• Strategy
  • CFO.com | US

Midmarket Companies So-so on Prospects

''Given all the positive factors in the market, the fact that you see expectations and confidence going down was a bit of a surprise,'' says one observer about a recent survey.

Despite robust market activity last year, not all executives at “middle market” companies are sanguine about the prospects for the year ahead, according to a new report.

Investment bank DAK Group and Columbia Business School surveyed 703 owners and senior managers at privately held companies with annual revenue between $5 million and $150 million. Only 83 percent expected revenue to increase this year, compared with 89 percent in the previous annual survey.

This marked the first decline in expectations since 2003, when just 46 percent of respondents were optimistic. Further, only 71 percent expected revenue growth within their industry, compared with 79 percent a year ago.

“Given all the positive factors in the market, the fact that you see expectations and confidence going down was a bit of a surprise,” DAK president Alan Scharfstein told CFO.com. He pointed to a frothy market for mergers and acquisitions, growing interest from Europe and Asia in middle-market companies, and aggressive private equity firms as factors that should spell rising revenue. Though confidence has slipped a bit, it still remains relatively high, Scharfstein added.

More than half of survey respondents said the economy was their biggest concern, compared with 28 percent in the previous survey; shortages of domestic and foreign skilled labor were also worrisome. Concern over foreign competition, however, was cited by only 19 percent this year compared with 35 percent in 2006; companies have adjusted their strategies and embraced low-cost labor in emerging markets, the survey noted.

More than 70 percent of survey respondents are between 40 and 60 years old, according to the survey, which noted a shift away from owners who maintained their stake until retirement age. Despite (or perhaps because of) this demographic shift, 11 percent of respondents said they were concerned about keeping pace with new technology, compared with 6 percent in 2006 — the highest such jump in four years.

Also on Monday, the latest quarterly survey from the Conference Board revealed that chief executive officers are more optimistic about the prospects for the U.S. economy. The board’s index of business confidence, which polls 100 CEOs from large-cap and mid-cap companies, rose to 53, up from 50 in the previous quarter. (A reading of 50 reflecting a balance between positive and negative responses.)

According to the Conference Board:
• 24 percent of respondents said that current economic conditions had improved moderately, unchanged from the previous quarter
• 37 percent said that industry conditions had improved, up from 23 percent
• 27 percent expect economic conditions to improve in the next six months, compared with 29 percent in the previous survey
• 35 percent anticipate improvements in within their industry the next half-year, compared with 33 percent who thought so three months ago.

As for chief financial officers, the most recent Duke University/CFO Business Outlook Survey found that 35 percent are more optimistic about the direction of the U.S. economy, up from 30 percent last quarter. For the first time in more than a year, noted the survey, more CFOs are positive, rather than negative, about economic prospects.

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