Heading into 2025, the middle market once again continues to deliver consistent, resilient results as measured by growth rates, hiring, expansion and investment. Despite the uncertain economic conditions of the past several years, mid-size companies across all industries have demonstrated a remarkable capacity to achieve improved performance year-over-year, a trait the center attributes to the long-term views taken by many leadership teams in this segment.
Here are some highlights from the latest MMI survey for year-end 2024:
Another Strong Year
Companies continue to report an overall improvement in performance. On average, 64% of companies indicate year-over-year performance improvement each wave. For 2024, that number soared to 80%.. Most firms state that they are operating at an optimal size, and consistent with an increase in employment growth, core middle market firms are most likely to have a need for additional hiring. The gap between investing and saving continues to widen, with firms allocating extra investment dollars towards information technology, human resources and capital expenditures. Key challenges businesses face include adapting to changes in regulations and policies, supply chain disruptions and incorporating AI to increase revenue and product development.
Confidence in the U.S. and local economies continues to rise, while confidence in the global economy remains flat. Firms continue to primarily source goods and materials domestically. Attitudes on digitization remain consistent, with planned technology investments focusing on central management solutions. While expansionary activity increased this reporting period, plans for future expansion have slowed down compared to the previous wave.
Technology Trends
Digitization remains a priority for many firms, with half having a clear technology roadmap. Investments in digital solutions are anticipated to yield improvements in productivity, cost-savings and customer experiences. However, cost remains the primary barrier to such investments.
The integration of AI into business processes is on the rise, especially among larger middle market companies. Firms define AI in numerous ways, including advanced data analytics, automation of routine tasks, machine learning, natural language processing and robotics. Middle market leaders tend to seek guidance on AI implementation from technology companies, online sources, service providers and consultants.
Talent Remains a Challenge
Most firms report operating at an optimal size, with core middle market firms indicating a higher likelihood of needing additional hiring. In particular, core companies in the construction and healthcare sectors exhibit a pronounced need for more people.
Overall, challenges associated with finding and hiring employees with the requisite skills have diminished, yet they remain significant. While many firms feel well-integrated digitally, about half also perceive a digital skills gap within their operations, and for many of those companies, the impact is significant. Consistent with efforts to narrow this gap, retaining digital-savvy talent continues to be of paramount importance.
Across the middle market, there is a notable trend of firms bringing their workforce back to the office. Salaries and wages have seen a consistent increase across most companies. While most firms have some type of succession plan in place, few are expecting an ownership transition soon.