A new index created by Lincoln International shows changes in the enterprise value of closely held midsize companies over time, offering greater transparency into the performance of private businesses and confirming their strong risk-adjusted returns.
Some 350 middle-market companies within the Lincoln Middle Market Index grew at an average compound annual rate of 6 percent from March 31, 2014 to Sept. 30, 2017, according to the investment bank’s first quarterly Middle Market Index report. Meanwhile, companies in the broader S&P 500 and the small company-focused Russell 2000 indexes of public companies posted 8.9 percent and 7.1 percent growth, respectively, over the same period.
The first report, released on Nov. 7, noted that the lower growth rate of companies within the Lincoln index could be attributed in part to how change is measured. The Lincoln MMI measures changes in enterprise value—which accounts for market capitalization and debt— compared with publicly traded companies, which are tracked solely by market capitalization, or shares outstanding.
Companies included in the index “generate superior returns per unit of risk as compared to the S&P 500 and Russell 2000.”
Lincoln’s index tracks quarterly changes in enterprise value of companies with annual revenue of less than $100 million.
Because privately held companies experience less volatility than those traded on public exchanges, the companies included in the index “generate superior returns per unit of risk as compared to the S&P 500 and Russell 2000,” according to the report.
The index was developed by Lincoln’s Valuations & Opinions Group with support from University of Chicago Booth School of Business Professors Steven Kaplan and Michael Minnis. Lincoln will be updating the index each quarter, according to the company’s press release.
Kathryn Mulligan is the associate editor of Middle Market Growth.