Lincoln International Releases Proprietary Q1 2020 Middle Market Index

Published by Bloomberg on May 7, 2020 here.

As companies navigate COVID-19, middle market enterprise values fare better than the S&P 500

No industry sector was spared by the declines while companies brace for a hit to earnings in Q2

Lincoln International, a leading global investment banking advisory firm, found that as of March 31, 2020, declines in the enterprise value of private middle market companies were comparatively muted—declining 7.5%—compared to the sharp 16.0% decline of the S&P 500. 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 of more than 2,000 portfolio companies, primarily owned by private equity firms.

As shock waves hit the markets, there were no safe spaces to turn to as declines hit valuations across all industry segments. Decreases in the Lincoln MMI were most severe for COVID-19-impacted industries including Industrials and Consumer with an average decline of 8.6%. Technology and Healthcare were also impacted, down an average of 5.3%, given their stable earnings. And decreases in the prices of oil resulted in the energy sector declining by 18.0%, the largest of any industry in the Lincoln MMI.

Interestingly however, fundamental performance of middle market companies exhibited robust growth in the first two months of the year, the largest quarterly gain in earnings in five quarters. And while the coronavirus pandemic brought significant declines in multiples, enterprise values at the end of Q1 aligned with the levels observed approximately one-and-a-half years ago, before the markets experienced a significant run-up.

And while it is difficult to determine where valuation multiples are headed, the negative impact of the coronavirus to middle market companies, and therefore the Lincoln MMI, will not be completely determined until companies release post-COVID earnings and revised budgets for the 2020 calendar year.

“The pandemic has not only created a global health emergency in the short-term, it has also led to significant economic concerns as well. As investors in private companies assess the performance of their portfolios during this challenging time, it is critical to note that private middle market companies have outperformed the public markets,” explained Ron Kahn, Managing Director and Co-Head of Lincoln International’s Valuations and Opinions Group. “If there was ever a time for this data to prove essential for business leaders – it is now: the Lincoln MMI can serve as more accurate benchmark for private equity portfolio performance.”

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, added, “Since the Lincoln MMI’s infancy, we have observed that the enterprise values of private equity-backed, middle market companies exhibit lower volatility as compared to publicly traded equities. It is fascinating that the public markets recovered in April, suggesting that public markets may have overreacted. It will be very interesting to see what the Lincoln MMI yields with Q2 earnings.”

Credit Market Sentiment Shifts Amidst Uncertainty

With enterprise values declining and a lack of clarity on a company’s future performance, lenders to middle market companies are taking a more conservative approach when providing capital to these companies.  Lenders often focus on loan-to-value when providing loans to middle market companies and, as a result of the declines in enterprise values due to COVID-19, Lincoln International has observed a decrease in the amount debt lenders will provide of between one-half and one times their earnings before interest, taxes, depreciation and amortization (EBITDA). In addition, because of the increased demand for capital and continued uncertainty, lenders are requiring between 100 and 250 basis points of incremental spread over LIBOR along with tighter covenants for this debt.

“Over the past few quarters, we believed we were in the later innings of the ballgame. Still few, if any, could have anticipated such a rapid correction. Of importance however, is that the COVID-19 impact on the middle market is not yet fully felt and will not be until companies’ performance subsequent to the start of COVID-19 is disclosed,” added Kahn. “As a result, until there is more visibility on the future performance of these companies, private equity groups and lenders will be cautious before deploying capital.”


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.


  • Lincoln International found that as of March 31, 2020, declines in the enterprise value of private middle market companies were comparatively muted—declining 7.5%—compared to the sharp 16.0% decline of the S&P 500.

  • Click here to download the full LMMI report


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