Lincoln International, a leading global investment banking advisory firm, released the Q2 2019 issue of its proprietary Lincoln Middle Market Index (Lincoln MMI).

The Lincoln MMI is a first-of-its-kind index measuring changes in the enterprise values of private middle market companies over time—a barometer for the performance of private middle market companies generally. The Lincoln MMI enables private equity firms and other investors to benchmark how private company investments are performing against peers, and how this performance correlates to the public markets (i.e., S&P 500).

Highlights:

• Despite lingering trade frictions and an uncertain monetary policy outlook, the US public and private equity markets continued to trade at or near all-time record highs through Q2 2019.
• Growth in enterprise values varied by industry, with companies in the Consumer and Energy industries lagging their peers in the Healthcare and Technology sectors.
• Industry selection is becoming more important as companies in certain sectors struggle to increase revenue and earnings in what is a challenging growth environment.

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Lincoln MMI continues to be upward sloping, but enterprise value growth varies across industries

For Q2 2019, the Lincoln MMI grew 2.8%, compared to 3.1% growth for the S&P. For the first half of 2019, 15.0% growth for the S&P far outpaced the Lincoln MMI's growth of 4.7%. While both indexes since inception show relatively comparable growth in enterprise values, private equity owned companies traditionally have more leverage than public companies and, therefore, generate relatively greater equity gains.

Notably, enterprise value growth varies greatly by industry:

• Healthcare companies saw an average 9.5% growth in the first half of 2019 (2.5% in Q2);
• Technology companies saw an increase in enterprise values of 4.1% in the first half of 2019 (3.9% in Q2).

Other industries have faced greater challenges, including the repercussions of imposed tariffs on China.

• Middle market consumer businesses experienced declines in enterprise value (0.5% in Q2). 
• Energy industry enterprise value remained relatively flat since the beginning of 2019, as the industry exhibited the lowest enterprise value growth of any of the tracked industry since 2014.

The data forming the Lincoln MMI comes from a database of approximately 1,100 to 1,500 private equity backed companies valued by Lincoln every quarter. While the overall portfolio of private equity companies continues to show growth, portfolio performance will be impacted by industry selection.

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