PE-Backed Midmarket Companies Have Faster Revenue Growth Than Non-PE Peers

For at least six quarters in a row, private equity-backed midmarket companies have posted faster revenue expansion than those not backed by private equity, according to a survey and data from the National Center for the Middle Market.

The quarterly survey, which polled about 1,000 senior executives of U.S. midmarket companies, shows that for the second quarter through June 12, private equity-backed companies generated a mean revenue growth of 8.8% over the trailing 12 months, compared with 5.7% for companies not backed by private equity and 6.6% for all businesses in the survey.

The center, a partnership between GE Capital and the Ohio State University's Fisher School of Business, defines midmarket companies as those with annual revenue of $10 million to $1 billion.

The numbers were broken down by the center at the request of Dow Jones & Co., and weren't available in a news release Wednesday.

The finding was consistent with those for the previous five quarters in a row, according to the center's data.

For the first quarter of this year, for instance, private equity-backed companies posted a mean revenue growth of 9%, compared with 6.4% and 7.4% for businesses not backed by private equity and all businesses in the sample base, respectively.

For the last quarter of 2014, private equity-backed companies reported 8.5% in mean revenue growth, compared with 6.6% and 7.2% for companies not backed by private equity and all companies, respectively, for the same period.

"There is a certain group of [private equity-backed companies] that were bought from family-owned businesses," said Thomas Stewart , executive director of the center.

The new sponsors have since reinvested in the businesses in areas that have been underinvested during their previous ownership. "New gas has been put into a really good car," said Mr. Stewart.

"In general, in the middle market, private equity firms do not strip companies, take them apart and sell off pieces," he added.

Data requested by Dow Jones also show executives at private equity-backed companies were in general more optimistic on the business outlook and seemed more willing to invest in their businesses.

For instance, higher percentages of respondents from private equity-backed companies than those from companies not backed by private equity said they are either extremely or very likely to add a new plant or facility, expand into new international markets, make an acquisition, take on new debt or open a new line of credit in the next 12 months.

Private equity-backed companies had a higher average debt-to-asset ratio compared with companies not backed by private equity-24.9% versus 19.8%.

As a whole, midmarket companies-regardless of their ownership structure-have seen revenue expansion slowing to 6.6% during the second quarter from 7.4% in the previous quarter, according to a report from the center on Wednesday.

"The middle market, still cruising quickly, has lifted its foot off the accelerator," according to the report.