cfo.com

Print this article | Return to Article | Return to CFO.com

Midsize Companies See Growth Ahead

Executives at midsize companies expect more growth and hiring in 2011, according to a new survey by Deloitte.
Alix Stuart, CFO.com | US
April 26, 2011

Growth dominates the agendas of midsize companies, a new survey by Deloitte indicates. About 80% of respondents see their company's revenues and profits growing this year, and nearly 70% plan to hire, according to the survey of 527 top managers at U.S.-based firms with between $50 million and $1 billion in revenues.

But economic uncertainty and weak market demand continue to be top concerns. Few of those surveyed expect outsized growth in the economy as a whole, with most anticipating an increase in gross domestic product of 3.5% or less. The survey results show "a great deal of optimism grounded in some level of caution," says Tom McGee, managing partner of Deloitte Growth Enterprise Services.

So where will the growth come from? The most popular growth strategy for midsize companies remains expanding within U.S. markets, named by 56% of respondents. Along those lines, about 35% said they were likely to make an acquisition in the coming year, mainly in the United States.

Indeed, Lazydays, a Florida-based recreational-vehicle dealer with more than $500 million in annual revenues, is in the process of making its first-ever acquisition: buying a Tucson-based dealer out of bankruptcy court. "Valuations are still low, and this looks to be a way to bring in some customers without cannibalizing our existing business," says CFO Randy Lay.

But over time, companies in this revenue range expect to be more reliant on overseas markets, the survey indicates. Only 68% said the United States will be a major source of growth in the next three years, compared with 81% who said the United States drove growth in the past three years. About half of midsize companies currently have no revenues from overseas, a percentage that is expected to drop to 35% in the next three years.

"Because there's such a high concentration of revenues today within U.S. borders, it's natural for them to look outside for new growth opportunities," says McGee. The Asia-Pacific region, China, and Western Europe top the list of new markets that companies are pursuing, with Latin America, India, and Brazil named by 10% or fewer of respondents.

To get that growth, 86% of respondents said they plan to use some form of financing. Asset-backed financing and cash-flow financing were the most popular, with private sources such as private equity coming in fourth, after internal sources. Only 10% planned to pursue unsecured loans.

Lay, for his part, says financing has been "pretty widely available" for Lazydays's $9.6 million acquisition. Although the company went through bankruptcy in 2009, an equity partner put up a bridge loan for the deal, and Lazydays's bank group is financing working-capital needs.

The majority of survey respondents, 78%, were from private companies, and all but 8% said they plan to stay that way. The small percentage indicating an interest in a near-term initial public offering is "surprising," comments McGee. Most midsize companies (66%) want to stay private to maintain flexibility in decision making.

McGee notes that since most midsize companies are privately held and are not covered by major stock indices or small-business groups, the segment often falls under the radar of media or government attention. What helpful governmental actions would these companies like to see? Lowering corporate tax rates and keeping interest rates low top the list, according to the survey. Less popular, with about 20% of the vote, are rolling back health-care reform and easing bank lending practices.




CFO Publishing Corporation 2009. All rights reserved.