COVID-19 and the MIDDLE MARKET 1Q2020 Covid webinar.pdf · economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the

IN COLLABORATION WITH

COVID-19 and the MIDDLE MARKET

Findings as of April 3, 2020

The National Center for the Middle Market

The National Center for the Middle Market is a collaboration

between The Ohio State University’s Fisher College of

Business and Chubb. 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.

For more information about the Center, visit

https://middlemarketcenterr.org.

Middle MarketResearch & Data

Expertise& Outreach

Quarterly Middle

Market Indicator

Research and

Expert Perspectives

Interactive

Benchmarking Tools

Share Research

& Discuss Trends

Education

Executive

Programs

Webinars

https://middlemarketcenterr.org/

The Mighty Middle Market

U.S. MIDDLE MARKET DEFINED

Annual Revenues Range from

$10MM - $1B

Represents

1/3of Private Sector GDP and Employment

Accounts for

60%of All New

Private-Sector Jobs

Nearly

200,000 in All Industry

Segments and

GeographiesBusinesses

85%of Companies

Are Privately Held

Equivalent to the

5th LARGESTglobal economy

More than

$10 trillion in annual revenue

3

About this research

Two weeks after the World Health Organization declared COVID-19 a

pandemic, the National Center for the Middle Market surveyed 260

executives of U.S. middle market companies to take the pulse of the most

critical segment of the American economy.

All of the survey respondents also participated in the Q4 2019 Middle

Market Indicator survey, fielded in December 2019.

The results in this pulse report highlight the current and anticipated future

impact of COVID-19 on business operations and reflect how the sentiment

of middle market leaders has changed over the past three months due to

the coronavirus pandemic.

Participants completed the survey between March 23 and March 25, 2020.

Source: NCMM, Covid-19 and the Middle Market, April 3, 2020

Headlines

Source: NCMM, Covid-19 and the Middle Market, April 3, 2020

• The Covid-19 pandemic is causing major problems in the middle market, as it

is everywhere. Revenue is down, cash is short, operations and supply chains

are disrupted. While a few companies will benefit from the pandemic, it may

be catastrophic for as many as a quarter.

• These negative effects have fallen upon companies that, as the year began,

were overwhelmingly bullish about the economy and their prospects. In

response to the change, they are slashing payrolls and deferring or

scrapping expansion plans.

• Executives are bedeviled by uncertainty. Looking at their own effectiveness,

they feel best about things within their companies’ walls, and least effective

dealing with cash, customers, and supply chains. IT and communications

are, relatively speaking, bright spots

• Notwithstanding the damage, executives retain some confidence in the U.S.

and their local economies, and express strong belief in their resilience and

ability to get back to work when the crisis ends.

1

2

3

4

6

About the Middle Market Indicator

A Quarterly National Survey Cut by Geography and Industry

Source: 4Q’19 Middle Market Indicator Report 5

Polling question #1: Impact

What has the impact of COVID-19 been on

your business, firm, or portfolio companies?

a. Major negative

b. Minor negative

c. Neutral

d. Minor positive

e. Major positive

A severe—even grim—immediate impact

25% BELIEVE COVID-19 WILL

PROVE CATASTROPHIC

FOR THEIR BUSINESS

Operations and revenue will be hit hardest in short term

51% STATE “ONGOING UNCERTAINTY”

IS THE MOST DIFFICULT ASPECT

OF THE CURRENT ENVIORNMENT

0

10

20

30

40

50

60

70

80

90

100

BusinessOperations

2020ProjectedRevenue

Payroll (i.e.,hours

worked)

Employment(i.e., number

on staff)

Supply Chain WorkingCapital /

Cash

Major negative Minor negative

COVID-19 WILL HAVE AN IMMEDIATE NEGATIVE IMPACT ON

86% 84% 81% 80%77% 76%

Plummeting growth projections: total MM

DECEMBER 2019 MARCH 2020

4.9%

64%

78%

3.5%

Was the 12-month

projected revenue

growth rate

Was the 12-month

projected employment

growth rate

Say growth

will decline

Say employment

will shrink

Plummeting growth projections: PE, family-owned

REVENUE

PROJECTED

GROWTH,

DEC 2019

SAY GROWTH WILL

FALL,

MAR 2020

TOTAL

MIDDLE

MARKET4.9% 78%

PRIVATE

EQUITY

OWNED5.7% 66%

FAMILY

OWNED 4.8% 81%

EMPLOYMENT

PROJECTED

GROWTH,

DEC 2019

SAY EMPLOYMENT

WILL FALL,

MAR 2020

TOTAL

MIDDLE

MARKET3.5% 64%

PRIVATE

EQUITY

OWNED4.0% 58%

FAMILY

OWNED 3.3% 62%

Polling question #2: Non-governmental financial support

Are you or do you expect soon to be looking for

financial support from any of the following?

