q3'17 middle market indicator | acg webinar | october … middle market indicator...
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THE MARKET THAT MOVES AMERICAFINDINGS FROM THE NCMM’S Q3 '17 INDICATOR SURVEY
T h o m a s A . S t e w a r t , E x e c u t i v e D i r e c t o rT h e N a t i o n a l C e n t e r f o r t h e M i d d l e M a r k e t
Q3'17 MIDDLE MARKET INDICATOR | ACG WEBINAR | October 25, 2017
THE MIGHTY MIDDLE MARKET2
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THE NATIONAL CENTER FORTHE MIDDLE MARKET
www.middlemarketcenter.org
The National Center for the Middle Market is a collaboration between The Ohio State University’s Fisher College of Business, SunTrust Banks Inc., Grant Thornton, and Cisco Systems. It exists for a single purpose: to ensure that the vitality and robustness of Middle Market companies are fully realized as fundamental to our nation’s economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the middle market economy, providing critical data analysis, insights, and perspectives for companies, policymakers, and other key stakeholders, to help accelerate growth, increase competitiveness and create jobs in this sector.
MIDDLE MARKET RESEARCH & DATA EXPERTISE & OUTREACH
EDUCATION
Quarterly Middle Market Indicator
Research and Expert Perspectives
Interactive Benchmarking Tools
Executive Programs
Webinars
Share Research & Discuss Trends
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THE MIDDLE MARKET INDICATOR
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MIDDLE MARKET INDICATOROVERVIEW
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A Quarterly National Survey Cut by Geography and Industry
Q3'17 MIDDLE MARKET INDICATOREXECUTIVE SUMMARY
• THE MIDDLE MARKET CONTINUES TO LEAD THE U.S. ECONOMY IN REVENUE GROWTH AND JOB CREATION, WITH GROWTH ABOVE HISTORICAL AVERAGES
• THE MIDDLE MARKET CONTINUES WITH RECORD HIGH JOB CREATION AND REVENUE GROWTH, FUELED IN PART BY A SURGE IN M&A ACTIVITY
• EXPECTATIONS FOR GROWTH AND JOB CREATION IN THE COMING YEAR ARE ALSO STRONG
• CONFIDENCE IN THE U.S. AND LOCAL ECONOMIES REMAIN NEAR RECORD HIGHS; GLOBAL CONFIDENCE HAS REBOUNDED
Source: 3Q’17 Middle Market Indicator Report
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Q3'17 U.S. MIDDLE MARKETEXECUTIVE SUMMARY
CAPITAL INVESTMENT
70%WILL INVEST
CONFIDENCE
74%GLOBAL ECONOMY
83%NATIONAL ECONOMY
88%LOCAL ECONOMY
REVENUE GROWTH
7.0%PAST 12 MONTHS
6.0%NEXT 12 MONTHS
EMPLOYMENT GROWTH
6.4%PAST 12 MONTHS
4.7%NEXT 12 MONTHS
1.2%SMALLBUSINESS
2.8%LARGEBUSINESS
Source: 3Q’17 Middle Market Indicator Report7
4.37%S&P 500
SURVEY IN FIELD SEPT. 4-15, 2017
Q3'17 MIDDLE MARKET INDICATORREVENUE GROWTH
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
U.S. MIDDLE MARKET S&P 500 PE-OWNED8
Source: 3Q’17 Middle Market Indicator Report*3Q numbers include only companies who have reported.
