Middle market private companies in the Golub Capital Altman Index experienced year-over-year earnings growth of 5% and revenue growth of 4% during the first two months of the second quarter of 2023.
Lawrence E. Golub, CEO of Golub Capital, said, "Revenue and profit growth in Q2 remained consistent with our expectation of continued muddling economic growth. Despite much talk in recent months of an economic slowdown, our data suggests that the U.S. middle market remains resilient and companies continue to adapt to the uncertain environment. Although the pace of revenue and earnings growth in Q2 was slower than in prior quarters, profit margins remained stable in aggregate. Muddling growth and stable profitability are welcome signs that Main Street largely shrugged off the impact of March's bank failures."
Dr. Edward I. Altman said, "While our Q2 data shows revenue and earnings growth in aggregate, there are notable differences in performance by sector. Revenue in the Industrials sector declined 4% year-over-year at the same time as profits grew 9%. It's uncommon to see revenue fall while margins expand. In our view, this highlights the importance of pricing power. Industrial companies that were able to pass through price increases in prior quarters are now capturing the benefit of falling input costs. By contrast, labor market tightness weighed on margins in the Consumer and Healthcare sectors. The Technology sector had the best of both worlds: robust demand for productivity-enhancing software solutions and high operating leverage. In short, while our aggregate data supports an outlook of continued positive growth for the middle market, the trends are somewhat inconsistent across sectors."
The Golub Capital Altman Index ("GCAI"), which is produced by Golub Capital in collaboration with credit expert Dr. Edward I. Altman, is the first and longest-running index based on actual revenue and earnings (defined as earnings before interest, taxes, depreciation and amortization, or "EBITDA") for middle market companies. It measures the median revenue and earnings growth of approximately 110–150 private U.S. companies in the loan portfolio of Golub Capital, a leading middle market lender.
Reported shortly before public company quarterly earnings season, the GCAI has served as a reliable indicator of the overall growth rates in revenue and earnings of public companies in market indexes such as the S&P 500 and S&P SmallCap 600 ("S&P 600"), as well as quarterly Gross Domestic Product ("GDP"), according to statistical back-testing dating back to 2012, when data began to be tracked.
The size and diversity of the Golub Capital loan portfolio ensure that the confidentiality of all company-specific information used in the index is maintained in both the aggregate and industry segment data.
We believe the results (1) are representative of the general performance of middle market companies, which are a major contributor to U.S. private sector employment; (2) can be easily compared to the performance of the public companies that make up major stock indexes; (3) are relevant to the aggregate economic performance of the U.S. economy and (4) provide timely information for the investment community.
The companies in the GCAI operate in a wide range of industries. Results are provided for the total universe of GCAI constituents and by industry segment. Given the index's limited exposure to Financials, Utilities, Energy and Materials, comparisons are made to the S&P 500 and S&P 600 as well as to "adjusted" versions of those indexes that exclude the aforementioned sectors.
The Golub Capital Middle Market Report analyzes the results of the Golub Capital Altman Index ("GCAI"), which measures the median revenue and earnings growth of approximately 110–150 privately owned companies in the Golub Capital loan portfolio for the first two months of each calendar quarter. It compares these results to the financial performance of well-known market indexes, including the S&P 500 and S&P SmallCap 600. The GCAI is produced by Golub Capital in collaboration with credit expert Dr. Edward I. Altman. Effective Q2 2022, the Golub Capital Altman Index (GCAI) excludes Golub Capital portfolio companies that have recurring revenue-based credit facilities. The data referenced herein may not reflect all companies in the loan portfolio of Golub Capital during the time periods indicated.