The Surprising Strength of the U.S. Middle Market: A Lesson in Defying the Odds

The Surprising Strength of the U.S. Middle Market A Lesson in Defying the Odds

Unprecedented Earnings Growth in Middle Market

The U.S. middle market, a critical private sector segment, has demonstrated remarkable resilience and growth, particularly in the latter part of 2023. According to the Golub Capital Altman Index, these middle market private companies experienced a significant surge in earnings – a robust 16% growth in the first two months of Q4 2023. This figure marks the highest year-over-year earnings growth since the second quarter of 2021. Concurrently, revenue growth was also impressive, registering a 7% increase during the same period.

Lawrence E. Golub, the CEO of Golub Capital, expressed his satisfaction and slight surprise at these figures. Despite anticipating strong growth in Q4, the actual data surpassed their expectations. Golub highlighted the resilience and adaptability of private equity-owned middle market companies throughout 2023. He also pointed out the consistent accuracy of their quarterly data in predicting economic growth, which often exceeded the prevailing consensus.

H2: Insights from the Golub Capital Altman Index

Dr. Edward I. Altman, lending his expertise to the index, noted the robust health of the middle market, as evidenced by an unprecedented 16.3% year-over-year growth in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This rate was the highest in the eight-year history of the Index, second only to the rebound post the 2020 Covid shutdowns. Altman observed strong performance across all subsectors, with technology leading the charge. He also highlighted the tight labor market and the resulting advantages for companies providing essential productivity-enhancing software.

The Golub Capital Altman Index (GCAI), a collaboration between Golub Capital and Dr. Altman, is a pioneering index based on actual revenue and EBITDA of middle market companies. Comprising approximately 110–150 private U.S. companies in Golub Capital’s loan portfolio, the GCAI has been a reliable early indicator of the broader economic trends, reflected in both GDP growth and the performance of larger firms.

H2: Broader Implications and Future Outlook

The results of the GCAI are significant for several reasons. They represent the general performance of middle market companies, a major driver of U.S. private sector employment. Furthermore, these results are comparable with the performance of public companies in major stock indexes and are relevant to the overall U.S. economic performance. The GCAI provides timely and useful information for the investment community, especially considering its diverse industry coverage and limited exposure to certain sectors like Financials and Energy.

About Golub Capital and Dr. Edward I. Altman

Golub Capital stands as a leader in direct lending and credit asset management, known for its innovative financing solutions for companies backed by private equity. As of the start of 2024, the firm boasts over $65 billion in managed capital and a significant global presence. Dr. Edward I. Altman, a renowned credit market expert, brings his extensive experience in finance to the table, enhancing the credibility and insights offered by the GCAI.

Final Thoughts

The strong performance of the U.S. middle market, as depicted by the Golub Capital Altman Index, paints an optimistic picture for investors and analysts alike. It highlights not only the resilience and adaptability of these companies but also underscores their role as a barometer for broader economic trends. Looking ahead, these trends seem to bode well for the economic outlook of 2024, offering a beacon of cautious optimism in a landscape often clouded by uncertainty.