PAST 12 MONTHS
7.0%U.S. MIDDLE MARKET
9.3%PE-OWNED FIRMS
4.37%S&P 500*
PERFORMANCE GAINS ARE WIDE AND DEEP
Source: 3Q ‘17 Middle Market Indicator Report9
3Q 2017 3Q 2016
Performance improved 68% 60%
Performance was unchanged 27 34
Performance deteriorated 5 6
Q3'17 MIDDLE MARKET INDICATORINDUSTRY REVENUE GROWTH
Source: 3Q’17 Middle Market Indicator Report10
9.8%
6.7%
6.9%
3.2%
7.0%
2.9%
9.2%
6.1%
5.8%
5.3%
4.9%
6.5%
7.2%
8.6%
9.2%
6.5%
Q3'17 MIDDLE MARKET INDICATORREVENUE GROWTH FORECAST
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
U.S. MIDDLE MARKET PE-OWNED
6.0%U.S. MIDDLE MARKET
7.9%PE-OWNED FIRMS
NEXT 12 MONTHS
Source: 3Q’17 Middle Market Indicator Report11
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
U.S. MIDDLE MARKET LARGESMALL PE-OWNED FIRMS
PAST 12 MONTHS
6.4%U.S. MIDDLE MARKET
8.1%PE-OWNED FIRMS
Q3'17 MIDDLE MARKET INDICATOREMPLOYMENT GROWTH
1.2%SMALLBUSINESS
2.8%LARGEBUSINESS
Source: 3Q’17 Middle Market Indicator Report12
Q3'17 MIDDLE MARKET INDICATORINDUSTRY EMPLOYMENT GROWTH
Source: 3Q’17 Middle Market Indicator Report13
7.3%
4.8%
5.2%
9.1%
6.9%
7.0%
3.1%
4.7%
4.0%
4.4%
3.7%
5.3%
5.3%
7.5%
6.3%
5.7%
Q3'17 MIDDLE MARKET INDICATOREMPLOYMENT GROWTH FORECAST
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
U.S. MIDDLE MARKET PE-OWNED FIRMS
4.7%U.S. MIDDLE MARKET
6.0%PE-OWNED FIRMS
NEXT 12 MONTHS
Source: 3Q’17 Middle Market Indicator Report14
CONFIDENCE, INVESTMENT PLANS, AND CHALLENGES
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Q3'17 MIDDLE MARKET INDICATORECONOMIC CONFIDENCE
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20%
30%
40%
50%
60%
70%
80%
90%
3Q '1
24Q
'12
1Q '1
32Q
'13
3Q '1
34Q
'13
1Q '1
42Q
'14
3Q '1
44Q
'14
1Q '1
52Q
'15
3Q '1
54Q
'15
1Q '1
62Q
'16
3Q'1
64Q
'16
1Q'1
72Q
'17
3Q'1
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GLOBAL ECONOMY NATIONAL ECONOMY LOCAL ECONOMY
U.S. ECONOMY
83%86% PE-OWNED
LOCAL ECONOMY
88%87% PE-OWNED
GLOBAL ECONOMY
74%76% PE-OWNED
Source: 3Q’17 Middle Market Indicator Report
_____________________________________Confidence Is Very Strong Across the Board
Q3'17 MIDDLE MARKET INDICATORCAPITAL INVESTMENT PLANS
40%
45%
50%
55%
60%
65%
70%
75%
80%
3Q '1
24Q
'12
1Q '1
32Q
'13
3Q '1
34Q
'13
1Q '1
42Q
'14
3Q '1
44Q
'14
1Q '1
52Q
'15
3Q '1
54Q
'15
1Q '1
62Q
'16
3Q'1
64Q
'16
1Q'1
72Q
'17
3Q'1
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PE-OWNED U.S. MIDDLE MARKETSource: 3Q’17 Middle Market Indicator Report
_________________Firms Plan to Invest
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COMPANIES FEEL COSTS ARE UNDER CONTROL AND PROFIT MARGINS SAFE
2.5%
2.8%
3.1%2.4% 2.6%
1.9% 2% 2.6% 3.1% 3.4%
5.9%
3.2% 3.2%
2.2%
2.3%
2.3% 1.7% 1.6% 1.2% 1.1% 2.3% 2.1% 2.1%
4.3%
2%2.8%
0%
5%
10%
15%
20%Profit Margins Cost Structure
Expected Change in
Q3'17 MIDDLE MARKET INDICATORCHALLENGES
BUSINESS AND STAFF/EMPLOYEES ARE TOP OF MIND FOR MIDDLE MARKET LEADERS
Source: 3Q’17 Middle Market Indicator Report19
41%25%25%
18%18%
BUSINESSGOVERNMENTCOMPETITION
COSTSECONOMY
65%
59%
22%
BUSINESS
STAFF/EMPLOYEES
COSTS
STAFF/EMPLOYEES
BUSINESS
COSTS21%
48%
51%
BUSINESS
GOVERNMENT
COMPETITION
ECONOMY
COSTS 14%
16%
22%
22%
34%
HELP WANTED:THE TALENT GAP
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ACROSS THE COUNTRY, FIRMS REPORT HIRING DIFFICULTIES
Share of U.S. employers reporting hiring difficulties
32%
45%
20162015Source: Manpower Group, “2016-2017 Talent Shortage Survey,” 2017. Career Builder estimate
Hiring and retaining qualified employees is the top concern for CFOs for the first time in 21 years … over government policies, cost of benefits, economic uncertainty, data security.
