic Engine.

May 5, 2011


The middle market is the underappreciated engine of the U.S. economy. Its role is impressive, important and impactful.

Executive Summary

Imagine a segment of the U.S. economy that represents $6.1 trillion in revenue or 40 percent of the national gross domestic product (GDP) and employs 24.6 million people. One could reasonably expect a sector with this impact to dominate headlines and be followed closely by the media, investors and business leaders.

This segment comprises America's mid-market companies — those with annual revenue between $50 million and $1 billion — and its vital importance to the U.S. economy often goes unacknowledged. A few superstars may grab the spotlight on their way to joining the Fortune 500, but these are often the exceptions and not the rule.

Yet with collective size and scale that's impossible to ignore — revenues that surpass the whole of the S&P 100 and an employment level higher than the entire S&P 500 — the middle market is the underappreciated engine of the U.S. economy. Its role is impressive, important and impactful.

The success, struggles and decisions of mid-market businesses have a profound influence on the national unemployment rate, consumer confidence, investment, spending and the general health of the American economy. Understanding what the middle market is thinking and where it's moving today is critical to understanding where the U.S. economy is headed.

That's why Deloitte commissioned the Economist Intelligence Unit to conduct an extensive survey of U.S. mid-market CEOs and executives. We sought to better understand their experiences while they endured the worst economic downturn in nearly 80 years and their views on what the future may bring.

Overall, we found tempered optimism about the future:

  • Growth: For 2011, 93 percent of the survey respondents expect the economy to grow and 81 percent expect their annual revenue to increase.
  • Productivity: Levels are on the rise, with 72 percent reporting higher levels than prerecession.
  • Hiring: A significant majority (69%) plan on adding full-time employees to their ranks this year.
  • Business expansion: While the majority of firms are focusing their growth targets domestically, 34 percent are expanding globally.
  • Access to capital: Although challenges remain for some in gaining access to capital, 38 percent expect to pursue financing to expand their businesses in the coming year.

While these signs are encouraging, this group indicates that there are fundamental challenges that restrain their optimism and influence their decisions:

  • Modest economic growth: Even though an overwhelming majority expects the economy to grow, only 20 percent believe it will expand at a pace that will support widespread job creation.
  • Government debt: Debt at all levels — federal, state and local — was most often cited as an obstacle to U.S. growth.
  • Regulatory issues: Healthcare costs, high tax rates and other regulatory issues also are frequently cited as obstacles to growth.

Although these overall trends paint a picture that is encouraging but cautious, it is important to remember that in a market this broad and complex, there are some striking distinctions between the performances of individual companies. Our analysis identified three distinct categories: the frontrunners, those keeping pace and the laggards.

Not surprisingly, the strength of a company's balance sheet has a great deal to do with the category in which it falls. The frontrunners are flush with cash, investing in their businesses, planning to hire and looking at global acquisitions. By contrast, the laggards have weaker balance sheets, are still looking to cut costs and headcount and are seeking financing not for business expansion but for refinancing purposes. This group holds a more uncertain view of the prospects for the economy.

One common denominator among all groups is the focus on deleveraging. Sixty-five percent of the companies surveyed report debt below prerecession levels and say it will stay lower over the next year.

As one respondent pointed out in a follow-up interview for the report, the recession has been somewhat Darwinian. Agile and dynamic companies are still standing and even beginning to thrive. Meanwhile, those unable to adjust to the "new normal" have disappeared or are struggling. The good news for those firms that have emerged from the worst of the recession intact is that the nimbleness and adaptability that helped them weather the economic storm of the past few years will position them to capitalize on new opportunities in the future.

While business and political leaders continue to focus on broad issues such as deficit reduction, tax reform and global events, they must consider the impact of their decisions on the middle market, which is a vital component of the U.S. economy.

As an organization committed to this sector, Deloitte is proud to contribute this research that highlights both the prospect for mid-market recovery and growth and the ongoing challenges to be addressed. We hope you will find this report helpful to you and your business.

About the Survey

The survey and interviews conducted for this report encompassed both private and public companies with annual revenues of between $50 million and $1 billion. The Economist Intelligence Unit surveyed 527 senior decision-makers at these companies. Over one-half (51%) were C-level executives, including owners.

All respondents were from U.S.-based companies. Of the total, 20 percent are in the highest revenue bracket (between $500 million and $1 billion) and 30 percent are in the lowest (between $50 million and $99.9 million). Fifteen different industries were represented by at least 10 respondents. The most-represented industries were business/professional services (18%); consumer/manufactured goods (15%); and healthcare, pharmaceuticals and life sciences (10%).

Sixteen states were represented by at least 10 respondents and 43 were represented in total. The states that were most heavily represented were California and New York (13% and 11% of respondents, respectively, said their companies were based there), followed by Illinois (eight percent), Texas (seven percent), Pennsylvania (six percent), Massachusetts (five percent) and New Jersey (four percent).

In addition to the survey, the EIU conducted interviews with CEOs of 15 mid-market companies.