Lincoln International’s Middle Market Index Shows Continued Private Market Growth Despite Decreases in the Public Markets

May 2018

The Lincoln Middle Market Index Shows Strong Momentum in 2018

Lincoln International (“Lincoln”), a leading global, mid-market investment bank, today released the third issue of its Lincoln Middle Market Index (Lincoln MMI), which covers data for Q1 2018.

The Lincoln Middle Market Index reveals that, in Q1 2018, middle market enterprise values increased 2.9% compared to a decrease of 0.8% for enterprise values of S&P 500 companies.

“This quarter private equity backed middle market companies continued to exhibit positive risk and return profiles compared to the public markets. While the public markets showed a decrease in enterprise value, middle market companies continued to show increases in value as a result of positive earnings growth,” said Steve Kaplan, Neubauer Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, who assists and advises Lincoln about the index.

“It is noteworthy that all six industry sectors tracked by the index experienced enterprise value growth over the last quarter. In particular, consumer companies rebounded from their Q4 2017 decline by growing this quarter despite continued pressures on the restaurant and retail sectors,” Ron Kahn, Managing Director and head of Lincoln’s Valuations & Opinions Group added, “We also believe that, while the effects of the new tax laws are being factored in to the pricing of public securities, private equity owned companies are still wrestling with the ramifications of the law and their impact on value have yet to be fully realized.”

Key Market Observations:

  • While enterprise values for the S&P 500 experienced their first quarterly decline since Q3 2015, middle market enterprise values continued to increase.
  • Driven by strong and steady earnings growth, middle market companies experienced their second strongest quarterly enterprise value growth since the inception of the Lincoln MMI in Q1 2014.
  • Despite multiple contraction in the middle market, the Lincoln MMI continues to demonstrate the valuations of U.S. middle market companies are less volatile and more heavily driven by earnings – versus enterprise value multiples – than enterprise values of the S&P 500.

Industry Sub-indices & Key Observations:
Lincoln breaks down the Lincoln MMI into six industries which provides unique insight into the performance of middle market companies by sector. Led by the industrials industry, every industry experienced enterprise value growth in Q1 2018.

  • Middle market technology companies outperformed all other industries over the past year and maintained this strong, steady growth in Q1 2018.
  • Middle market industrial companies experienced their strongest quarterly enterprise value growth since Q1 2014.
  • Although the Lincoln MMI increased each quarter over the past year, middle market companies in the consumer and energy sectors showed enterprise values lower than a year ago reflecting continued pressures on the retail and energy industries, respectively.

About the Lincoln Middle Market Index
The Lincoln MMI is the only index that tracks changes in the enterprise value of U.S. privately held middle market companies, primarily owned by private equity firms.

The Lincoln MMI seeks to measure the variation in middle market companies’ enterprise values by analyzing the aggregate change in both company earnings as well as the prevailing market multiples of approximately 360 middle market companies each generating less than $100 million in annual earnings. The Index is calculated using anonymized data on an aggregated basis by Lincoln’s Valuations & Opinions Group, which has what we feel are unique insights into the financial performance of thousands of portfolio investments of financial sponsors, business development companies and private debt funds.

The methodology was determined by Lincoln in collaboration with Professors Steven Kaplan and Michael Minnis of the University of Chicago Booth School of Business. While other indices track changes to a company’s revenue or earnings, the Lincoln MMI is different in that it tracks the total value of these companies. Significantly, the large number of middle market companies used to create the Lincoln MMI helps ensure that the confidentiality of all company-specific information used in the Index is maintained.

Starting with a benchmark value of 10,000 as of March 31, 2014, the Lincoln MMI increased to 12,821 as of March 31, 2018, resulting in an annual compounded growth rate of 6.4 percent per year since inception.


Relationship of the Lincoln MMI to the S&P 500

mmi graph

(Note: Both the Lincoln MMI and S&P 500 EV returns above reflect enterprise values. S&P 500 EV excludes financial companies for which enterprise value is generally not meaningful; including such companies produces qualitatively similar results.)

Important Disclosure
The Lincoln Middle Market Index is an informational indicator only, and does not constitute investment advice or an offer to sell or a solicitation to buy any security. It is not possible to directly invest in the Lincoln Middle Market Index. Some of the statements above contain opinions based upon certain assumptions regarding the data used to create the Lincoln Middle Market Index, and these opinions and assumptions may prove incorrect. Actual results could vary materially from those implied or expressed in such statements for any reason. The Lincoln Middle Market Index has been created on the basis of information provided by third-party sources that are believed to be reliable, but Lincoln International has not conducted an independent verification of such information. Lincoln International makes no warranty or representation as to the accuracy or completeness of such third-party information.


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