— Duke University Fuqua School of Business Quarterly Survey,
Q2 2017
MIDDLE MARKET COMPANIES FEEL THE TALENT PINCH INTENSELY
Of middle market executives consider the ability to attract, train, and retain talent somewhat/highly challenging.
77%Of middle market executives feel they do not have a sufficient number of people to fill key leadership positions.
49%
Of middle market executives struggle to attract people for top-level management positions.
31%Of middle market executives say that a lack of talent is constraining their growth.
37%
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ALMOST ALL INDUSTRIES FEEL TALENT-CONSTRAINED
Total Middle Market
ServicesManu-fact-uring
Wholesale Trade
Retail Trade
Con-struction Financial
ServicesHealthcare
Yes 37 46 44 20 29 46 33 49
No 63 54 56 80 71 54 67 51
Source: NCMM and Brookings: Help Wanted, 2017
LACK OF TALENT CONSTRAINING ABILITY TO GROW
THE TOP WORKFORCE CHALLENGES FOR MIDDLE MARKET COMPANIES
Source: NCMM Middle Market Indicator 2Q 2017
Candidates lack necessary skills 44%Competition from other employers 40%Low number of applicants 39%Lack of work experience 32%Outside budget range 30%Lack needed credentials 25%
THE SHARE OF JOBS REQUIRING HIGH AND MEDIUM SKILLS HAS SKYROCKETED
Source:Brookings
5523
40
48
530
2002 2016
Low Medium High
Share of U.S. employment by digital skill level
MOST IN DEMAND: FULL-TIME OPERATIONS EMPLOYEES
Source: NCMM Middle Market Indicator 2Q 2017
New Hires by Function
69%
47%
36%
25%
21%
18%
8%
74%
9%
10%
3%
3%
1%
Operations
Marketing and sales
IT
Manufacturing
Human resources
Finance
Other
Full time
Part time
Hourly
Contractor
Temporary/seasonal
Other
New Hires by Employee Type
TALENT PLANNING AND ITS IMPORTANCE
How well and what impactHow Important? Total Middle Market 10%+ Growth
Extremely/Very 71% 81%Somewhat 21% 15%Not very / Not at all 8% 4%How Well Done?
A 14% 22%B 46% 47%C 28% 23%D 11% 6%F 2% 2%
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43%
Source: NCMM Mastering Talent Planning 2017
69%
FIVE STEPS COMPANIES CAN TAKE ON THEIR OWN
Source: NCMM and Brookings: Help Wanted, 2017 *Percentage of executives citing as one of top three challenges
Partner: Use educational and training organizations to upskill employees and find new ones
(just 30% do)
Training: Build it into daily routines and work (45% train
“only when needed”)
Recruiting: Have an ongoing process (59% recruit only when
they have an opening)
Internships: Fewer than half of manufacturers offer, vs. 65% in
healthcare
Career pathing, mentoring: Set a process for advancement
(only 39% do)
Only 35% of vacancies are filled from within
BEYOND THE MIDDLE MARKET: FIVE WORKFORCE AGENDA ITEMS
GING
MMIGRATION
BERIZATION PIOIDS
DUCATION
MIDDLEMARKETCENTER.ORG30