CIT Survey Examines the Middle Market's Outlook on the Economy

“So, how long do you think this will last?” That's what everyone wants to know. The answer, of course, is anyone's guess; but in the opinion of four out of five middle-market executives, the financial crisis will bottom out in 2009. This is according to a research report, “U.S. Middle Market Outlook 2009: Navigating the Credit Crunch,” the first in a series of four in-depth studies on the middle market sponsored by CIT Group and produced by Forbes Insights, the research practice of Forbes Media.

The study, based on the responses of 150 senior-level financial decision makers at U.S. middle-market companies (those with annual revenues between $25 million and $1 billion), highlights how these executives are managing the current economic crisis and also reveals their outlook for 2009. The executives, surveyed in December 2008 and January 2009, had functional responsibility for finance, strategy and business development, or general management. The research spanned numerous industries including, among others, energy, health care, IT, real estate, retail, manufacturing, and consumer goods.

The results of this year's survey are in stark contrast to a similar examination of the middle market sponsored by CIT in mid-2007. During that period of positive economic strength, executives had greater expectations for revenue growth and were taking more aggressive steps to invest in the talent and infrastructure necessary to support future expansion.

Some of the key findings of the most recent study include:

• Cautious Optimism. Four out of five respondents indicated that the financial crisis would bottom out this year with 28% predicting it will happen within six months and 52% saying it will happen in six to 12 months.
• Revenue Growth. A majority of middle-market executives expect stable (23%) or growing (41%) revenues. Of those who expect their revenues to grow, 73% said they would achieve/support this growth by improving their operating efficiencies as they manage their cash flow and spending more effectively. Thirty-six percent said their revenues would decline. In 2007, approximately two-thirds of executives believed that their revenues would grow over the next 12 months.
• Keeping Cash Close. Executives indicated that they remained focused on maintaining day-to-day operations as they delay longer-term plans. Respondents indicated that cash-flow financing was the number one form of financing that they will use in the next 12 months, and 31% said working capital needs was the number one item for which they might use any financing, while traditionally longer-term investments, such as plant and equipment (21%) and new technology (16%), seem to be put on hold. By comparison, in 2007, new technology topped the list, being picked by more than a third of respondents, and working capital was fifth.
• Access to Financing. Even with the credit crunch, nearly half the companies surveyed, (47%) said they are satisfied with their access to financing, while 29% expressed dissatisfaction. In the 2007 survey, nearly three-quarters of the respondents were satisfied with their access to financing.
• Managing Expenses. In an effort to contain costs and work through the current economic crisis, more than two-thirds of executives surveyed indicated that they would cut their capital expenditures (36%) or keep them at the same level as last year (36%), while just 28% planned to spend more. Regarding cost-cutting initiatives, more than half anticipate reducing staff levels, 49% will invest less in new plants and equipment, and 38% intend to cut back on R&D. In contrast, in 2007, a little more than half of those surveyed indicated they would increase their capital expenditures as they focused on growing staff levels (47%) and investing in new technology (36%).
• Not Immune to Current Economic Crisis. When asked how the current crisis has affected their business, nearly two-thirds said it has had a significant or moderate impact, while one-third said it had a slight impact or no impact at all.
• Market Conditions Portend Financing Challenges. Should economic conditions worsen, executives expressed concern that their access to financing will become more difficult. Forty percent indicated that changes in the availability of credit/financing would have a negative impact on their business; more than a quarter (27%) said their ability to secure financing would worsen in the next year.

Adam J. Schlagman is editor-in-chief of this newsletter.

“So, how long do you think this will last?” That's what everyone wants to know. The answer, of course, is anyone's guess; but in the opinion of four out of five middle-market executives, the financial crisis will bottom out in 2009. This is according to a research report, “U.S. Middle Market Outlook 2009: Navigating the Credit Crunch,” the first in a series of four in-depth studies on the middle market sponsored by CIT Group and produced by Forbes Insights, the research practice of Forbes Media.

The study, based on the responses of 150 senior-level financial decision makers at U.S. middle-market companies (those with annual revenues between $25 million and $1 billion), highlights how these executives are managing the current economic crisis and also reveals their outlook for 2009. The executives, surveyed in December 2008 and January 2009, had functional responsibility for finance, strategy and business development, or general management. The research spanned numerous industries including, among others, energy, health care, IT, real estate, retail, manufacturing, and consumer goods.

The results of this year's survey are in stark contrast to a similar examination of the middle market sponsored by CIT in mid-2007. During that period of positive economic strength, executives had greater expectations for revenue growth and were taking more aggressive steps to invest in the talent and infrastructure necessary to support future expansion.

Some of the key findings of the most recent study include:

• Cautious Optimism. Four out of five respondents indicated that the financial crisis would bottom out this year with 28% predicting it will happen within six months and 52% saying it will happen in six to 12 months.
• Revenue Growth. A majority of middle-market executives expect stable (23%) or growing (41%) revenues. Of those who expect their revenues to grow, 73% said they would achieve/support this growth by improving their operating efficiencies as they manage their cash flow and spending more effectively. Thirty-six percent said their revenues would decline. In 2007, approximately two-thirds of executives believed that their revenues would grow over the next 12 months.
• Keeping Cash Close. Executives indicated that they remained focused on maintaining day-to-day operations as they delay longer-term plans. Respondents indicated that cash-flow financing was the number one form of financing that they will use in the next 12 months, and 31% said working capital needs was the number one item for which they might use any financing, while traditionally longer-term investments, such as plant and equipment (21%) and new technology (16%), seem to be put on hold. By comparison, in 2007, new technology topped the list, being picked by more than a third of respondents, and working capital was fifth.
• Access to Financing. Even with the credit crunch, nearly half the companies surveyed, (47%) said they are satisfied with their access to financing, while 29% expressed dissatisfaction. In the 2007 survey, nearly three-quarters of the respondents were satisfied with their access to financing.
• Managing Expenses. In an effort to contain costs and work through the current economic crisis, more than two-thirds of executives surveyed indicated that they would cut their capital expenditures (36%) or keep them at the same level as last year (36%), while just 28% planned to spend more. Regarding cost-cutting initiatives, more than half anticipate reducing staff levels, 49% will invest less in new plants and equipment, and 38% intend to cut back on R&D. In contrast, in 2007, a little more than half of those surveyed indicated they would increase their capital expenditures as they focused on growing staff levels (47%) and investing in new technology (36%).
• Not Immune to Current Economic Crisis. When asked how the current crisis has affected their business, nearly two-thirds said it has had a significant or moderate impact, while one-third said it had a slight impact or no impact at all.
• Market Conditions Portend Financing Challenges. Should economic conditions worsen, executives expressed concern that their access to financing will become more difficult. Forty percent indicated that changes in the availability of credit/financing would have a negative impact on their business; more than a quarter (27%) said their ability to secure financing would worsen in the next year.

Adam J. Schlagman is editor-in-chief of this newsletter.