(Check all that apply)

a. Banks

b. Non-bank lenders

c. Existing financial sponsors

d. New financial sponsors

e. Not looking

Polling question #3: Federal programs

Are you taking advantage of SBA or PPP assistance?

a. Yes

b. Plan to do so soon

c. Not at this time

d. I would love to but can’t figure out

e. No or don’t know what this is

Plummeting investment projections: total MM

DECEMBER 2019 MARCH 2020

51%

66%

70%

32%

Planned to enter

new domestic or

international

markets

Expected to

build a new

plant or facility

Will pull back

on growth

initiatives

Will delay

capital spending

Plummeting investment projections: PE, family-owned

EXPANSION INTO NEW MARKETS

PLANNED

DOMESTIC

EXPANSION

DEC 2019

PLANNED

INT’L

EXPANSION

DEC 2019

WILL PULL BACK

ON GROWTH

INITIATIVES

MAR 2020

TOTAL

MIDDLE

MARKET75% 39% 70%

PRIVATE

EQUITY

OWNED79% 47% 60%

FAMILY

OWNED 74% 31% 78%

OPENING NEW PLANT OR FACILITY

EXPECTED TO BUILD

NEW PLANT OR

FACILITY, MAR 2020

WILL DELAY

CAPITAL SPENDING

MAR 2020

TOTAL

MIDDLE

MARKET43% 66%

PRIVATE

EQUITY

OWNED49% 63%

FAMILY

OWNED

COMPANIES39% 71%

Where managers feel they are least effective

MANAGEMENT PERSPECTIVE ON ITS EFFECTIVENESS

IN MITIGATING PANDEMIC-RELATED PROBLEMS

0

5

10

15

20

25

30

Supply chain Cash / workingcapital

Customerexperience

Operations IT (includingremote work)

Communications

Not at all effective Not very effective

27%

23%

16% 15%

9% 9%

Polling question #4: Advisors

Are you getting useful nonfinancial help from any of the following?

(Check all that apply)

a. Advisors (banker, accountant, lawyer, coach, consultant, etc.)

b. Chambers and business development groups

c. Industry or trade associations

d. Investors (PE firms, family offices, etc.)

e. Government agencies

f. Universities, community colleges

g. None of the above

Transitions impact: Deals on hold, more internal change

21

47

32

Sell the Business

44

41

15

Restructuring

32

50

18

Senior Leadership Transition

21

44

35

Bring in Major Investor

22

37

41

Make Transformative Acquisition

25

44

32

Merge with Another

More Likely No Impact Less Likely

Confidence plunges. Will it hold, sink more, or rise?

Confidence in Economy: March 23-25, 2020

36%

22%

29%33%

40%

48% 48%

56% 57%55% 54% 53% 54%

58%

49%47%

51% 50%

56%

65%

77%

70%74% 75%

82%

75%

80%

73%70% 69%

55%

68%

45%

59%

49% 48%51%

57%

64%62%

64% 65%68% 67%

73%

80%

73% 72%

67%

73%69%

72%

81%

90%

84% 83%86%

87%

86%88%

86%

80%82%

76%

83%

60%

71%67% 66%

71%74%

79%77% 76%

82%

77%74%

81%83%

80% 80%76%

81%79% 80%

86%

88%

87% 88% 88%

94%90%

93%89% 88% 89%

85%89%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20121Q

20131Q

20141Q

20151Q

20161Q

20171Q

20181Q

20191Q

Current

Global Economy US Economy Local Economy

Polling Question #5: Recovery

How quickly can your firm, your business, or your

portfolio companies be back up and running at capacity?

a. Immediately

b. Less than a month

c. 2-3 months

d. 4-6 months

e. 7-12 months

f. More than a year

Resilience when the crisis ebbs

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

>1 Year

7-12 Months

4-6 Months

2-3 Months

< 1 Month

Immediately

FOUR OUT OF FIVE EXECUTIVES BELIEVE THEIR COMPANIES WILL BE ABLE TO OPERATE AT FULL CAPACITY IN SIX MONTHS OR LESS.

26%

13%

23%

19%

12%

7%

B2B 14%

B2C 9%

B2B 5%

B2C10 %

Resilience when the crisis ebbs—PE owned

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

>1 Year

7-12 Months

4-6 Months

2-3 Months

< 1 Month

Immediately

FOUR OUT OF FIVE EXECUTIVES BELIEVE THEIR COMPANIES WILL BE ABLE TO OPERATE AT FULL CAPACITY IN SIX MONTHS OR LESS.

