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

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

The Golub Capital Altman Index provides early insight into financial performance of public companies and GDP in advance of earnings season

Golub Capital has reported that its middle market private company index has shown the strongest earnings growth over the past two years.

According to Golub, 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.

Source: Golub Capital Altman Index

The Golub Capital Altman Index (GCAI) is produced by Golub Capital in collaboration with credit expert Dr. Edward Altman. The GCAI measures the median revenue and earnings growth of approximately 110 to 150 private US companies in the loan portfolio of Golub Capital. According to Golub Capital, the GCAI is the first and longest-running index based on actual revenue and EBITDA for middle market companies.

Dr. 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.

“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,” said Dr. Altman. “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 continue to see 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.”

“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,” said Lawrence Golub, the CEO of Golub Capital. “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.”

Golub Capital provides a range of products including unitranche financing, senior debt, second lien and subordinated debt, and equity co-investments. The firm underwrites and syndicates facilities up to $2 billion for companies with EBITDA of more than $50 million and will hold up to $700 million per transaction for companies with EBITDA from $5 million to $250 million. Industries of interest include software and technology; consumer, restaurant and retail; business services; aerospace and defense; specialty manufacturing; value-added distribution, transportation and logistics; financial services; and healthcare.

Golub Capital was founded in 1994 and has more than 825 employees with lending offices in Chicago, New York, San Francisco and London.

The companies in the GCAI operate in a wide range of industries and its results are provided for the total universe of GCAI constituents and by industry segment. To download a copy of Golub Capital Middle Market Report, click HERE.

© 2023 Private Equity Professional | October 17, 2023

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