Middle Market Business Owners Research Survey – Q3 2021

Capstone’s Q3 Middle Market Business Owners Research Survey Finds CEO Confidence Tapering with Slow Revenue Growth Amid COVID-19 Variants

Capstone Partners released its second quarterly Middle Market Business Owners Survey Report, with insights from privately-owned companies across the U.S. This report combines Capstone’s in-depth middle market expertise with proprietary data obtained from 148 participating owners of privately held, middle market companies. Capstone surveyed middle market business owners across industries in the U.S. between October 12, 2021 and November 12, 2021. The full report, available for download below, evaluates the health and recovery of the middle market in Q3, with sections including:

1. Current Business Challenges
2. Strategies & Initiatives, and
3. Revenue Impacts, Forecasts, & Economic Outlook.

The report also reveals data by quarter, highlighting statistically significant variances from Q2.

Key findings:

Middle Market Companies Seek Further Recovery

Despite the rollout of vaccines, accompanying booster shots, and additional medication to treat COVID-19 symptoms, the emergence of Delta and Omicron variants has exacerbated challenges for many middle market companies. In Q3, 97.3% of owners experienced at least one operational challenge compared to 94.2% in Q2, exemplifying the need for further recovery.

Supply Chain Disruptions Worsen  

 Supply chain disruptions continued to be the foremost issue faced by business owners in Q3 (47.3%), with the number of businesses adversely affected rising 15.2% quarter-over-quarter (QoQ). CEOs in the Consumer & Retail industry represented the greatest QoQ increase in supply chain hurdles, with 43.3% of owners reporting supply chain-related issues as seasonal demand preceding the holiday period placed additional pressure on already stressed supply chains. Among those CEOs that experienced supply chain disruptions in Q3, 78.6% noted that rising input prices were the leading issue, followed by materials availability (74.3%), port congestion (61.4%), and trucking bottlenecks (57.1%). The number of CEOs that experienced rising input prices increased 20% compared to Q2 as inflation has persisted, driving elevated commodity costs.

Price Hikes Account for New Leading Supply Chain Issue

More Than Half of Business Owners Plan to Expand Through Organic Initiatives

In the upcoming quarter, business owners are primarily focused on growth strategies (52.7%), led by organic initiatives including enhancing market penetration, expanding products and services, and diversifying customer bases to capture a larger portion of the addressable market. Notably, business owners who plan to expand product and service offerings and geographic reach in Q4 increased 10% and 11%, respectively compared to the prior quarter. Inorganic growth strategies will also be implemented in Q4, with 20.5% of owners planning to engage in acquisitions and 21.8% securing debt or equity capital. Owners that expect to secure financing in Q4 increased 6.3% from Q3, with most businesses utilizing debt or equity capital to fund new initiatives and ensure sufficient net working capital to fulfill their growth ambitions in 2022. For more information on net working capital in the M&A process, please see Capstone’s recent article.

Growth Strategies Top Focus for Owners Looking Ahead

Share of CEOs Expecting Multi-Year Recovery Grows

Given tapering industry growth, declining economic confidence, and new COVID-19 variants, middle market founders and entrepreneurs are not expecting an immediate normalization of the business environment. Notably, 29.1% of business owners expect conditions to normalize in seven to 12 months and 29.7% predict one to two years. The forecasts for returning to “normal” business conditions have been extended compared to the prior quarter, with 37.8% of CEOs now expecting normalization to occur in no less than one to two years (+9% QoQ). Despite advancements in the treatment of COVID-19, many business owners believe the Delta and Omicron variants to only be the beginning of the virus’ evolution, and that this will continue to inhibit business operations in the following years.

Return to “Normal” Expected in No Less Than 1-2 Years

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