Lincoln International Releases Proprietary Q3 2020 Middle Market Index

The impact of COVID-19 on most companies’ financial performance has been much less impactful than originally expected, with the majority of companies now beating COVID-19 adjusted year-to-date budgets and enterprise value multiples hit historic highs.

With limited demand destruction and resiliency through the pandemic thus far, the private markets have shown signs of a rapid snap back to pre-pandemic levels, according to analysis from Lincoln International, a leading global investment banking advisory firm, based on its proprietary database of over 2,200 portfolio companies primarily owned by private equity firms with median EBITDA of approximately $30 million.

Analysis reveals that most companies’ earnings are rebounding with financial performance recovering since the initial shockwaves of the global pandemic were felt. Businesses that managed expectations with conservative budgets are now revising upward, the average 2020E pre-COVID to post-COVID EBITDA budget decline of 23.4% in Q2, improved to an average decline of 13.1% in Q3. In fact, deals getting done during the pandemic, which tended to be for low-COVID-impacted businesses, have closed at healthy multiples. Further, the average enterprise valuation multiple across all of Lincoln’s valuations exceeded pre-pandemic levels at 10.4x LTM EBITDA, a record high level. EBITDA multiples increased approximately 10% from the prior quarter, the largest single-quarter increase since Lincoln began tracking the statistic over six years ago.

“When COVID-19 initially struck the market, portfolio companies’ management teams produced budgets that were extremely cautious, if not draconian,” explained Ron Kahn, Managing Director and Co-Head of Lincoln International’s Valuations & Opinions Group. “But by and large, month by month, portfolio companies have shown signs of a rebound—exceeding their budgets and adapting to what were once viewed as insurmountable circumstances. And much of the success boils down to the immense support of lenders and sponsors across their portfolio companies, paving the way for management teams to adapt to the pandemic conditions.”

Another Quarter of Middle Market Recovery, Yet Values Trail Pre-COVID Levels

As evidence of the swift recovery, middle market company enterprise values rose 4.4% in the third quarter, bringing middle market enterprise values in line with year-end 2019 levels. This is according to the Lincoln Middle Market Index (Lincoln MMI), which measures changes in the enterprise values of private middle market companies over time based on a subset of Lincoln’s proprietary database, primarily owned by private equity firms.

Continuing the trend seen in Q2, recovery has not matched that seen in the S&P 500. However, the S&P 500 rally remains largely driven by the five largest constituents: Apple, Microsoft, Amazon, Google, and Facebook, which comprise more than 23% of the S&P 500. Excluding these five, which are generally not comparable to middle market businesses, both the S&P 500 and Lincoln MMI are flat year-to-date, aligning with their respective December 2019 values.

Sub-Industry Specific Impact, Business Adaptability Divides Company Performance

The initial differences in COVID-19 impact across industries have been well-documented—with companies in hospitality, entertainment and travel struggling, and in many cases, expecting negative EBITDA for FY 2020. Meanwhile, businesses in sectors from ecommerce to healthcare and technology, with the good fortune to capture spikes in customer demand, fared well with earnings levels above prior year-to-date results on average for both June YTD and July YTD reporting periods.

“While the bulk of businesses are recovering from the shock of shutdowns early in the pandemic, we see that the pandemic has delineated a stark bifurcation between the winners and losers in this unprecedented environment,” said Professor Steve Kaplan, Neubauer Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, who assists and advises Lincoln on the Lincoln MMI. “COVID-19 has magnified the discrepancies in industry performance. It’s a tale of two cities: the bad companies are falling further, the good have become shooting stars.”

And with the potential of a second wave looming large and further government stimulus uncertain at best, portfolio company performance has become increasingly nuanced—hinging not only on COVID-19 impact and a company’s access to liquidity but also the ability of management teams to pivot their business strategies.

“Consider the profile of winners during COVID-19; it’s the clothing store that started making masks, the skincare product maker that began producing hand sanitizer, and the hundreds of businesses that shifted to facilitate operations,” added Kahn.

As a result of swift ingenuity and creativity by management teams, coupled with sponsors and lenders working collaboratively, overall performance through the pandemic is far better than most could have imagined. And further to this notion, leverage covenant breaches have declined quarter over quarter with only approximately 13% of portfolio companies breaching their total leverage covenant, and this is turn has led to fewer amendments in the quarter.

“It’s as if the impact of COVID-19 on portfolio companies’ financial health has been downgraded from a hurricane to a tropical storm. It remains to be seen what may happen as a whirlwind of uncertainties—from the outcome of the election, to a potential second wave and the timeline of a widely-distributed vaccine—impact companies in the months ahead,” Kahn concluded.

For more information, visit An Overview of the Lincoln Middle Market Index

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 those owned by private equity firms. With the Lincoln MMI, private equity firms and other investors can benchmark private companies’ performance against their peers and the public markets.

This index is differentiated from other indices as it (1) tracks enterprise values of private middle market companies over time; (2) is based on valuations rather than executive surveys; and (3) covers a wide sampling of companies across a range of private equity firms’ portfolios.

The Lincoln MMI seeks to measure the variation in middle market companies’ enterprise values by analyzing the aggregate change in company earnings as well as the prevailing market multiples for over 500 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 distinctive 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.

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.


  • The impact of COVID-19 on most companies’ financial performance has been much less impactful than originally expected, with the majority of companies now beating COVID-19 adjusted year-to-date budgets and enterprise value multiples hit historic highs.

  • Click here to download the full LMMI report.


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