18% / 26%

20% / 13%

26% / 23%

21% / 19%

11% / 12%

5% / 7%

Signs of flattening were visible before: confidence

59%

49% 48%51%

57%

64%62%

64% 65%68% 67%

73%

80%

73% 72%

67%

73%69%

72%

81%

90%

84% 83%86%

87%

86%88%

86%

80%82%

76%

83%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20121Q

20131Q

20141Q

20151Q

20161Q

20171Q

20181Q

20191Q

Current

U.S. Economy

4Q Middle Market Indicator

Signs of flattening were visible before: growth

7.4

8.6

7.9

8.7 8.5

5.8

7.5

5.3

6.05.4

5.9 5.95.3

5.95.4 5.4

4.7 4.9

0%

5%

10%

15%

2018 2Q 2018 3Q 2018 4Q 2019 1Q 2019 2Q 2019 3Q 2019 4Q 2020 1Q 2020 2Q 2020 3Q 2020 4Q

Actual Revenue Growth

Projected Revenue Growth

11


Signs of flattening were visible before: employment

40%

40%

36%

35%37%

42%

30%

37%

3%

5%

6%

7%

7%

8%

9%

10%

0%

20%

40%

60%

2018 1Q 2018 2Q 2018 3Q 2018 4Q 2019 1Q 2019 2Q 2019 3Q 2019 4Q

Workforce Will Increase Workforce Will Decrease

16


The next three months: Short Term Index plummets

100

7063

53

7570

60

81

108

91 91

80

96 100

7974 75

69

49

70

10

0

50

100

150

2015 1Q 2016 1Q 2017 1Q 2018 1Q 2019 1Q Current

MM Short Term Index

Short Term Index is calculated by taking expected net

positive change in business climate plus expected net

positive change in demand plus expected net positive

change in sales over the next 3 months

Short term: Negatives jump

Short Term Outlook(Next 3 Months)

8%

11% 10% 10% 9% 8%

11%

7%5%

7% 7%9%

6% 7% 8% 8%10%

12%

17%

12%

30%

4%6% 7% 7%

4% 4%8%

5% 4% 5% 5%7%

3%5%

5% 6% 7% 7%

11%9%

30%

5% 9% 8% 9% 5%

5%

8%5%

4%6% 5%

10%

3%

5% 6% 6% 6%8%

11% 11%

38%

0%

20%

40%

60%

2015 1Q 2015 2Q 2015 3Q 2015 4Q 2016 1Q 2016 2Q 2016 3Q 2016 4Q 2017 1Q 2017 2Q 2017 3Q 2017 4Q 2018 1Q 2018 2Q 2018 3Q 2018 4Q 2019 1Q 2019 2Q 2019 3Q 2019 4Q 2020 1Q

Less Favorable Business Climate Decreased Demand Decreased Sales


Short-term: Climate and demand hold up, for now


31%

25%

20%

16%

21%19%

22%

28%

38%

28% 27%

30%

27%29%

22% 22%

25%23%

16%

26%

36%

43%

34%32%

30%

33% 33%

30%

35%

42% 41% 41%

38%40%

42%

38%

32%

36% 37%35%

37%35%

53%

44%42%

38%

46%

42% 41%43%

52%

49% 49%

46%

51%

55%

46% 46%44%

48%

42%

47%

28%

0%

20%

40%

60%


More Favorable Business Climate Increased Demand Increased Sales


Short-term: Putting it together


31%

25%

20%

16%

21%19%

22%

28%

38%

28% 27%

30%

27%29%

22% 22%

25%23%

16%

26%

36%

8%

11% 10% 10% 9% 8%

11%

7%5%

7% 7%9%

6% 7% 8% 8%10%

12%

17%

12%

30%

43%

34%32%

30%

33% 33%

30%

35%

42% 41% 41%

38%40%

42%

38%

32%

36% 37%35%

37%35%

4%6% 7% 7%

4% 4%8%

5% 4% 5% 5%7%

3%5%

5% 6% 7% 7%

11%9%

30%

53%

44%42%

38%

46%

42% 41%43%

52%

49% 49%

46%

51%

55%

46% 46%44%

48%

42%

47%

28%

5% 9% 8% 9% 5%

5%

8%5%

4%6% 5%

10%

3%

5% 6% 6% 6%8%

11% 11%

38%

0%

20%

40%

60%


More Favorable Business Climate Less Favorable Business Climate

Increased Demand Decreased Demand

Increased Sales Decreased Sales


Summary

The coronavirus pandemic will derail middle market performance.

But executives believe they have the resilience to recover.

Insight 1: The immediate impact of COVID-19 is negative for

most—and catastrophic for some—middle market businesses.

Insight 2: Growth projections for both the short and long term

have plummeted.

Insight 3: Supply chains and access to cash are the most difficult

challenges to manage.

Insight 4: Despite challenges, most middle market companies are

confident in their resilience

www.middlemarketcenter.org

Documents

COVID-19 and the MIDDLE MARKET 1Q2020 Covid webinar.pdf · economic outlook and prosperity. The Center is the leading source of knowledge, leadership, and innovative research on the