July 13, 2023

Middle-market private companies still showing growth – Golub Capital

Middle-market private companies had earnings growth of 5% and revenue growth of 4% in the year ended June 30, according to the Golub Capital Altman index.


The second-quarter earnings and revenue growth are down from 10.9% year-over-year earnings growth and 11.1% revenue growth at the end of the prior quarter.

"We expected muddling growth for the second quarter of 2023 and that's what we got," said Lawrence E. Golub, CEO of Golub Capital, in an interview.


At the same time, the year-over-year growth rates in the first quarter were higher than expected.


"What happened instead was a second quarter of very strong profits in a row … which was a signal of an overcharged economy," Mr. Golub said.


In the fourth quarter, year-over-year earnings growth was 9.2% and revenue was 10.8%.


Slow growth in the second quarter is good for lenders but not as good for private equity owners, he said.


"Our portfolio in aggregate is very strong" Mr. Golub said.


From a private equity point of view, there has been a change in that firms expect to own companies for longer, he said.


The very best private equity firms are trying to find ways for their portfolio companies to grow in a lower-growth environment, Mr. Golub said. Private equity firm executives are demanding more clarity on how company executives will provide "a positive return on investment and more profitable growth. Not just growth for growth's sake," he said.


The index reflects data from 110 to 150 U.S. portfolio companies of private credit manager Golub Capital, which has about $60 billion in capital under management. The index is produced by Golub Capital and Edward I. Altman, the Max L. Heine professor of finance emeritus at the New York University Stern School of Business.

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