CFOs at U.S. Midmarket Companies Predict Revenues Will Rebound

U.S. middle-market companies expect their businesses to rebound in the year ahead after revenue growth slowed in 2020 due to the coronavirus pandemic.

Fifty-six percent of chief financial officers at publicly traded and privately held midsize companies predict revenue will increase over the next 12 months, according to a recent survey by BDO USA LLP, a professional-services firm.

The percentage is down from last January, when 81% of CFOs forecast higher revenues before the onset of the pandemic in the U.S. The BDO survey found that the outlook varies by sector, with 44% of retail CFOs anticipating falling revenues in 2021, while 37% expect a rise. The survey was conducted in September.

Middle-market companies usually generate between $100 million and $3 billion in annual revenue and grow at a faster pace than their larger counterparts. The improved outlook comes after a year during which middle-market firms sought to preserve cash, dial back investments and pause hiring plans amid economic uncertainty caused by the pandemic.

Companies such as Park Place Technologies LLC, a Cleveland-based provider of data-center services, saw revenue growth weaken last year. The privately-owned company, which generated roughly $600 million in revenue in 2020, hired new staff and spent money on acquisitions that could help propel sales this year, finance chief Andrew Gehrlein said.

“We continue to invest in the groundwork that we’ve laid, to really lead us to a higher performance level and higher growth in 2021,” Mr. Gehrlein said.

Midmarket companies reported median revenue growth of 2.9% in October and November, down from 8.3% in the prior-year period, according to a report by Golub Capital, a lender to more than 150 of these companies.

Despite lower revenue growth, midsize companies reported higher profits, as finance chiefs executed emergency cost cuts in addition to planned long-term reductions. Earnings growth in the first two months of the fourth quarter rose to 14.9% from 10% a year before, Golub Capital said.

Sustaining that pace could become a challenge for CFOs in 2021, said

Lawrence Golub,

chief executive of Golub Capital. “CFOs are going to be under pressure to maintain margins,” he said.

Still, midmarket CFOs are more likely than in 2020 to hire new workers and pursue mergers and acquisitions as the economy recovers and vaccines against Covid-19 become more widely available, said

Robert Brown,

chief executive for North America at Lincoln International LLC, an investment bank.

But some companies might stick to the cost cuts they introduced during the pandemic, Mr. Brown said. “Companies may say…we don’t need to turn all of these costs back on, even though we may be through the crisis,” he said.

Certain midmarket companies could face more challenges in 2021—despite the improved outlook—including cash shortages or issues around meeting financial targets set by their lenders, said Wayne Berson, chief executive of BDO USA.

“Nothing about 2021 is going to be normal,” Mr. Berson said.

When the coronavirus tore through industry, commerce and society in March 2020, the U.S. economy came to a screeching halt. Top executives relive the tough decisions they made as they scrambled to weather the storm. Photo Illustration: Adele Morgan/The Wall Street Journal

Write to Mark Maurer at [email protected]

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