MINDING YOUR BUSINESS/INSIDE THE DEAL

Want to drive the economy? Support middle-market businesses

 
 
James Cassel
James Cassel

jcassel@casselsalpeter.com

We have tremendous power to drive economic growth by doing just a little more to support middle-market businesses, which are the principal drivers of our economy. So, it amazes me that we are not more actively seizing this opportunity.

Although the economy is getting better, we are still not out of the woods. Some recent reports show the economy is fragile. Building and protecting our economy requires supporting and taking good care of middle-market businesses, which we define as any business with $10 million to $250 million in enterprise values.

There’s no shortage of data to substantiate the importance of this market. According to the National Center for the Middle Market, if the middle market were an economy, it would be the world’s fourth-largest. The middle market contributes approximately $3.84 trillion to the United States private sector Gross Domestic Product and includes more than 197,000 companies. Middle-market businesses are growing at four times the GDP.

Moreover, the NCMM’s 2Q 2013 Middle Market Indicator analysis confirms that continued strong middle-market performance is boosting confidence in national and global economies.

Some key findings revealed by the report:

• Revenue growth is stabilizing above 5 percent, and employment growth projections increased 20 percent from the previous quarter’s projections.

• 70 percent of all projected job growth this year will occur in the middle market.

• Almost 50 percent of all middle-market companies are expecting employment increases during the next 12 months, up from 38 percent last year.

• Almost two-thirds of middle market executives (up from 50 percent last year) are at least partially confident in the U.S. economy.

Although middle-market executives are confident that their companies are well-positioned for ongoing growth, they are concerned about key challenges that policymakers and regulators have neglected to properly address. The Washington gridlock is as scary as it is problematic. After having done very little this year, they are now on vacation.

First, there are healthcare costs. According to this quarter’s MMI, nine out of 10 middle-market executives rank healthcare costs among the top business challenges. More than 58 percent say healthcare costs are “highly challenging.” There is still much uncertainty about the Affordable Care Act (“Obamacare”), including its effects and implementation.

Next, they are worried about hiring snags. Middle-market execs may be hiring, but they worry that they may not be able to find enough workers to fill critical vacancies with the right skillsets. Since the recession, we’ve seen decreases in unskilled entry-level positions and increases in jobs requiring high-level technical training. This has created a huge skills gap, with companies unable to find skilled workers, and unskilled workers unable to find jobs.

Unfortunately, addressing these issues is made much more difficult because of politics. Growing the middle market has remained a divisive issue for our politicians and regulators. Our government has not been able to implement many of the policies and provide many of the incentives and support necessary to drive the middle market. Clearly, our politicians and regulatory agencies need to work together to chart an effective path for growth. It’s in everyone’s best interest, regardless of political affiliations.

How can we best support the middle market? For starters:

Fix the skills gap. This is critical for the middle market to succeed, and thankfully is one area that Republicans and Democrats agree needs attention. For any meaningful change to happen, our country as a whole must change the way it looks at education (both college and vocational). We need to create state and national government programs or provide incentives to private industry to reduce unemployment with technical skills via vocational programs. Those who cannot or do not wish to attend universities should have access to better programs at affordable costs. The debt that many people are stuck with after graduating from universities or completing vocational school training is equally problematic and deserves attention. Our universities could also provide more targeted job training for positions that middle-market businesses need.

Address healthcare costs. We will find out shortly whether Obamacare will help improve availability and cost of healthcare. This is still a major concern to business. Although the jury is still out, we must keep a close pulse on this issue and make immediate changes if things do not seem to be heading in the right direction.

Improve the tax code. Our government should simplify the tax code and also provide more incentives in terms of tax abatement and hiring credits for middle-market businesses. We also need to level the playing field between large and middle-market companies as it pertains to taxes.

Increase the availability of capital, particularly growth capital that would be accessible to the middle market. While the new JOBS Act has lots of potential, it’s early in its life.

Increase the availability of debt for middle-market businesses. This will go a long way toward fueling the growth and continued success of these businesses. The continued availability of Small Business Investment Company money and its continuation are a must.

Promote the middle market. Offer more support via trade fairs as well as assistance from organizations like our chambers of commerce and The Beacon Council. These organizations could work together to promote middle-market companies and help them garner business from customers outside South Florida.

Stimulate local manufacturing. Help bring more manufacturing to South Florida. This will help reduce unemployment as well as increase business for suppliers.

Immigration. Reduce skills deficiencies by making it easier for foreigners with the necessary skills to obtain visas.

Without a doubt, the middle market warrants our attention and support. Rather than complaining about the economy or waiting for things to happen, we should all roll up our sleeves and do something about it by supporting the middle-market. Let us not forget: the middle market is the principal driver of our economy, and a strong economy benefits us all.

James S. Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. www.casselsalpeter.com

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