US Middle Market Business Owners Survey 2021 Q4

Capstone’s Q4 2021 Middle Market Business Owners Survey Finds CEOs Look to Improve Financial Stability Amid Inflationary Period

Capstone Partners has released its Q4 2021 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 430 participating owners of privately held, middle market companies. Capstone surveyed middle market business owners across industries in the U.S. between January 18, 2022 and March 2, 2022. The full report, available for download below, evaluates the health and recovery of the middle market in Q4, with sections including:

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

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

Rising Inflation Hinders Middle Market Recovery

The unfolding economic volatility in the wake of the pandemic increasingly impacted middle market business owners in Q4, with owners’ economic uncertainty rising 8.5% quarter-over-quarter (QoQ). Among those CEOs that experienced economic uncertainty in Q4, 75.3% noted rising inflation as the leading issue, an increase of 14% from the prior quarter. As U.S. inflation reached the highest level in decades, all industries surveyed felt the negative impacts on business operations, with more than 50% of owners in each industry identifying rising inflation as an economic challenge.

Limited Talent Remains Key Hurdle, Retention Concerns Grow

Business owners suffering from workforce shortages pointed to a limited talent pool (67%) as the foremost hurdle faced in the past three months. Despite record-setting job requisitions in the U.S., organizations found it difficult to fill entry level positions as workers sought lifestyle changes amid the pandemic and devoted time to searching for upskilled roles. Known as the Great Resignation, this trend has severely damaged employee retention rates, with 59.3% of CEOs having identified employee retention as a leading workforce challenge in Q4 (+10.9% QoQ). As employees regained control of the labor market, employers have focused on enhancing flexible working conditions and improving benefits and bill rates in an effort to retain key talent and improve employee satisfaction.

Business Owners Expand Inorganic Growth Strategies

In Q1, nearly half of business owners reported that their primary focus will be on growth strategies (44.7%), 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. However, the number of CEOs prioritizing organic initiatives in Q1 2022 declined from Q4 2021 as inorganic initiatives offer a prompt solution to liquidity issues. In Q1, 26% of owners plan to engage in acquisitions, up 5.5% from Q4, and 28.6% are projected to secure debt or equity capital. Owners that expect to secure financing in Q1 increased 6.8% from Q4, with most businesses utilizing debt or equity capital to fund new initiatives and ensure sufficient net working capital to fulfill their growth ambitions through 2022. Many CEOs also expect the added capital will defend against economic uncertainties.

CEOs Increasingly Prioritize Acquisitions and Capital Raises

CEOs Expand Inorganic Growth Opportunities
Question: Which of the following growth strategies are most important to prioritize over the next three months? Select all that apply. QoQ = quarter-over-quarter from Q3 to Q4 Source: Capstone Partners’ Middle Market Business Owner Survey, Sample Size (N): 78, 192

 

Business Condition Normalization in Sight

Middle market business owners’ sentiment towards market conditions has improved in Q4, with those expecting a multi-year recovery declining by 18.5% QoQ. Respondents projecting business condition normalization within one year also declined compared to Q3 (-6.1% QoQ). In Q4, nearly one-third (31.9%) of owners stated business conditions improved, indicating a significant recovery in the middle market. Notably, 48.3% of respondents in the Technology, Media & Telecom (TMT) industry affirmed that business conditions had improved, statistically higher than all other industries surveyed. While the TMT industry has exhibited a fair degree of defensibility against COVID-induced challenges, industry players have namely faced internal issues such as streamlining business processes (53.8%), adopting cloud infrastructure (30.8%), and transitioning to automated processes (30.8%).

Business Conditions Improve in Q4 2021

Business Conditions Improve In Q4 2021
*Option for Conditions Improved added in Q4 in response to survey participant requests Question: Within your industry, when do you expect conditions to return to pre-COVID-19 performance levels? Source: Capstone Partners’ Middle Market Business Owner Survey, Sample Size (N): 380, 148, 430

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