Private equity-owned companies ended 2019 with stronger growth projections than their family-owned peers, and data suggest that confidence gap has persisted during the COVID-19 outbreak.
In a survey conducted in late March by The National Center for the Middle Market, 66% of private equity-backed middle-market business leaders said they expect revenue to decline, compared with 81% of leaders at family-owned companies.
When asked about layoffs, 58% of PE-backed leaders expected employment will fall, compared with 62% of executives at family-owned companies.
To be sure, both groups have had to revise their expectations following the COVID-19 outbreak. In December, PE-backed business leaders anticipated revenue to increase by 5.7%, while family-owned companies projected a more cautious 4.8% in revenue growth.
Thomas Stewart, executive director of the National Center for the Middle Market, presented the findings during a webinar hosted by ACG Global last week. He noted private equity projections tend to outpace those of their peers, possibly because of “selection bias”—private equity investors tend to seek out companies with the potential for strong performance.
“THE SAME PICTURE THAT WE’VE SEEN—OF THE PRIVATE EQUITY-OWNED TRANCHE OF THE MIDDLE MARKET BEING THE MOST FINANCIALLY ROBUST AND THE MOST STRATEGICALLY AGGRESSIVE—SEEMS TO SHOW WITH THESE DATA.”
Executive Director, National Center for the Middle Market
Regardless of ownership, companies are grappling with the immediate impact of store closures and reduced economic activity caused by the pandemic, as well as the longer-term threats of persistent unemployment and a recession.
In response to those challenges, 70% of middle-market leaders said they will pull back on growth initiatives, although a smaller share of private equity-backed companies—60%—indicated a change in their expansion plans. Family-owned companies showed more caution than the middle market more broadly, with 78% saying they would pump the breaks on expansion.
“The same picture that we’ve seen—of the private equity-owned tranche of the middle market being the most financially robust and the most strategically aggressive—seems to show with these data,” Stewart said.
During his presentation, Stewart also addressed the disruption and operational challenges faced by midsize companies, how leaders are addressing those hurdles, the expected impact on mergers and restructuring, and signs of resilience for the middle market.
Kathryn Mulligan is the editor-in-chief of Middle Market Growth.